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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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Most US equities indexes ended the week lower, although the tech-heavy Nasdaq Composite advanced modestly and cleared the 20,000 mark for the first time. The Russell 2000 Index recorded a second consecutive week of underperformance against the S&P 500 Index. Growth stocks posted a third consecutive week of outperformance versus value, thanks in part to gains in shares of Tesla (12%) and Alphabet (8.4%). On the macro-economic side, stagflation fears started to rise once again. Indeed, YoY CPI and PPI both accelerated. Meanwhile overall macro surprises disappointed for the fourth week in a row: on Thursday, the Labor Department reported a surprise jump in weekly initial jobless claims to a two-month high of 242,000.