Waning faith in central banks leads to continued de-risking from stocks

Central Banks Were At The Center Of This Week's Trading Action, And Judging By The Stock Market's Weakness, The Central Banks Were Anything But Supportive.

On the contrary, the stock market broke down because faith in the Federal Reserve -- and other central banks -- in being able to skirt a recession also broke down.

The breakage, though, had to do with more than just the rate-hike actions from the central banks. It also had to do with liquidity concerns that rocked the cryptocurrency market, earnings concerns that gripped the entire stock market, growth concerns that undercut many commodity prices and drove junk bond spreads to their widest since November 2000, and excessive volatility in the Treasury market that rattled investor confidence.

The week began on an unnerving note with cryptocurrency prices coming undone on the news that crypto lender Celsius had suspended customer withdrawals and transfers. That drove some panicky selling and fueled angst about forced selling to meet margin calls that persisted all week. Bitcoin started the week just above $25,000.00. As of this writing, it was just above $20,000.00.

There wasn't any place to hide this week, except perhaps the U.S. dollar. The U.S. Dollar Index jumped 0.5% to 104.67. Otherwise, losses were registered in stocks, bonds, cryptocurrencies, and commodities as recession fears spread far and wide.

Briefly, the S&P 500 slumped 5.8%; the 2-yr note yield jumped 14 basis points to 3.18% after moving as high as 3.43% earlier in the week; the 10-yr note yield increased eight basis points to 3.24% after kissing 3.50% earlier in the week; oil prices dropped 10.1% to $108.46/bbl; natural gas prices plummeted 20.8% to $7.02/mmbtu; and copper futures fell 6.4% to $4.02/lb.

All 11 S&P 500 sectors lost ground with declines ranging from 4.4% (consumer staples) to 17.2% (energy). The Dow Jones Industrial Average fell below 30,000, and each of the major indices set new 52-week lows.

The energy sector, which was -- and still is -- the best-performing sector this year (+31.4%), was arguably the benchmark for the recession trade that dominated the stock market. It broke down on momentum-driven selling interest that was precipitated by concerns about a major slowdown in global demand in coming months as world economies feel the pinch of rapidly rising interest rates.

The Federal Reserve was the focal point, ending a two-day meeting on Wednesday with a decision to raise the target range for the fed funds rate by 75 basis points to 1.50-1.75% and offering updated projections that showed a downward revision to 2022 real GDP growth (to 1.7% from 2.8%), an upward revision to 2022 PCE price inflation (to 5.2% from 4.3%), a stark adjustment in the median estimate for the fed funds rate in 2022 (to 3.4% from 1.9%), and a median estimate placing the Fed's terminal rate at 3.8%.

Fed Chair Powell added at his press conference that the July meeting will likely feature either a 50-basis point or 75-basis point rate hike. He also expressed a commitment to getting inflation under control, but, importantly, he created a sense of uncertainty as to whether 3.8% will ultimately be the terminal rate.

The Swiss National Bank, meanwhile, followed hot on the heels of the Fed with a surprise 50-basis point rate (its first rate hike in 15 years) that matched a similar rate hike from Brazil's central bank. The Bank of England raised its key lending rate by another 25 basis points, as expected, but downgraded its Q2 GDP forecast to -0.3% as a whole. The latter forecast was heard in conjunction with a report that the Atlanta Fed's GDPNow model estimates no growth in real GDP in Q2 versus a prior projection for 0.9% growth.

The Bank of Japan for its part continued to play the role of outlier. It left its key policy rate unchanged at -0.1% and maintained a commitment to yield curve control with an aim of keeping the 10-yr JGB yield around zero percent. That decision didn't sit well in the forex market. The yen fell 2.1% against the dollar on Friday to 134.96.

Separately, the ECB held an emergency meeting on Wednesday to develop a plan to mitigate the bond fragmentation issues afflicting confidence in the eurozone's outlook.

In sum, there were widespread worries about the current policy approaches being pursued by the central banks. The fear of a policy mistake was wrapped up in all of them. The principal driver, though, boiled down to growth concerns that revolved around stagflation and recession. 

Neither outcome would bode well for the earnings prospects for most companies, which is why most stocks fell prone to further selling interest this week. Effectively, there was a loss of faith in current earnings estimates that went hand-in-hand with the waning faith in central banks to control inflation without inviting a recession.

Accordingly, the de-risking from stocks continued to be the default position.

• Dow Jones Industrial Average: -17.7% YTD

• S&P 400: -21.9% YTD

• S&P 500: -22.9% YTD

• Russell 2000: -25.8% YTD

• Nasdaq Composite: -31.0% YTD

GROWTH CONCERNS AT THE HEART OF LARGE LOSSES

The Major Indices Pushed Higher On Monday And Tuesday, But From Wednesday To Friday It Was All Downhill. It Was A Steep Decline, Too. After Tuesday's Session, The S&P 500 Was Up 1.3% For The Week. By The Close On Friday, The S&P 500 Was Down 5.1% For The Week And Sitting At 3,900. 

A succinct summation of this week's action boils down to a contention that growth concerns were at the heart of it. There were multiple developments contributing to those concerns:

• Target cut its Q2 operating margin guidance to around 2%, only three weeks after saying it would be 5.3%, citing a need to clear excess inventory.

• Intel said the macro environment has been weaker and that circumstances at this point are much worse than it had anticipated coming into the quarter.

• Scotts Miracle-Gro slashed its FY22 EPS outlook well below the consensus estimate, noting its fixed cost structure has seen significantly greater pressure due to replenishment orders from retail partners not being what it expected since mid-May

• WTI crude futures went as high as $123.18/bbl while natural gas futures hit $9.66/mmbtu.

• The OECD cut its 2022 global GDP view to 3.0% from 4.5% and the Atlanta Fed's GDPNow model estimate for Q2 was reduced to 0.9% from 1.3%.

• The Reserve Bank of Australia and the Reserve Bank of India both raised their key policy rates more than expected.

• The ECB said it intends to raise its key interest rates by 25 basis points at the July meeting and that it will follow suit with more rate hikes in September and beyond. It also announced the end of its net asset purchase program on July 1 and raised its 2022 annual inflation forecast to 6.8% from 5.1% and its 2023 annual inflation forecast to 3.5% from 2.1%.

• Several Shanghai districts were back in lockdown for COVID testing and entertainment venues in a Beijing district were closed amid COVID concerns.

• The Index of Consumer Sentiment for June hit the lowest level on record (50.2) dating back to 1978.

• Total CPI increased 8.6% year-over-year in May, marking its largest increase since December 1981. Core CPI was up 6.0% year-over-year, down from 6.2% in April but still a long way from the Fed's longer-run inflation goal of 2.0%.

The latter was the punctuating factor in an otherwise lousy week, as it sparked concerns about the Fed pursuing more aggressive policy actions to get inflation under control. Those concerns showed up in the Treasury market on Friday, as well as in the stock market.

The 2-yr note yield spiked 22 basis points to 3.04% following the CPI report while the 10-yr note yield jumped 11 basis points to 3.16%. That left the 2s10s spread at just 12 basis points versus 27 basis points when the week began.

The S&P 500 for its part fell nearly 3.0% on Friday (the Nasdaq dropped 3.5%) on broad-based selling interest. The main issue for market participants wasn't just the worrisome inflation news. Rather, it was the recognition that the Fed is apt to be more aggressive with its policy actions, which will crimp economic growth prospects and, in turn, crimp earnings prospects.

Accordingly, there were pressing doubts that the market provided true value at current levels because forward earnings estimates have yet to come down in any meaningful fashion despite a lot of writing on the wall that suggests the economic climate ahead is going to be much more challenging.

The selling, therefore, was widespread, finishing off a week that featured losses for all 11 S&P 500 sectors ranging from 0.9% to 6.8%.

The best-performing sector of the week was energy. It declined 0.9%, having been insulated somewhat from the selling that hit hard elsewhere on account of the rise in energy prices. The next best-performing sector was consumer staples, which fell "only" 2.6%.

The hardest-hit sectors this week were financials (-6.8%), information technology (-6.4%), real estate (-6.2%), consumer discretionary (-6.1%), and materials (-5.8%). Separately, the Dow Jones Transportation Average declined 7.5%.

• Dow Jones Industrial Average: -13.6% YTD

• S&P 400: -15.4% YTD

• S&P 500: -18.2% YTD

• Russell 2000: -19.7% YTD

• Nasdaq Composite: -27.5% YTD

Market Recap - STOCKS SINK AS VARIOUS CONCERNS CONTINUE TO SWIRL

The First Week Of June Was A Short One, But It Ended Up Being Long On Disappointment As The Major Indices Couldn't Build On The Prior Week's Strong Gains.

Instead, they fell victim to renewed selling interest that was a byproduct of concerns about the economic outlook, earnings outlook, and monetary policy outlook.

Oil prices had a starring role once again. They ebbed and flowed, reacting to an early-week decision by the EU to ban 90% of Russian crude imports by the end year and a subsequent decision by OPEC+ to boost its production increase targets for July and August. The latter were projected to be up 0.432 mb/d, but OPEC+ decided on adding to the totals and agreed to a new target of 0.648 mb/d.

The OPEC+ decision sounded good on the surface, but oil traders treated it as being insufficient to meet the demand needs driven by China's reopening activity and the EU sanctions on Russian oil. WTI crude futures started the week at $115.07/bbl, but as of this writing they were trading at $120.31/bbl and hitting their highest level since March.

The pop in oil prices is expected to bleed through to gas prices, which will pose an added tax on consumers. That understanding contributed to the economic growth concerns along with some caustic commentary from leading CEOs and some hawkish-sounding remarks from voting FOMC members.

Specifically, JPMorgan Chase CEO Jamie Dimon said he sees an "economic hurricane" coming and that, while things look sunny now, JPMorgan Chase (JPM) will be conservative with its balance sheet. On Friday, Tesla (TSLA) CEO Elon Musk said he has a "super bad feeling" about the economy and that Tesla needs to cut about 10% of its staff and freeze all hiring.

Fed Governor Waller, meanwhile, kicked off the week with an acknowledgment that he endorses a policy rate above the neutral rate by the end of the year. Fed Governor Brainard followed in his wake with a contention that it is very hard right now to see the Fed pausing its rate hikes in September. Cleveland Fed President Mester echoed that sentiment on Friday. She also said that she doesn't see an "economic hurricane," but believes the risk of recession has increased.

This week's economic data didn't corroborate the recession view. In total, it painted a picture of an economy that is still doing well, but starting to feel the strains of inflation pressures and supply chain issues.

Consumer confidence was better than expected in May but still lower than April; the ISM Manufacturing Index for May was stronger-than-expected, and accelerated from April, but its employment component fell into contraction territory; the Fed's Beige Book said the majority of Fed districts indicated slight or modest growth and that retail contacts noted some softening among consumers; nonfarm payroll increases in May were larger than expected, although retail trade declined by 61,000; and the ISM Non-Manufacturing Index for May decelerated from April with a drop in business activity.

Intermixed with the economic data this week was a mixed batch of earnings news, highlighted by Salesforce, Inc. (CRM) increasing its FY23 profit outlook and Microsoft (MSFT) lowering its fiscal Q4 EPS expectations due to unfavorable foreign exchange rate movement.

The market managed to shake off Microsoft's warning on Thursday, recognizing that it wasn't an operational issue. Nevertheless, the rebound-minded bias fell by the wayside on Friday in the wake of Elon Musk's comments, the May employment report, and Morgan Stanley stating that it believes its quarterly revenue growth estimates for Apple (AAPL) are at risk because of slowing growth for the App Store.

The mega-cap stocks were relative strength leaders during the week but that position got tarnished on Friday, evidenced by a 2.6% decline in the Vanguard Mega-Cap Growth ETF (MGK) that left the MGK down 0.7% for the week.

With the exception of the energy sector, every S&P 500 sector finished Friday with a loss. For the week, the energy sector (+1.2%) was the best-performing sector followed by information technology (+0.04%), and consumer discretionary (unchanged). The weakest links were the health care (-3.1%), real estate (-2.2%), financial (-2.1%), and consumer staples (-1.7%) sectors.

Looking to the Treasury market, the 10-yr note yield ended the week up 20 basis points at 2.94% while the 2-yr note yield jumped 21 basis points to 2.67%. The U.S. Dollar Index was up 0.5% to 102.16.

• Dow Jones Industrial Average: -9.5% YTD

• S&P 400: -11.3% YTD

• S&P 500: -13.8% YTD

• Russell 2000: -16.1% YTD

• Nasdaq Composite: -23.2% YTD

Market Recap - Market Finds Renewed Strength

The S&P 500 Broke A Seven-Week Losing Streak During The Past Week, Rallying 6.6% After Hitting Its Lowest Level Since March 2021 Last Friday. The Nasdaq (+6.8%) Outperformed Slightly While The Dow (+6.2%) Lagged A Bit But Was Able To Snap Its Longest Weekly Losing Streak Since 1932.

The first two sessions of the week saw some volatility, but the market rallied strongly after the S&P 500 managed to stay above last week's low during Tuesday's affair.

All eleven sectors finished the week in positive territory with the consumer discretionary (+9.2%) sector leading the way after underperforming earlier this month. The sector narrowed its May loss to 5.6%, largely thanks to a bounce in retail stocks after concerns about inflation and strength of consumer spending sent many of these names to their lowest levels in over a year. However, the past couple days saw renewed interest in retailers on hopes that the worst is in the past.

Mega cap names also did some heavy lifting with the likes of Apple, NVIDIA, and Tesla contributing to the rally during the second half of the week. The trio gained between 8.3% and 14.5%.

Last week's rebound in stocks that faced significant recent weakness masked another strong showing from the energy sector, which climbed 8.1%, extending its May advance to 16.9%. Crude oil, meanwhile, returned to its May high, climbing $4.72, or 4.3%, to $114.77/bbl for the week.

Treasuries recorded their third consecutive week of gains, drawing some strength from speculation that the Fed could pause its rate hikes in September. The 10-yr yield finished the week just a basis point above its 50-day moving average (2.73%).

S&P 500 Briefly Enters Bear Market Territory

The S&P 500 Fell 3.1% This Week, Which Featured Disappointing Corporate Updates And Economic Data That Stoked Growth Concerns. The Nasdaq Composite Underperformed With A 3.8% Decline, Followed By The Dow Jones Industrial Average (-2.9%) And Russell 2000 (-1.1%).

The consumer staples (-8.6%) and consumer discretionary (-7.4%) sectors were the weakest links as high-profile retail companies Walmart (WMT), Target (TGT), and Ross Stores (ROST) each cited sticky cost pressures for their disappointing results and cautious outlooks. Investors were concerned about the durability of the consumer in the high-cost environment.

Conversely, the utilities (+0.4%), health care (+0.9%), and energy (+1.1%) sectors each ended the week in positive territory.

There were plenty of rebound efforts throughout the week amid a contrarian-minded sentiment rooted in the oversold nature of the market and by a BofA Global Fund Manager Survey that showed cash levels at their highest position (6.1%) since 9/11 and the largest underweight position in equities since May 2020.

Arguably, the most important rebound effort was at the end of the week, which took the S&P 500 out of bear market territory (-20% from a recent high). Unfortunately, though, growth concerns fueled by persisting inflation and supply chain disruptions were the dominant issue for the market.

Like Walmart, Target, and Ross Stores, Home Depot (HD) was pressured by higher costs, evident by an 8.2% yr/yr decline in customer transactions in the first quarter. Cisco (CSCO), Applied Materials (AMAT), and Deere (DE), meanwhile, highlighted supply chain problems in their earnings reports.

On top of that, this week's economic data was relatively disappointing:

• The May Empire State Manufacturing Survey turned negative with a reading of -11.6 (Briefing.com consensus 15.0)

• Weekly initial claims were higher than expected at 218,000 (Briefing.com consensus 200,000)

• The Philadelphia Fed Index dropped to 2.6 in May (Briefing.com consensus 16.5)

• The Conference Board's Leading Economic Index (LEI) decreased 0.3% m/m in April (Briefing.com consensus 0.0%)

• Existing home sales fell 2.4% m/m in April to a seasonally adjusted annual rate of 5.61 million (Briefing.com consensus 5.65 million)

• Building permits for April fell 3.2% m/m to 1.819 million (Briefing.com consensus 1.820 million)

• The Weekly MBA Mortgage Applications Index fell 11.0%

Fed Chair Powell spoke on inflation this week, saying the Fed will be more aggressive with rate hikes if inflation doesn't come down in a clear way, but that the Fed can be less aggressive if inflation does clearly come down.

The 10-yr yield dropped 15 basis points to 2.79% while the 2-yr yield decreased one basis point to 2.58%.

S&P 500 Almost Entered Bear Market Territory

Each Of The Major Indices Fell More Than 2.0% This Week, As The Market Remained Pressured By Growth Concerns, Heightened Volatility, And Downwards Momentum. The Nasdaq Composite Lost 2.8%, The Russell 2000 Lost 2.6%, The S&P 500 Lost 2.4%, And Dow Jones Industrial Average Lost 2.1%.

Ten of the 11 S&P 500 sectors closed lower and five of which fell more than 3.0%, namely information technology (-3.5%), consumer discretionary (-3.4%), financials (-3.6%), and real estate (-3.9%). The consumer staples sector escaped the week with a 0.3% gain.

Growth concerns were heightened by the following developments:

• Expectations for the Fed to remain on its aggressive tightening plans amid inflation data that remained elevated

• Russia threatened retaliation if Finland follows through with plans to join NATO

• Early reports indicated that Shanghai was again tightening COVID-19 restrictions, although there was hope that those restrictions would soon ease later this month

• The IEA lowered its global growth oil demand forecast, and Saudi Arabia, according to Bloomberg, cut oil prices for Asian buyers due to weak demand

• Walt Disney (DIS) warned that Disney+ subscriber growth is apt to slow down in the second half of the year

• A slew of high-growth story stocks continued to disappoint with earnings and/or guidance like Coinbase Global (COIN), Unity Software (U), Fiverr (FVRR), Peloton (PTON), Upstart (UPST), GoodRx (GDRX), Sofi Technologies (SOFI), and Palantir (PLTR)

• Uber (UBER) was planning to cut costs, according to CNBC

While inflation remained hot, the peak inflation narrative was revived by a better-than-feared core PPI reading for April, a moderation in the year-over-year increases in CPI and PPI for April, a flat m/m change in import prices for April, and a downwardly revised 4.1% increase (from 4.5%) in export prices for March.

Growth concerns, peak inflation hopes, and a general flight to safety contributed to increased demand for Treasuries, which drove yields lower in a curve-flattening trade this week. The 2-yr yield dropped eight basis points to 2.59%, and the 10-yr yield dropped 18 basis points to 2.94%. The U.S. Dollar Index rose 0.9% to 104.57. 

Sentiment was further pressured by the S&P 500 temporarily breaking below 4,000; weakness in the mega-caps including Apple (AAPL), which temporarily lost its position as the world's most valuable company by market capitalization; and the heightened volatility as investors sold into early rally efforts.

The one rally effort, however, that didn't get sold was the one at the end of the week after the S&P 500 almost entered bear market territory (it was down 19.9% from its all-time high). That key level was a presumed indicator that it was time for an overdue bounce.

Separately, Fed Chair Powell, St. Louis Fed President Bullard (FOMC voter), Cleveland Fed President Mester (FOMC voter), San Francisco Fed President Daly (non-voter) each said they prefer 50-bps rate increases instead of 75-bps. Treasury Secretary Yellen, meanwhile, said she doesn't think the huge losses in stable coins will cause systemic issues for the financial system.

On a related note, the Senate confirmed Fed Chair Powell for a second term and confirmed Lisa Cook to the Fed Board. Lorie Logan was named Dallas Fed President, effective Aug. 22.

Volatile Start to May

The Stock Market Started May With A Volatile Week That Produced Losses For The Major Averages. The Nasdaq Led The Way, Falling 1.5% While The S&P 500 Surrendered 0.2%. Small Caps Also Struggled, Sending The Russell 2000 Lower By 1.3%.

The week began with modest gains for the major averages but not before early selling sent the S&P 500 to its lowest level in nearly a year. However, the market overcame the weak start and climbed for the next two days, capping the rally with a Wednesday surge that took place even though the FOMC announced a 50-bps rate hike and a balance sheet reduction plan. However, Fed Chairman Powell acknowledged that a 75-bps hike is not being considered, which was cited as the reason for the post-FOMC rally that lifted the S&P 500 to a one-week high.

Whatever positives were gleaned from Wednesday's rally were forgotten by the end of Thursday's session, which saw the major averages cough up their gains from the previous day while crude oil remained resilient, staying above its 50-day moving average (104.96) even though the U.S. Dollar Index pushed to a fresh 20-year high.

Friday's session was also uninspiring as equities followed a weak start with a brief recovery that faltered as the day went on. Besides the weak action, the day's biggest story was the release of the April jobs report, which beat headline estimates but also showed a decrease in the labor force participation rate.

Quarterly earnings continued pouring in during the past week, but even positive results were often met with selling amid concerns about headwinds from soaring inflation.

STOCKS SLUMP TO END BRUISING MONTH OF APRIL

It Was Another Tough Week For The Stock Market, Putting A Close To An Even Worse Month. The S&P 500 Fell 3.3% This Week, Which Was Slightly Better Than The 4% Declines In The Nasdaq Composite (‐3.9%) And Russell 2000 (‐4.0%). The Dow Jones Industrial Average Fell 2.5%.

Aside from brief spurts of short‐covering activity, earnings relief bids, and mechanically-oriented buying, the market remained pressured by concerns about the Fed aggressively tightening policy in a low growth, high inflation environment.

The Advance GDP report had the hallmarks stagflation, although unemployment levels remain historical low: real GDP decreased at an annual rate of 1.4% in the first quarter (Briefing.com consensus +1.1%) while the GDP Chain Deflator increased by a larger‐than‐expected 8.0% (Briefing.com consensus +7.3%).

Pricing pressures were further illustrated by the following events:

• Apple (AAPL) warned of higher costs associated with supply chain issues for fiscal Q3; Amazon.com (AMZN) guided Q2 operating income (and revenue) below expectations

• The PCE Price Index surged 0.9% month‐over‐month, which took the year‐over‐year rate to 6.6% from 6.3% in February

• The Q1 Employment Cost Index increased 1.4% (Briefing.com consensus 1.1%)

• WTI crude futures rebounded above $105.00 per barrel ($105.03, +3.03, +3.0%)

Risk sentiment was further pressured by the mixed state of earnings when considering the results, guidance, and reactions. Meta Platforms (FB) stood out among the mega‐cap earnings, rising 9% this week on better‐than‐feared results, but other stocks like Teladoc (TDOC) continued to get crushed on disappointing news.

Treasury yields ended the week slightly lower amid an uptick in demand. The 2‐yr yield decreased three basis points to 2.69%, and the 10‐yr yield decreased two basis points to 2.89%. The U.S. Dollar Index rallied 1.9% to 103.20.

Separately, Twitter (TWTR) agreed to be acquired by an entity wholly owned by Elon Musk for approximately $44 billion, or $54.20 per share, in cash. Mr. Musk sold over $8 billion of Tesla (TSLA) shares this week to presumably help finance the deal.

Market Recap - Third Straight Losing Week for S&P 500 and a Fourth for the Dow

The Nasdaq Composite (‐3.8%) and Russell 2000 (‐3.2%) underperformed the benchmark index with losses over 3.0% while the Dow Jones Industrial Average fell 1.9%.

It was reported last week that bullish sentiment among individual investors recently hit a 30‐year low, setting the stage for a contrarian‐minded rally this week. The rally took place on Tuesday, and briefly continued on Thursday, before a bearish sentiment took hold of the market.

Nine of the 11 S&P 500 sectors closed lower with the worst performers being the communication services (‐7.7%), energy (‐4.6%), and materials (‐3.7%) sectors. The defensive‐oriented real estate (+1.2%) and consumer staples (+0.4%) sectors ended the week in positive territory.

The market had done a good job fending off the Netflix (NFLX) disappointment in which NFLX tanked 35% the day after reporting a decline in subscribers. Earnings reports, after all, were mostly better than expected, and they were from a diversified batch of companies, including Tesla (TSLA) and seven Dow components.

The problem this week was mainly threefold: 1) the 10‐yr yield rapidly approached 3.00%, hitting 2.97% before ending the week eight basis points higher at 2.91%, 2) Fed Chair Powell wasn't ready to declare peak inflation and said the Fed could move to a tight policy after reaching a neutral rate, and 3) weakening technical factors.

On the latter, the S&P 500 couldn't stay above its 200‐day moving average (4497) and fell back below its descending 50‐day moving average (4407).

A few more notes on the Fed, it didn't help that Chicago Fed President Evans, who is one of the move dovish Fed members and was supposed to be a FOMC voter next year, announced plans to retire in early 2023. In addition, St. Louis Fed President Bullard (FOMC voter) said the fed funds rate should be at 3.50% by the year‐end.

The 2‐yr yield, which is sensitive to expectations for the fed funds rate, climbed 27 basis points to 2.72%.

Market Recap - Bad Week for the Growth Stocks

The Week Was Shortened In Observance Of Good Friday, But It Was A "Bad Week" For The Growth Stocks Amid Upwards Pressure In Interest Rates.

The impact of the growth stocks was reflected in the underperformance of the S&P 500 (‐2.1%) and Nasdaq Composite (‐2.6%) relative to the Dow Jones Industrial Average (‐0.8%) and Russell 2000 (+0.5%).

The small‐cap index closed higher, while the S&P 500 fell further below its 200‐day moving average (4495) and even closed below its 50‐day moving average (4418). The information technology (‐3.8%), communication services (‐3.0%), health care (‐2.9%), and financials (‐2.7%) sectors led the retreat.

The declines in the first two sectors were linked to the moves in the Treasury market, where the 10‐yr yield rose another 12 basis points to 2.83% despite a return of the peak inflation narrative. That narrative was supported by a brief, two‐day decline in rates following hot CPI and PPI data for March.

The Vanguard Mega Cap Growth ETF (MGK) fell 3.3%, whereas the Invesco S&P 500 Equal Weight ETF (RSP) decreased "just" 0.9%.

The financials sector, in particular, was pressured by an EPS miss from JPMorgan Chase (JPM) and a revenue miss from Wells Fargo (WFC). The other banks, for the most part, reported better‐than‐expected earnings results with mixed reactions.

There were some positives, though. The materials (+0.7%), industrials (+0.4%), energy (+0.3%), and consumer staples (+0.2%) sectors ended the week in positive territory.

Airline stocks were strong after American Airlines (AAL) raised its Q1 revenue guidance and Delta Air Lines (DAL) supplemented better‐than‐expected earnings results with upbeat bookings commentary. The U.S. Global Jets ETF (JETS) rallied 8.0% this week.