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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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US equities gave back a portion of the previous week’s gains, as uncertainty over the incoming administration’s policies appeared to continue driving the so-called Trump Trade. Financials and energy shares continue to benefit from hopes for deregulation and merger approvals. Likewise, the price of Bitcoin had surged by nearly a third since the eve of the election, as investors anticipated looser regulation of digital currencies. Conversely, health care shares fell sharply following news that Robert F. Kennedy, Jr., would be Trump’s nominee to head the Health and Human Services Department (HHS). On the macro side, yoy US headline inflation rose for the 1st time since March, from 2.4% to 2.6%. PPI data came in above expectations.