Weekly Market Recap: Stocks Navigate Inflation and Yields, Fed Insights, and Anticipated Economic Indicators Ahead

Market Overview 

The S&P 500 Index concluded the week near the flatline. Hotter than expected inflation data this week caused investors to reprice Fed rates cuts further into the future. Treasury yields rose, weighing on longer duration sectors such as technology. The small cap Russell 2000 Index stood out as the best performer for the week despite struggling for most of the year. Investor sentiment, as per the AAII survey, saw a drop in bullishness but remained above the long-term historical average. 

In fixed income, the Bloomberg Aggregate Bond Index and high yield corporate bonds faced headwinds as rates increased. However, strong demand kept spreads contained, with corporate treasurers actively issuing into the investment-grade corporate market. The credit risk environment remains supportive, but despite high yields, current spreads may be too tight. 

Commodities displayed mixed trends, with WTI oil prices advancing and gold holding above $2,000. Natural gas faced an 8-day decline, with the Biden administration's LNG shipment freeze contributing to volatility. 

Federal Reserve Insights and Economic Roundup 

The Federal Reserve's rate cut expectations shifted from May to June, impacting Treasury yields. The economic roundup highlighted a 0.3% rise in January consumer prices, driven by higher shelter prices. Retail sales experienced a marginal decline, signaling potential shifts in consumer behavior. The U.K. maintained a steady 4% inflation, while German economic sentiment showed improvement despite challenges. 

The fixed income market witnessed a surge in corporate issuance, and while economic growth is expected to slow, credit risk support persists. The Biden administration's LNG freeze added complexity to natural gas dynamics, contributing to its consecutive daily decline. 

The Week Ahead 

Anticipate key economic data in the week ahead. Tuesday brings leading indicators for January. Wednesday features the Federal Open Market Committee (FOMC) Minutes for January. Thursday includes initial and continuing unemployment claims, Purchasing Managers’ Index (PMI) Composite for February, and S&P Global PMI manufacturing and services data for the same period. Stay tuned for insights into the evolving economic landscape.