Last Week In Review April 1, 2022

Last Week In Review

Last week the major indexes ended mixed, with the S&P 500 Index closing out its best month since December but its worst quarter since early 2020. Cyclically sensitive stocks underperformed as investors girded for a slowdown in growth, with the financial services and industrials sectors in the S&P 500 among the losers. Higher interest rate expectations took a toll on the information technology sector, while the typically defensive consumer staples and the utility sectors outperformed.

Stock prices fluctuated over the week in apparent response to the evolving situation in the war in Ukraine. The week started on a strong note, which traders attributed to reports that Russia was prepared to allow Ukraine to join the European Union in return for a pledge to stay out of NATO and progress in ceasefire talks. The S&P 500’s four-day winning streak was broken on Wednesday after a Russian official said that talks with Ukraine yielded no breakthroughs and that Russia was regrouping forces in a push to complete the takeover of the eastern Donbas region. On Thursday, the mood soured as Ukrainian President Volodymyr Zelenskyy said that the Ukrainian troops were preparing for new Russian attacks. After rising briefly on the renewed tensions, oil prices resumed their decline following the Biden administration’s announcement of an extended-release from the nation’s Strategic Petroleum Reserve to combat inflationary pressures.

US – Markets & Economy

The week brought several closely watched economic reports, which came in roughly in line with consensus expectations. The most prominent may have been the March nonfarm payrolls report, which showed that job gains fell somewhat below expectations at 431,000 versus 490,000, but the unemployment rate dropped slightly more than expected, to 3.6%. Monthly growth in average hourly earnings met expectations, at 0.4%, as did monthly consumer income gains, at 0.5%. On Thursday, personal spending only rose 0.2%—less than expected and perhaps reflects a growing unwillingness to pay higher prices. February job openings remained little changed and at near-record highs.

US – Equity Market Performance

SOURCE: BLOOMBERG. THIS CHART IS FOR ILLUSTRATIVE PURPOSES ONLY AND DOES NOT REPRESENT THE PERFORMANCE OF ANY SPECIFIC SECURITY. PAST PERFORMANCE CANNOT GUARANTEE FUTURE RESULTS.

US Yields & Bonds

Prices of U.S. Treasuries rose for the week as the yield on the benchmark 10-year U.S. Treasury note fell slightly, but the Bloomberg U.S. Aggregate Bond Index rounded out its worst quarter since late 1980 and its third-worst quarter since the index’s inception. March was the worst monthly performance for the index since July 2003. (Bond prices and yields move in opposite directions.) Portions of the Treasury yield curve inverted over the week as investors favored longer-dated Treasuries due to signals that the Federal Reserve may hike short-term rates by 50 bps (0.50%) in May. Municipal bonds underperformed through much of the week.

The investment-grade corporate bond market traded higher on Tuesday as sentiment was bolstered by encouraging headlines regarding the war in Ukraine. More volatile credits outpaced the broader market, and credit spreads—the extra yield offered over Treasuries and an inverse measure of the sector’s relative appeal—moved wider. Traders again noted that technical conditions were mixed as higher-than-expected new issuance levels countered healthy trading volumes. Traders also observed that the high yield market saw better-than-average trade volumes. Investors appeared to be encouraged by the potential positive headlines out of Ukraine and looked for deals in the secondary market. New issuance remained muted.

US Treasury Markets – Current Rate and Weekly Change

Interesting News Overseas

Shares in Europe gained ground in a choppy week of trading, overcoming concerns about the macroeconomic outlook amid higher inflation and the ongoing Russian invasion of Ukraine. The pan-European STOXX Europe 600 Index advanced 1.06% in local currency terms. Germany’s DAX Index climbed 0.98%, France’s CAC 40 Index tacked on 1.99%, and Italy’s FTSE MIB Index added 2.46%. The UK’s FTSE 100 Index added 0.73%.

Core euro zone bond yields fluctuated over the week but ended the period roughly level. Higher-than-expected inflation data boosted expectations for further interest rate increases and drove yields higher. The move reversed as optimism over Russian-Ukrainian peace talks faded. European Central Bank (ECB) chief economist Philip Lane said that the ECB should be ready to revise policy should macroeconomic conditions deteriorate significantly. Peripheral euro zone government bond yields broadly tracked core markets. UK gilt yields fell in line with U.S. Treasuries, which declined on geopolitical tensions and fears of a recession.

Last week President Vladimir Putin signed a decree stipulating that foreign buyers must pay for Russian natural gas in rubles from April 1 onward, raising concerns about possible supply disruptions in Europe and the potential economic implications. The G-7 countries unanimously rejected the directive. Germany said it would continue paying for Russian energy in euros and set an emergency plan for rationing natural gas in case of deliveries cease or are curtailed.

On the other side of the world, Chinese markets gained for the week as investors anticipated that Beijing would step in to support the country’s economy and markets. The broad, capitalization-weighted Shanghai Composite Index rose 2.2%, and the CSI 300 Index, which tracks the largest listed companies in Shanghai and Shenzhen, climbed 2.4%, according to Reuters.

Delisting concerns continued to pressure technology stocks as investors worried about the risk of dual-listed Chinese firms getting kicked off U.S. exchanges. On Wednesday, the U.S. Securities and Exchange Commission added five U.S.-listed Chinese internet companies to its growing list of companies facing possible delisting due to China’s refusal to allow U.S. regulators to inspect their audits. Baidu, China’s leading search engine, and its video-streaming unit iQiyi were added to the list of companies targeted by the Holding Foreign Companies Accountable Act (HFCAA). The newly identified companies could be subject to delisting from U.S. exchanges if they fail to comply with the HFCAA’s audit requirements for three straight years.

In economic news, China’s purchasing managers’ indexes for manufacturing and services lagged forecasts. They fell into contraction in March as outbreaks of the omicron variant of the coronavirus across the country led to lockdowns and disrupted industrial production. Many economists have reduced their economic growth forecasts for China due to the virus’s resurgence and the government’s zero-tolerance approach to outbreaks. Shanghai saw a renewed COVID-19 outbreak with more than 32,000 cases reported in the past month, the most extensive spread of infection in China since it first appeared in Wuhan.

The People’s Bank of China published its first-quarter Monetary Policy Committee meeting, which noted increasing uncertainties domestically and abroad. The central bank said that conditions warranted strengthening of policy implementation, remarks that some analysts interpreted as a sign of further credit easing while keeping monetary conditions stable.

The 10-year Chinese government bond yield ended the week unchanged at 2.825%, and the yuan was steady at around 6.3 against the U.S. dollar.

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