Stocks were expected to have a volatile week with the quadruple witching event amid a prolonged Ukraine-Russia war and Fed’s rate hikes to combat hot inflation. According to Goldman Sachs, about $3.5 trillion of single-stock and index-level options were set to expire on Friday. Furthermore, this event coincided with a rebalancing of key benchmark indexes (S&P 500 included).

These indexes eventually rallied over the last four business days, recouping the losses suffered since mid-February and shrugging off Fed officials calling on the central bank to get more aggressive in its fight against inflation. As expected, the Federal Reserve raised interest rates on Wednesday (+0.25%) for the first time in more than three years and signalled seven rate hikes for 2022.

The S&P 500 rose +6.16% week-over-week (down -6.36% year-to-date), and the Nasdaq jumped +8.18% (down -11.19% YTD).

European indices continued to bounce back despite the tightening of sanctions on Russia. The MSCI EMU was up +5.96% (-9.43% YTD) and the FTSE gained +3.48%, bringing its YTD performance to +0.27%.

Asian markets closed mixed. Chinese stocks slid again as the manufacturing hub of Shenzhen was forced into a Covid-19 lockdown, stirring risk aversion among investors. The Shanghai Composite was down -1.77% (-10.68% YTD). In Japan, the Nikkei rose +6.62% (-6.82% YTD) and, in India, the NIFTY gained +3.95% (-0.39% YTD).

Energy lags  

Oil prices hit their lowest in two weeks, dragging the energy sector into negative territory (-3.58% over the week). WTI crude briefly broke the $100 per barrel support before ending the week above ($104.70 a barrel, -4.23% WTD) as Russia’s attacks were intensifying in Ukraine.

By contrast, ten of the 11 major S&P sectors advanced, with consumer discretionary stocks leading the pack (+9.27%, -14.33% YTD), Tesla (+13.84%) and Amazon (+10.81%) providing the biggest boost to this sector. Information technology climbed by +7.87%. The recent weakness in big tech also appeared to entice dip-buying action. Financials fared well too (+7.14%) as U.S. Treasury yields jumped sharply following the Fed’s decision. Communication services (+5.79%) were pushed higher by FB Meta-Platforms (+15.39%, -35.64% YTD).

Treasury yields surge higher

U.S. Treasury yields bounced again after the Fed’s decision to lift rates. The central bank is now forecasting its benchmark rate to rise to 1.9% in 2022, well above the 0.9% forecast in December. For 2023, Jerome Powell sees the Federal funds rate at 2.8%, up from its prior projection of 1.6%. Consequently, the 2-year U.S. Treasury yield rose from 1.75% to 1.94%, gaining almost +20bps over the week. The 10-year Treasury yield closed at +2.15% (+15 basis points). The same trend for the yield on German 10-year government bonds (up 12 basis points from +0.25% to +0.37%).

The riskiest bonds slightly recovered after their recent melt-up.

Investment grade corporate bond prices were up +0.11% in Europe and +0.59% in the U.S. High-yield bonds followed suit (+0.63% in Europe and +0.81% in the U.S.) like emerging debt (up +0.87%) after its crash last week. The greenback edged lower (dollar index down -0.90%). Gold plunged -3.36% (spot price at $1,921.62/Oz) as investors were back in risk-on mode.

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