The Week in Review 3/28/2022
"We don't have to be smarter than the rest. We have to be more disciplined than the rest." - Warren Buffett
Good Morning,
Another fine week of recovery in the markets…
The stock market has faced some volatility in recent days, but the S&P 500 (+1.8%) and Nasdaq (+2.0%) were able to record solid gains for the week while the Dow (+0.3%) underperformed, ending the week just above its flat line. The Russell 2000 also lagged, shedding 0.4%.
The S&P 500 battled with its 200-day moving average since last Friday, but it was able to end the week above that mark after touching a six-week high during the final session of the week.
Ten sectors ended the week in positive territory with energy (+7.4%), materials (+4.1%), and utilities (+3.5%) leading the way while health care (-0.2%) recorded a slight loss after outperforming earlier this month.
Energy remained supported by crude oil, which gained $10.80 or 10.5% to end the week at $113.83/bbl. The ongoing Russia-Ukraine conflict remained a supportive factor for oil and other commodities, explaining the outperformance in the materials sector where steelmakers and fertilizer producers led the way.
The week ended with reports of the potential for another release of oil from the strategic reserve while Chevron reportedly received clearance to resume operations in Venezuela. On a related note, a Russian energy official reportedly said that friendly countries like China and Turkey could pay for oil and gas in rubles, domestic currency, and bitcoin while unfriendly countries would have to pay in rubles and/or gold.
The top-weighted technology sector (+2.3%) finished the week ahead of the broader market, but it faced some pressure on Friday as Treasuries widened this week's losses, sliding to fresh lows for the year, after Citigroup forecast that the Fed will raise rates by 50 bps at the next four policy meetings. Both, the 2-yr yield and the 10-yr yield increased by 34 bps for the week to a respective 2.29% and 2.49%.
Market Update…
- Oil Prices– Oil prices jumped, U.S. West Texas Intermediate crude closed nearly 9% higher for the week to $113.90 per barrel. Brent crude, oil's international benchmark, rose near $113 a barrel after falling below $109 per barrel.
- Gold – Gold rose about 1.6% last week, with gold futures at $1,960 an ounce. Silver closed out the week at $25.615.
- S. Dollar – The dollar index was fractionally higher and showed a weekly gain of 0.6%. Euro/US$ exchange rate is now 1.113.
- S. Treasury Rates– The 10-year Treasury yield was on a tear, reaching 2.5% Friday, its highest level since May 2019, up from 2.14% just a week earlier.
- Asian shares were mixed in overnight trading.
- European markets are trading broadly higher.
- Domestic markets are also mixed this morning.
We all know past experience is no guarantee of future results, but if we look at history we see time and time again our resilient economy outpacing the bumps along the way, in spite of a change to a tighter monetary policy (see CNBC chart below):
History tells us that stocks respond well one year after the Fed raises interest rates. Since 1994, the S&P 500 is positive one-year after the cycle starts each time. The best performance was 38.52% in 1997-98 and the average is at 12.39%.
The Fed has their hands full… but even with four .50% hikes in rates we find ourselves around 2.5% Fed Funds. Which is still historically low.
Have a wonderful week!
The opinions expressed herein are those of Michael Hilger and not necessarily those of Raymond James & Associates, Inc., and are subject to change without notice. The information contained in this report does not purport to be a complete description of the securities, markets, or developments referred to in this material. There is no assurance any of the trends mentioned will continue or forcasts will occur. The information has been obtained from sources considered to be reliable, but Raymond James does not guarantee that the foregoing material is accurate or complete. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. Investing involves risk and you may incur a profit or loss regardless of strategy selected.
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