US stocks were up by 1.61% while international stocks were flat. Bonds got hit hard, declining by 1.85% as the yield on the 2 and the 10-year treasury bonds were up by 33 and 34 basis points, respectively, for the week. Crude oil shot higher by 10.49%.
The recent equity rally is being helped by higher interest rates pushing down the price of bonds, and cash getting murdered by inflation, moving investors back into equities.
The aggregate bond index is down by 6.8% year-to-date as yields continue to soar and markets price in more tightening and higher rates down the road. Investors are now anticipating half point hikes at the next two Fed meetings in May and June.
There are small signs that labor participation is beginning to pick up, rising by 0.4% in the three months ending 2/28/22. 1.87 million people went back into the work force which was 3x the rate from the prior three months. There are also indications that the “quit” rate is slowing down.
Higher inflation and interest rates will slowdown economic growth, with the offset being fading worries about Covid. How that mix all plays out will determine where the economy goes from here.
Stocks had a sharp rally at the US market was up by 6.22% and international equities were up by 6.67%, the best gain since November of 2020. Oil dropped by 3%, bonds were down by 0.29%.
With this weeks rally, stocks put in a higher low and a higher high, too early to tell if this is the end of this correction, but it has to start with a series of higher lows and higher highs.
The Fed raised its fed-funds target rate by 1/4% to 0.25%-0.50%.It is the first of probably 6-7 rate increases this year, but the general consensus is the Fed is way, way behind the curve. David Rosenberg, or Rosenberg Research, says that tightening cycles have led to a recession 75% of the time, “The Fed has never tightened into such a maelstrom before – a shooting war, a pandemic, a weak and wobbly stock market, and an incredibly flat yield.” Talk about having your hands full!
The 10/2 spread is just 20 basis points. An inverted 10/2 curve has signaled a future recession every time since the 1960s. But the 10-year/3-month curve, which economists also closely follow, still has a 1.7% point differential.
US stocks fell by 2.74% while international stocks and bonds both fell by 1.71%. The yield on the 10-year treasury increased by 26 basis points to an even 2.00%.
If earnings estimates hold for 2022, probably unlikely, but if they do, the current p/e on the S&P 500 is 18.57 (see the red bar below), not much higher (about 5%) than the average since 2004 of 17.66.
The Fed’s bond buying program finally ended this past Wednesday. Incredibly, the Fed was pumping money into the economy while the economy was soaring and the government was literally pumping in trillions via fiscal stimulus. And now they wonder why there is an inflation problem.
Markets are beginning to price in a recession. According to Nikolaos Panigirtzoglou, from JP Morgan’s global quantitative team, the US equity market has priced in a 50% probability of a recession and the investment grade bond market is assuming a 43% chance.
US stocks fell by 1.56% while international stocks got hammered, down by 5.84% due to the war in Ukraine. Bonds were up by 0.81%, oil skyrocketed by 26.37%.
Russia and Ukraine account for about 3% of world GDP, however, the war can induce a supply shock that will impact the global economy in a bigger way,
JP Morgan has cut its annual global GDP growth by 0.8% to 3.1% through Q4 2022,
Their inflation projection has been increased by 0.9% to 4.6%.
The US GDP growth has been cut by 0.15 to 2.7% and CPI is now forecast at 4.9%, up by 1%.
Previous spikes in oil prices have led to recessions, two in the 1970s and one in 2008. Although all were bigger in scale than the current one (at least so far).
According to Ned Davis Research, looking back at more than 50 crisis events starting with the Panic of 1907, the Dow fell an average of 7% immediately after the event but was up by 4.2%, 6%, and 9.6% in the following three weeks, nine weeks, and 18 weeks.
A strong jobs report, payrolls were up by 678,000.
Over 75% of Nasdaq stocks and 51% of S&P stocks have already declined by more than 20%.