Mid-Week Market Minute 05.04.22

Stocks in the U.S. were about 2% higher for the week, with energy and utilities leading the way as the European Union’s proposed ban on Russian oil led to higher prices in global energy markets. In bonds, yields trudged modestly higher as the 10-year Treasury note briefly traded north of 3% for the first time since 2018.

All eyes were on Jerome Powell and the Federal Reserve this week as investors anxiously awaited the central bank’s policy decision on Wednesday. As anticipated, the Federal Reserve hiked interest rates by half a percentage point (0.50%) to try and rein in inflation. The announcement marked the single largest rate hike in two decades. In Fed Chair Powell’s news conference, he maintained confidence in the Fed’s ability to navigate a soft landing, pointing toward a robust labor market, strong consumer demand, and healthy balance sheets. In addition to the rate announcement, the central bank outlined a framework for reducing its $9 trillion balance sheet by $95 billion per month. The Fed had been buying bonds to keep interest rates low and facilitate liquidity in the economy; however, the surge in prices and subsequent stabilization of markets has since necessitated a shift in policy. Going forward, markets are expecting the Federal Reserve to continue raising rates in the coming months, with the markets expecting the benchmark interest rate to reach 3% by year-end. These policy moves were widely expected, and the markets took the announcement in stride.

On the data front, the Institute for Supply Management (ISM) revealed U.S. services growth surprisingly decelerated in April as new orders came in softer than expected. Separately, ADP’s monthly jobs report showed private payrolls increasing by 247,000 in April, lower than the nearly 400,000 jobs expected. In contrast, the Jobs Openings and Labor Turnover Survey highlighted a tighter labor market, with available positions reaching more than 11 million in March. Factory orders climbed more than expected in March, while final readings on both durable and capital goods both revised upward.

Source: GSAM, Daily Upside, JPM, FactSet

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