Week of April 25, 2022
Last Friday’s sell-off ended another losing week for the U.S. equity markets, with the Dow dropping 2.8% in what was the Dow’s worst day since October 2020. The S&P 500 lost 2.8% for its worst day since last March, and the NASDAQ dropped 2.6%. On the week, the Dow fell 1.9% for its fourth straight weekly decline. The S&P 500 and the NASDAQ dropped 2.8% and 3.8% for the week, respectively, posting their third weekly decline.
“There has been severe damage in many areas of the market, while money rotated into perceived ‘defensives’ like utilities, staples, pharma, and even mega-cap growth,” said Jonathan Krinsky, chief market technician at BTIG. “Those areas, despite their strong momentum, are now unwinding lower, while the low-momentum names continue to trend down.”
U.S. stocks closed sharply lower after Fed Chair Jerome Powell remarked that a 0.50% (or 50 basis points) rate increase is “on the table” when the Federal Reserve meets in early May, leaving the door open to more oversize moves in the months ahead. The Fed wants to engineer a soft landing for the U.S. economy, seeking to tighten monetary policy to fight the hottest inflation in about four decades without triggering a recession. The Fed is “partly to blame for the current situation as its exceedingly accommodative monetary policy over the last year has left it in this very tenuous position,” wrote Osterweis Capital Management portfolio managers Eddy Vataru, John Sheehan and Daniel Oh. “Sadly, implementation of a dual-pronged quantitative tightening plan requires a level of finesse that the Fed is not known for,” they continued.
“The tremendous momentum from the recovery from the pandemic is being met with a very rapid shift in monetary policy,” said Steven Violin, a portfolio manager at F.L. Putnam Investment Management. “The markets are struggling, as we all are, to understand how that’s going to play out. I’m not sure anyone really knows the answer.”
Investors are looking forward to a key measure of inflation this week. The personal consumer expenditures index is set to me released Friday after market’s close. In February, the core PCE jumped 5.4%.