The S&P 500 halted a two-week losing streak with its best week of 2022 as ongoing negotiations to end the war between Russia and Ukraine coupled with efforts by the Federal Reserve to address inflationary pressures drove the benchmark index 6.2% higher to 4,463.12 from the prior week’s close of 4,204.31.
The week started on a sour note with all the major indices in the red as investors‘ appetite for risk was compromised by the ongoing conflict in Eastern Europe as negotiations between Russia and Ukraine stalled. But geopolitical pressures were overshadowed by a significant reversal in oil futures. The price of a barrel of oil traded below $100 for the first time in two weeks as COVID-related lockdowns in China coupled with hopes for increased output from Saudi Arabia and the United Arab Emirates eased price pressures on energy futures.
As a result, the energy sector was the only sector of the S&P 500 to end the week in the red, down 3.7% from last Friday’s close.
Besides the war in Eastern Europe, last week’s other major event was the Federal Open Market Committee meeting which resulted in the first rate hike since 2018. Stocks were coiled to react negatively, but after the knee-jerk reaction to sell ran its course, stocks rallied and bond yields fell on “sell the rumor, buy the fact.” Investors seemed soothed by Powell’s commitment to tackle inflation, even after Fed president James Bullard and Governor Christopher Waller doubled down with talk of a 50 basis point hike at the next FOMC meeting.
Last week’s economic data was mostly bullish for stocks, specifically the February producer price index which was up a below-consensus 0.8% in February (versus +1.2% in January). Excluding the meteoric price gains in oil last month, the PPI increased by just 0.2%, stifling investors’ risk-aversion to inflation sensitive assets including Treasuries and consumer stocks.
Retail sales slowed from January’s scorching 4.9% increase and contracted by just 0.4% excluding the sale of automobiles and gas.
Weighed down by soaring home prices, dwindling inventory, and rising interest rates, data on the housing market showed that the red-hot sellers market of 2021 is beginning to fade. Housing starts were up 6.8% in February, but permits — a barometer of future housing market activity — was down for the first time since October with a 1.9% loss. And existing home sales reversed nearly all of January’s gains with a 7.2% decline in February to a seasonally-adjusted annual rate of 6.02 million.
This week’s economic calendar is quiet with just new home sales, the final durable goods orders for February, preliminary manufacturing and services PMIs for March, and the Univ of Michigan consumer sentiment index for March.
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