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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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Nasdaq was the week's biggest winner among the US majors equity indices in a week that saw the S&P 500 Index, Dow Jones Industrial Average, and Nasdaq Composite all continue to hit record highs, while the Russell 2000 Index declined after back-to-back weeks of outperformance versus its larger-cap peers. The Russell 1000 growth index outperformed Russell 1000 value by 553bps, the largest margin since March 2023. Sector performance was also widely dispersed as consumer discretionary, communication services, and IT stocks all gained over 3% for the week, while energy, utilities, and materials stocks all fell over 3%. Geopolitical headlines through the first half of the week were largely dominated by French and South Korean politics, though these seemed to have limited impact on U.S. markets.