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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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U.S. stocks declined during the week, although a rally on Friday helped major indexes recover some of their lost ground. Losses were broad-based, though smaller-cap indexes generally fared worst. The Fed’s rate cut announcement on Wednesday (25bps) was largely expected. However, sentiment turned negative as investors digested hawkish forecasts and commentary from Fed officials regarding the path forward for interest rates. The hawkish tone helped drive the S&P 500 Index lower by nearly 3% for the day, its second-worst day of the year. Political uncertainty in the form of a looming government shutdown also seemed to rattle investor confidence. In economic news, the U.S. Real GDP grew 3.1% in Q3, outpacing a previous estimate of 2.8%, partially owing to increases in consumer spending.