Markets Down After Fed Minutes, Rotation From Growth to Value and Reflationary Winners Marks Week’s Action

Key Takeaways

  • The S&P 500 closed at 4677.03 which is down from  4,778.74 it closed at on 12/30. The VIX settled at $18.76 and didn’t get far above $20 despite Fed woes.
  • The Fed released FOMC minutes from the last meeting that seemed to indicate a more hawkish posture and aggressive timetable for lift-off, as well as the prospect for shrinking the balance sheet.
  • The US 10YR rose significantly to 1.764%. There was a rotation from high-PE Technology into Value sectors like Financials and Energy.
  • We see many risks that could derail equities and cause elevated volatility in the first half, but ultimately we believe stocks will finish 2022 higher. We think our YE target may be conservative given historical analysis of gains following a year like 2021.

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Markets had a rough week after FOMC minutes threw investors for a loop and raised the prospect of a more aggressive Federal Reserve. Jay Powell had mentioned the prospect of shrinking the balance sheet, but the minutes painted a more stark picture than he initially let on for the levels of liquidity in the market and how long they will be there. The 10-YR has broken out significantly and reached its highest level in about 2 years. It has gone up 25 bps just since 2022 began whi...

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