Hello, this is Tom Jalics, Chief Market Strategist at Fifth Third Bank
Financial markets surged as stocks posted their best week of the year. Investors weighed the U.S. Federal Reserve’s (Fed) rate hike decision, and cease-fire negotiation talks between Russia and Ukraine. After a painful start to the year, last week consisted of multiple days of domestic equity index returns that surpassed 2.0%. The S&P 500 index posted a strong week rising four out of five days and finishing 6.2% higher. The Nasdaq 100 surged, increasing 8.2% for the week, and the Dow Jones Industrial Average gained 5.5%. The U.S. 10-year Treasury yield rose 15 basis points in the week to end 2.14%. Oil ended a volatile week down as West Texas Intermediate Crude ended the week at $104.38 per barrel, down 4.7%. Gold was down 3.5% for the week ending at $1,920/ounce.
Last week's headlines focused on the ongoing war in Ukraine and the Fed lifting short-term interest rates off the zero bound for the first time since early 2020. Ongoing ceasefire talks in the Russia/Ukraine conflict were supportive, and the Fed's hawkish policy pivot was a market-moving event.
The Fed voted to increase short-term interest rates in the U.S. by 0.25%. This was the first interest rate hike since 2018 and moved the Fed Funds target rate to a range from 0.25% to 0.50%. In the Fed’s statement, the vote to raise interest rates by 0.25% was opposed by James Bullard, who preferred to raise the target rate by 0.50%. The Federal Open Market Committee said inflation remains elevated as an imbalance in broad price pressures, elevated energy prices, and pandemic effects linger. In the Fed’s dot plot, the median projection was for benchmark Fed Funds rate to close 2022 at 1.9%, more than previously expected. This puts the Fed raising interest rates by 0.25% six more times this year as Fed Chair Powell said the committee is prepared to raise rates to curb inflation as appropriate while monitoring developments in the economy. The Fed’s balance sheet is expected to shrink at a "coming meeting" without specifying further details.
Some progress was made between Russia and Ukraine as talks were said to "sound more realistic", but both sides later indicated that this had been overstated. While Ukrainian neutrality appears to be the cornerstone of any eventual deal, Ukraine continued to press the world for help, to which the U.S. committed $800 million in aid. On Wednesday, Ukrainian President Zelensky virtually addressed the U.S. Congress, pleading that Congress enforce a no-fly zone over Ukraine. He did highlight his appreciation for Biden’s support through the difficult times. Shortly after, Russia urged the U.S. to stop supplying Ukraine.
In the week ahead, investors will remain focused on developments in Ukraine, changes in global central bank policy, and will monitor domestic economic releases. President Biden will join fellow NATO members in Brussels to discuss actions to stop the Russian invasion. European Central Bank President Christine Lagarde will speak at the BIS Innovation Summit on Tuesday. On Wednesday, U.K. Bank of England Governor Andrew Baily along with the Fed’s Jerome Powell will speak. Their discussion will focus on the challenges for central bank governors in a digital world. On the domestic economic calendar, investors will focus on New and Pending Home Sales, Durable and Capital Goods Orders, and the University of Michigan Sentiment Index. Earnings releases in the U.S. are light with Nike, General Mills, and Adobe highlighting the slate.
As always, we will be watching and reporting to you next week. Thank you.
