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WEEKLY SUMMARY: Equity Markets Soared As Fed Hikes Rates
US stocks moved higher for the week, ending a two-week losing streak and reclaiming much of the ground lost over the past month. While the war in Ukraine continues, investor sentiment was buoyed by falling oil prices, news that Russia had avoided defaulting on its sovereign debt, and the outcome of the Fed’s meeting. China’s announcement that it would take measures to support the economy and financial markets also appeared to boost sentiment. The tech-heavy Nasdaq Index recorded the biggest rally. As expected, the Fed raised interest rates by 25 basis points at its March meeting, the first hike since 2018. The FOMC is expecting to raise rates seven times in 2022, according to the median projection. In addition, they downgraded their forecast for economic growth, while upwardly revising inflation projections. Equity markets seemed satisfied with the Fed’s approach and rallied following the meeting while U.S. Treasury yields shifted higher. Shares in Europe gained ground for a second consecutive week while core eurozone bond yields climbed modestly. In the UK, the BoE raised interest rates to 0.75% from 0.50%, aiming to curb inflation that it now expects to reach 8% by the end of June. China equity markets weakened during the week with the Shanghai Composite index retreating 1.8%, but the tone at the end of the week was positive after policymakers pledged economic support. Dollar dumped while cryptocurrencies rallied.
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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.