The S&P 500 pulled back this week as a result of looming rate hikes and inflation data. Is the sensitivity due to panic or is the market preparing for hawkish monetary policy?
Monday
Markets opened the week full of uncertainty. They maneuvered between gains and losses for most of the day. The S&P 500 ended up settling in with a 0.37% loss. Although there was a lot of movement, it was within a tight range. Perhaps a signal of reducing volatility after a wildly volatile January.
Tuesday
Markets began the day in the negative but moved into positive territory for the remainder of the day. The S&P 500 recouped it losses to start off the week, and then some, ending up .84%. Corporate earnings continued to drop throughout the week as investors digested Q4 reports.
Wednesday
Markets opened the day with the S&P 500 up 1% through mid-day trading and closing for the day up 1.5%, resulting in a 2nd straight day of rebound trading. The 10-year Treasury yield lowered to 1.92%, supporting a 2.08% gain in the Nasdaq for the day. Sentiment appears to be split between growth opportunists and value buys in February.
Thursday
Inflation data hampered any positive gains and accelerated into selloff mode with CPI figures coming in at 7.5% (YoY)(Jan). The figure marks the highest increase in 40 years as investors await impending Fed tightening in the next month. The S&P 500 ended 1.8% down for the day.
Friday
Markets traded lower midday and stayed there as the inflation driven selloff continued. Economic data showed consumer sentiment wavering on news of persisting price pressures. Oil prices also increased as a result of geopolitical tensions. The S&P 500 closed down 1.90% for the day and down 1.44% for the week.
Conclusion
The attention this week focused heavily on inflation data which naturally hit growth-oriented stocks the hardest. The next Fed meeting will be in mid-March and all eyes will be on their rollout of monetary tightening. A pullback is not surprising given the Fed’s accommodative policy through the pandemic. However, the markets decline for the week showed sensitivity related to price pressures as the Fed changes its approach to contend with red-hot inflation. Current prices are likely pricing in an expected 25 to 50 basis point interest rate hike which should allow for the stabilization of valuations in this new climate.
~ Your Future… Our Services… Together! ~
Your interest in our articles helps us reach more people. To show your appreciation for this post, please “like” the article on one of the links below:
FOR MORE INFORMATION:
If you would like to receive this weekly article and other timely information follow us, here.
Always remember that while this is a week in review, this does not trigger or relate to trading activity on your account with Financial Future Services. Broad diversification across several asset classes with a long-term holding strategy is the best strategy in any market environment.
Any and all third-party posts or responses to this blog do not reflect the views of the firm and have not been reviewed by the firm for completeness or accuracy.