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WEEKLY SUMMARY: Equities pulled back on rates and Russia worries
US equity large-cap indexes suffered their 2nd consecutive week of declines as high inflation and worries over a Russian invasion of Ukraine weighed on sentiment. Defensive sectors outperformed within the S&P 500 Index. Conflicting signals on whether Russian troops were preparing to cross the border with Ukraine appeared to whipsaw markets throughout the week. Contradictory signs from the Fed also seemed to foster volatility. St. Louis Fed President James Bullard said that the Fed’s “credibility was on the line.” and that he expects a full percentage point of federal funds rate increases by July. However, FOMC minutes, released Wednesday, were also generally perceived as dovish. Some mixed economic data may have also lowered expectations for an aggressive rate hike at the March Fed meeting. Meanwhile, credit spreads moved wider during the week. Shares in Europe fell amid continuing geopolitical tensions over Ukraine and uncertainty about monetary policy. Chinese markets rose as supportive comments from government officials and lower-than-expected inflation data increased investors’ risk appetite. Gold spiked above $1,900 while cryptocurrencies tumbled by the end of the week.
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The major US equity indexes ended higher for the week, with the S&P 500 Index and Nasdaq rounding out on Thursday their best monthly gains (8.9% and 10.7%, respectively) since July 2020. Falling Treasury yields seemed to continue to boost sentiment, and a broad index of the bond market recorded its best monthly gain since 1985. On the macro side, inflation continues to cool down. In the US, the core personal consumption expenditures (PCE) price index rose 0.2% in October, a slowdown from September. The yoy increase is down to 3.5% — the lowest level since April 2021.