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WEEKLY SUMMARY: BONDS & STOCKS BLOODBATH
The major U.S. equity indexes ended the week lower with the communication services sector pulling back the most. Shares of Netflix tumbled more than 35% during the week, as the streaming company reported disappointing quarterly results, including a sequential decline in its global subscribers. Only the consumer staples sector ended in positive territory. Fed policymakers' hawkish tone weighed on investors’ sentiment. James Bullard, president of the St. Louis Fed, indicated that a rate increase of as much as 75 basis points has been discussed. At an IMF event, Fed Chair Jerome Powell said a 50-basis-point rate increase could be “on the table” for the May 3‒4 policy meeting and stated that “it is appropriate…to be moving a little more quickly.” Meaningful increases in short- and intermediate-term U.S. Treasury rates resulted in a flatter yield curve. Shares in Europe fell amid ongoing concerns about the war in Ukraine and increased hawkishness among central bank policymakers. The STOXX Europe 600 Index ended 1.4% lower. Ahead of the French Presidential elections second round, the German chancellor and the prime ministers of Spain and Portugal urged a vote in favor of Macron in a joint article in the Le Monde newspaper. In Asia, the yen was hovering around a two-decade low against the U.S. dollar. Chinese markets slide as investors worried about the economic fallout from covid lockdowns after officials said tough restrictions would remain in place.
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Most of US equities indices rose to record highs, as investors wagered that a “red sweep” (Republicans winning Presidency, Senate and Congress) would result in faster earnings growth, looser regulations, and lower corporate taxes. The small-cap Russell 2000 Index surged 8.57% for the week but was the sole benchmark to remain out of record territory. Meanwhile, the Dow Jones hit 44.000 for the first time while the S&P 500 closed just shy of 6,000, up 4.7% for the week, its best weekly gain in almost a year. On Thursday, the Fed announced a 25bps rate cut, its first easing move since cutting rates by 50 basis points in mid-September. In terms of economic data, the October ISM services sector activity came in at 56.0, well above expectations and the best reading since August 2022. U.S. Treasuries generated positive returns heading into Friday, as yields largely ended lower than where they ended the previous week.