U.S. stocks fell on Thursday, 14th April 2022, on a holiday shortened week, in observance of Good Friday.
Treasury yields reversed their decline earlier in the week, on the back of comments from New York Fed President John Williams. He said that it was a reasonable option for the Fed to speed up the pace of interest rate hikes because the Fed funds rate is very low. In this case, it is the increments of the 50 basis point hikes he was talking about.
The U.S. consumer price index increased 8.5% from a year earlier following a 7.9% annual gain in February, according to the Labor Department data released on Tuesday. The rise was the highest since late 1981, while the monthly increase of 1.2% was the highest since 2005.
The U.S. producer price index for final demand increased 11.2% from March of last year and 1.4% from the prior month, according to the Labor Department data released on Wednesday. The monthly gain was broad across categories and also the largest on record.
The market is now pricing for as much as three 50 basis point hikes.
The Nasdaq again suffered the most as its valuations are more sensitive to a rise in interest rates.
For the week, the Nasdaq Composite slumped 2.6% lower, while the S&P 500 fell 2.1% and the Dow Jones finished down 0.8%.
Here are the closing levels on Friday, 15th April 2022: –
| Last | Change | %Change | |
| Dow Jones | 34,451.23. | -113.36. | -0.33% |
| S&P 500 | 4,392.59 | -54.00. | -1.21% |
| Nasdaq Comp | 13,351.08 | -292.51. | -2.14% |
| U.S. 10Y | 2.83% | ||
| VIX | 22.7 | +0.88 | +4.03% |
We have more earnings to look forward to with 7 blue-chip stocks due to announce next week. The big banks’ earnings were mixed, but the focus was on future earnings, which may come under pressure due to rising prices in energy, commodities, and interest rates.
So, other corporate earnings announcements that come in better than expected may not mean much if future projections are looking weak.
The question now is, are we in a risk-off scenario?
We had a 3-week winning streak followed by a 2-week decline.
By most accounts, looking at the conditions we have now – with the Federal reserve looking to reduce the balance sheet and raise interest rates at a faster pace plus the fallout from the Russian invasion in Ukraine affecting the prices of almost everything –we should be in a risk-off mode.
Unfortunately, markets seldom do what you expect them to.
We could have easily bought on the dips to reverse the trend – with the fear of missing out (FOMO) adding to more buying, and reversing this selloff.
While it is wishful thinking that this will happen, and I’m sure most people are hoping for it, we have to prepare ourselves that higher yields, higher prices, and an aggressive Fed may make it difficult for us to get out of this current downtrend.
So, I will just repeat myself and say – trade with caution.
Source: CBOE, Bloomberg, Federal Reserve
This commentary is written by James Gomes
James has been in the finance industry for over 30 years and most recently worked for a large U.S. bank for more than 20 years.
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