Weekly Market Report: March 28, 2022
Last week was the 2-year anniversary of the 3/23/20 Covid low from which we enjoyed an approximate 100% return on
the S&P 500. Last week, financial markets digested a Fed narrative that many felt was more hawkish than the FOMC
meeting narrative the prior week as well as continued Russian aggression in Ukraine and more commodity price
inflation. Equity markets managed to deliver a second consecutive positive week despite Treasury yields moving sharply higher to levels not seen since 2019. The U.S. was up 1.5% while international markets were flat to slightly negative while the yield curve moved higher in a parallel fashion leaving the 10yr UST at 2.48% as we approach quarter-end.
Market Anecdotes
• The selloff in U.S. treasuries continued last week with yields continuing their move sharply higher in a relatively
parallel fashion across the curve while the slope remained. A key question is at what level do higher yields begin
to pressure risk assets?
• Across twelve separate Fed speaking engagements, officials made clear the need for rates to reach neutral and
move into restrictive territory, while maintaining flexibility along the way.
• Arbor Research published a note illustrating the fact that inflation is clearly a global phenomenon with annual
inflation ranging from 42% in South America to 5.7% in Canada.
• Strategas increased the percentage likelihood of recession to 35% due to the economic impacts of Fed tightening,
higher rates, inflation, supply chain disruptions, and commodity price shocks. Meanwhile, yield curve slopes and
economic data continue to paint a constructive picture.
• With such a pronounced two-year return ending March 2022, the third year of a strong bull market does tend to
pose more challenging returns for investors.
• A more strategic (and contrarian) view on Europe given the Ukrainian crisis is that the U.S. economic recovery is
more advanced, leaving Europe with more of a recovery window. U.S. GDP recovered to Q4 2019 level back in 2Q
2021 while Europe reached it finally in Q4 2021.
• Short-term risks surrounding housing are mounting given the rise in interest rates and the impact on
affordability/monthly mortgage payments while long-term fundamentals remain intact.
• European policy makers will attempt to offset the impact of the Ukraine crisis through looser fiscal spending and
U.S. lawmakers have reopened the door to negotiations on the reconciliation package in a slimmed down version
of the initial $3.5t proposal but several roadblocks remain.
• The BCA geopolitical team is assigning a high likelihood that China will help Russia manage U.S. sanctions leading
to U.S. sanctions on China later this year.
