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WEEKLY SUMMARY: A tug of war between earnings growth and rates fears
It was another volatile week for risk assets. US large-cap equity indexes ended the week lower with the Nasdaq faring worse. Healthy earnings growth was offset by fears over monetary tightening. Warnings from U.S. officials that a Russian invasion of Ukraine might be imminent may have also contributed to a late-week sell-off. US CPI numbers (reported on Thursday) advanced 7.5% y/y, more than consensus expectations and its highest annual gain since February 1982. The upside CPI surprise, combined with hawkish comments from St. Louis Fed President Bullard, sent short-term rates racing higher on Thursday, resulting in a flattening of the yield curve. The 2-year U.S. yield reached its highest level since January 2020 as investors priced in expectations for an accelerated rate hike scheduled by the Fed. Meanwhile, the 10-year U.S. yield surpassed 2.00% for the first time since the summer of 2019. Shares in Europe rallied (+1.6%), buoyed by strong corporate earnings. Chinese stocks rose amid supportive official comments and a perception that the country’s regulatory crackdown cycle had peaked. Oil and Gold rallied on the back of Russia-Ukraine tensions. Cryptocurrencies were volatile.
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The S&P 500 closed at a fresh all-time high on Friday, rising for a 5th consecutive week, its longest weekly winning streak since 2024. This brings the index up +15% since the March 30 low, also marking April as the best month for stocks since November 2022. Stocks largely shrugged off the stream of sometimes conflicting headlines about the war in the Middle East and a surprisingly hawkish Federal Reserve policy meeting to post solid gains in most major indexes. Large-cap stocks outpaced small-caps, and value outperformed growth. Five of the “Mag 7” companies reported earnings, with financial results generally meeting or exceeding expectations for these bellwether firms. Meanwhile, major central banks keep rates on hold amid war uncertainty.