The US central bank released Wednesday the minutes from its October meeting. This release showed that a substantial majority of participants judged that a slowing in the pace of increase would likely soon be appropriate, belying St. Louis Fed President James Bullards comments last week. This more dovish tone gave further impetus to US stocks before the Thanksgiving holiday, pushing the S&P 500 above the 4,000 level. The benchmark index rose 1.53% (-15.53% for the year). The Dow Jones Industrial Average jumped 1.78% or 601 points, bringing its year-to-date performance to -5.48%. The Nasdaq Composite gained 0.72% (-28.24% year-to-date). The CBOE volatility index (VIX) has come off its most recent mid-October highs and is now trading around its long-term average of 20.
In Europe, stock markets followed suit, though inflation in the Eurozone soared to new heights (10.6%) at the end of October, up from 9.9% in September, putting pressure on the European Central Bank and weighing on economic expansion in the region. The MSCI EMU was up 1.11% over the week (-11.11% YTD). The FTSE gained 1.37% and is now up 1.38% for the year.
In Asia, Japans Nikkei recouped the losses suffered last week (up 1.37% week-over-week, down 1.77% YTD). By contrast, China stocks treaded water. The Shanghai composite edged up 0.14% (down 14.78% YTD). The country is struggling with a new outbreak of COVID cases. The Government has therefore reintroduced strict lockdown measures in several major cities, Beijing included, hitting economic activity, and triggering violent protests, especially in the Xinjiang region where millions of people have been barred from leaving their homes for as long as three months.
Investors continue to play the defensive card
For the seventh time this year, all the 11 S&P 500 sector indexes closed higher. Once again, defensive sectors outperformed the broad market. While utilities are usually seen as a sleepy part of the market, they led the pack this week (up 3.04%) and there has been nothing sluggish about their performance this year (down 1.39%, hence an excess return of +14.14% to the S&P 500 index). The consumer staples sector was up 2.10% (down 1.18% YTD). Health care also fared well (up 1.91% week-over-week, down 2.94% YTD). Aside from energy (+65.82% YTD) which lagged behind this week (+0.26% while the WTI oil price shed 4.75%) on worries about Chinese demand and the level of the proposed price cap on Russian oil from the G7 countries, the main defensive sectors remain the best performers in 2022.
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