Overview: Stocks around the world continued lower last week, as ongoing concerns around COVID-19 and monetary policy tightening continued. In the U.S., stocks fell for a third consecutive week, with the S&P 500 index down 5.7%. International stocks fared better, with developed stocks (MSCI EAFE) lower by 2.1%, and emerging markets (MSCI EM) down 1.0%. In bonds, yields continued higher as persistent inflation across markets fueled fears of aggressive monetary policy tightening. Growing expectations of Federal Reserve rate hikes drove the 10-Year U.S. Treasury yield to as high as 1.88% during the week, a two-year high. Yields recovered somewhat in the latter part of the week, with the 10-year Treasury finishing the week at 1.75%. The 2-year Treasury yield has risen in yield from 0.73% at the beginning of the year to 0.99% currently, indicating expectations of Fed rate hikes beginning soon. In economic news, U.S. initial jobless claims rose for a third straight week to 286,000, exceeding consensus expectations and reflecting the highest level since last October. At the same time, a widely followed measure of manufacturing (Philly Fed manufacturing index) rose above consensus, suggesting that businesses have remained optimistic despite the Omicron wave and labor shortages.
Upcoming this week: From a market perspective, Wednesday will highlight the week, with the announcement of the results of the Federal Reserve meeting at 1 p.m. Central, followed by a news conference from Fed Chair Jerome Powell at 1:30 p.m. Central. Market participants will be looking for guidance from the Fed on the pace of asset purchase tapering and timing of rate hikes. The first estimate of U.S. fourth-quarter GDP is set for Thursday and with the exceptional growth of 5.7% the consensus. Other U.S. data will include the first look at December goods trade on Wednesday, new home sales on Wednesday, and durable goods orders on Thursday. Inflation data will be released on Friday, where the personal consumption (PCE index) numbers are expected to increase 5.8% year-over-year (4.8% core index).
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Sources: JP Morgan Asset Management, Goldman Sachs Asset Management, Barron’s, Bloomberg
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