Markets Have Best Week Since 2020; Beaten Down Sectors Lead The Way Higher
- The S&P 500 closed at 4,462.12 significantly up from the close of 4,204.31 last week. The VIX was also down from recent highs to $23.85. Friday was a triple-witching expiration.
- Every sector was up for the week except for Energy. Financials, Consumer Discretionary and Healthcare were the leading sectors.
- The Federal Reserve made its long-anticipated rate liftoff of 25 bps. Markets took the development in stride and rose on Friday despite rise in hawkish commentary.
- While this week’s bounce was very encouraging, ominous risks remain and the potential for choppiness remains throughout the first half. Friday was biggest triple witching day in memory with $3.5 trillion in derivatives expiring.
Stocks had their best week of the year so far and staged impressive gains. The breadth of the rally this week was impressive. The S&P 500 and Nasdaq posted gains for four days in a row. The Nasdaq rose an impressive 8.1% this week. Friday in particular was marked by the conspicuous strength of several leading Technology stocks like Apple, Meta, and Nvidia having significant gains. The obvious question after such a strong rally is whether or not will mark a tradable bottom. So far, the 2/24 lows that occurred on the day of the Russian Invasion of Ukraine have held. The Federal Reserve took the much-anticipated action of raising the Federal Funds target by .25 bps, as was expected by most analysts. With inflation running hot by all measures, and with the added inflationary pressure from the war in Ukraine, the primary focus of the Fed has shifted to fighting inflation. The indications from the dot plot suggest that the Fed will raise by .25 six more times before the year is over.
One major question that remains is whether the Fed will need to raise the benchmark rate above neutral to assist in slowing growth. The committee so far believes that they will raise the benchmark rate to a peak of 2.8%, above their predicted neutral rate of 2.4%, sometime in 2023. However, hawkish voices on the FOMC like James Bullard and Christopher Waller are calling for much more aggressive actions. Bullard was the only board member to dissent on the vote, instead preferring a more aggressive rate hike of 50 bps. He would have the equivalent of 12 rate hikes this year if it were up to him.
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