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Stocks Struggle in The First Week of the Second Quarter

The market had a down week in the face of a hawkish tone from several Fed speeches and events that make it look like the bond market may have been more correct than some assumed. Of course, the Fed may be attempting to jawbone the market and it may not end up acting as aggressively as some fear. However, our Head of Global Portfolio Strategy Brian Rauscher has heard from trusted sources Powell has been made a genuine convert to the hawkish side. The hawks took him to the river and dipped him in,

The market had a down week in the face of a hawkish tone from several Fed speeches and events that make it look like the bond market may have been more correct than some assumed. Of course, the Fed may be attempting to jawbone the market and it may not end up acting as aggressively as some fear. However, our Head of Global Portfolio Strategy Brian Rauscher has heard from trusted sources Powell has been made a genuine convert to the hawkish side. The hawks took him to the river and dipped him in, so to speak. Of course, the inner workings of the world’s most powerful central bank can be perplexing so only time will tell. If what looks like a persistent conflict in Ukraine continues to curtail growth and results in a further economic escalation of things like sanctions, they may have to change their tune. It was a risk-off week for sure. The defensive sectors of Health Care, Consumer Staples, Utilities and Real Estate were the clear leaders. The Energy sector was a gainer as well but had weaker relative gains. Industrials, Technology, and Consumer Discretionary all got slammed by more than 2%. So, markets are not happy that a very hawkish Fed might not only take the punch bowl away but try to physically break up the party like small-town cops. There was an op-ed from Former New York Fed Governor Bill Dudley that was contended the Fed will not be able to tighten financial conditions effectively without a severe drop in equity prices, which it must force if such a drop doesn’t occur on its own. The logic behind this argument is that the financial confidence households gain from high asset prices interferes with the Fed’s objective of slowing inflation. Our Head of Research, Tom Lee, will address this peculiar note in more detail below. While this could have been part of Powell’s messaging strategy, it may have also been Dudley simply speaking his mind. Fed officials still officially would like to have a soft-landing but hearing this tone from the Fed is generally not something markets like. The flattening of the Phillips-Curve has complicated how the Fed must approach monetary policy, but his conclusions probably are not shared by a majority of current Fed members.

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