U.S. stocks closed mixed on Friday, 8th April 2022, with the Dow eking out some gains while the S&P closed lower, dragged down by the losses in the Nasdaq.
The S&P snapped a 3-week winning streak as investors reacted to the Federal Reserve’s tone of inflation-fighting. Comments from officials and the minutes released on Wednesday, 6th April 2022 point to a Fed that is aiming to be more aggressive in raising rates and unwinding its balance sheet faster than previously anticipated.
Goldman’s Jan Hatzius said in an interview with Bloomberg that the Federal Reserve may need to raise interest rates significantly higher to the 4% plus range, to cool an overheated U.S. economy. “Our baseline is that by the middle of 2023, we’ll be at a little over 3%, but there are obviously risks around that,” said Hatzius.
These comments send treasuries yields higher, with the 10-year climbing for a sixth straight day to 2.70%, while the 5-year ended the week at 2.75%, keeping the yield curve inverted.
For the week, the Nasdaq fell 3.6% and the S&P was down 1.3%, the worst declines for both indexes in a month, while the Dow Jones edged lower by 0.3%.
Here are the closing levels on Friday, 8th April 2022: –
| Last | Change | %Change | |
| Dow Jones | 34,721.12. | +137.55. | +0.40% |
| S&P 500 | 4,488.28 | -11.93. | -0.27% |
| Nasdaq Comp | 13,711.00 | -186.30. | -1.34% |
| U.S. 10Y | 2.70% | ||
| VIX | 21.16 | -0.39 | -1.81% |
The higher yields persisting last week after comments from Fed officials and analysts have spooked the markets. The overconfidence seen in previous weeks that the economy can withstand an aggressive Fed has been altered, and sentiment has taken a hit.
Against this backdrop, the Nasdaq has finally responded to higher interest rates, which negatively affects valuations, causing it to underperform sharply.
Some economists are predicting a possible recession in 2023, as a result of a tighter Fed and an ongoing war. And it has given pause to the dip buyers who felt invincible only a few days before.
The case is being put forward, now that what we had seen the previous 2 weeks may have been a bear market rally and technical point to further downside.
The possible reversal of the weakness could come in the form of better-than-expected results from corporate earnings which are set to be announced next week, starting with the banks.
In the meantime, it would be best to stay cautious.
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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