Market Pulse

Market Pulse

March 21, 2022

In focus

On Wednesday, the Federal Open Market Committee (FOMC) hiked interest rates 0.25% for the first time since December 2018. In his press release, Federal Reserve (Fed) Chair Powell took a more hawkish tone and underscored the Fed’s commitment to fighting higher inflation.

In the bond market, we saw the spread between the 10-year and 2-year U.S. Treasury curve flatten. This has largely been a result of 2-year yields, which are more sensitive to monetary policy changes, increasing at a faster pace than 10-year yields. Since the start of the year, 2-year yields have risen 120 basis points (1.2%) while 10-year yields have only risen 63 basis points. Our view is this largely reflects market participants fearing that the Fed’s focus on inflation will weigh on longer-term growth, which is reflected in the longer-term yields not rising as quickly as shorter-term yields.

On the other hand, the equity market rallied, notching its strongest gains since November of 2020. This was likely due in part to Chair Powell’s comments around the economy being on strong footing; whereas, participants had been fearing recession. The market was also boosted by geopolitical developments with China telling the U.S. that they did not want war in Ukraine.

Our view remains that while recession concerns are legitimate, the economy remains on solid footing, recession risk remains low, and that what we have seen in the stock market is a correction within an ongoing bull market. We also acknowledge that the outcomes are unusually wide.

A look back

  • Global stocks rallied, with the MSCI ACWI gaining 5.8%, its strongest week since November 2020. U.S. stocks gained 6.2%, besting their international developed and emerging market peers.

  • 10-year U.S. Treasury yields rose to 2.14% and the spread between the 10-year and 2-year yields flattened by three basis points.

  • The Federal Reserve (Fed) hiked interest rates 0.25% for the first time since December 2018. The Fed took a more hawkish tone and signaled its commitment to fighting inflation.

A look ahead

  • Global stocks rallied, with the MSCI ACWI gaining 5.8%, its strongest week since November 2020. U.S. stocks gained 6.2%, besting their international developed and emerging market peers.

  • 10-year U.S. Treasury yields rose to 2.14% and the spread between the 10-year and 2-year yields flattened by three basis points.

  • The Federal Reserve (Fed) hiked interest rates 0.25% for the first time since December 2018. The Fed took a more hawkish tone and signaled its commitment to fighting inflation.

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