Week in Review: Big Rally for Equities

Week in Review: Big Rally for Equities

The S&P 500 rallied 6.2% this week on the back of a four-day winning streak, as the market preferred to look at things from a positive perspective. The Dow Jones Industrial Average (+5.5%) and Russell 2000 (+5.4%) each rose over 5.0% while the Nasdaq Composite surged ahead with an 8.2% gain.

Ten of the 11 S&P 500 sectors closed higher with nine sectors rising between 2.7% (real estate) and 9.3% (consumer discretionary). The energy sector (-3.6%) was the only sector that closed lower.

There wasn’t a single catalyst for the rally. Instead, there was a confluence of factors that helped revive the market’s spirits, including:

• Oil prices losing 5.6%
• Fed Chair Powell saying the probability of a recession within the next year is low
• Early reports indicating progress in ceasefire talks between Russia and Ukraine
• China vowing support for its economy and markets
• The Producer Price Index for February increasing “just” 0.8% month-over-month
• Higher Q1 revenue guidance from Delta (DAL), United (UAL), and Southwest (LUV)

Now, to qualify the good news:

• Oil prices still ended the week above $100/bbl ($103.03/bbl, -6.07, -5.6%) after dropping below $95.00/bbl during the week
• Fed Chair Powell acknowledged that monetary policy could weigh on growth rates in 2023 and 2024
• Russia refuted progress in talks and continued its bombing
• China still issued a weeklong Covid lockdown of Shenzhen, a major technology hub, which could exacerbate global supply chain issues
• The Producer Price Index was still up 10.0% year-over-year
• The airlines still forecast revenue to be below pre-pandemic levels

Another valid interpretation of the rally, then, was that the market was simply due for a technical bounce, and the bearish sentiment entering the week provided the basis for the big rally. In turn, there was likely some short-covering activity in the mix.

Regarding the Fed’s policy meeting, the central bank raised the target range for the fed funds rate by 25 basis points to 0.25-0.50%, as expected, and signaled six more rate hikes this year. Fed Chair Powell said the Fed could start to reduce the balance sheet following the May policy meeting.

The Treasury market experienced some curve-flattening activity with shorter-dated rates outpacing the rise in longer-dated rates. The 2-yr yield rose 21 basis points to 1.96%, and the 10-yr yield rose 15 basis points to 2.15%.

Source: Briefing Investor