Equities Continue to Adjust to Rising Interest Rates

Weekly Market Recap Report

Equities took a step back after 3 consecutive weeks of gains. High growth / momentum names took it on the chin last week as rising interest rates caused those stocks to look expensive.

The Nasdaq and the Russell 2000 indices especially took it on the chin. International equities peeled back due to a rising dollar. Analysts are expecting year-over-year corporate earnings growth above 10% for the 1st quarter, which would be the 5th consecutive quarter of greater than 10% growth. If that indeed comes to fruition, equities could head higher from current levels. The first major wave of corporate earnings for the 1st quarter begin to come in this week.

Markets are facing the potential of larger rate hikes than originally anticipated and equity investors responded by being defensive last week.

The implied futures on the next Fed rate hike in May are pointing to an 81% probability that it will be 50 basis points instead of the traditional 25 basis point hike. Both measures of inflation are expected to come in higher for March versus February’s measure. A healthy unemployment number and higher inflation will prove a hawkish Fed is justified in raising rates aggressively.

The economic data was mixed last week. Weekly Jobless Claims dropped to a new low, but Continued Claims edged higher.

Consumer Credit and Redbook Sales showed that consumers are still spending. Consumer behavior is something to carefully watch going forward. So far, consumer spending is still above the post-pandemic recovery levels, but that could change as low-income households deal with inflation. Vehicle Sales continued to slide last month and Wholesale Inventories reflected rising prices due to inflation. It’s an action-packed week with so many Fed speakers, so markets may be choppy in an expected lower trading volume week due to the Friday holiday.