US weekly: The S&P 500 close the month higher but record its worst quarter since 2020.
The US market finished higher in a rollercoaster ride this week. The key highlights were the labour report, the US government releasing $1 million crude oil from reserves, and how aggressive the Fed will be in a rate hike in the coming weeks.
The US market started the week in losses but recovered in the afternoon to close higher on Monday. The peace deal between Russia and Ukraine was expected to go through the following day. However, inflation and imminent monetary tightening by the Federal Reserve were still concerns.
The market continued the rally on Tuesday as traders monitored ceasefire negotiations in Europe and key levels in the bond market. The auto stocks were the biggest gainers for the day, and even tech stocks showed good momentum.
US stocks fell on Wednesday as investors eyed developments on discussions between Russia and Ukraine and mulled mixed data on the US economy. The benchmark 10-year yield edged higher on Wednesday and topped 2.4%.
The stocks continued to fall on Thursday. It was the worst period since the first quarter of 2020 for all three major indexes. The oil prices fell below $100 per barrel as Joe Biden announced a plan to release 1 million barrels of oil per day from the strategic petroleum reserve for about six months.
The US stock market started the new quarter on a positive note on Friday. The US-listed Chinese stocks jumped on Friday after a report that China was considering sharing company audits with foreign regulators. The 2-year and 10-year Treasury yields inverted for the first time since 2019.
Let us look at major developments of the week:
S&P 500 Performance: The S&P 500 Index closed out its best month since December but its worst quarter since early 2020. Cyclically sensitive stocks underperformed as investors prepared for a slowdown in growth. Financial services and industrial sectors in the S&P 500 were among the losers. Higher interest rate expectations hit the IT sector, while the typically defensive consumer staples and utilities sectors outperformed.
March jobs report - March jobs report shows the labour market remains tight. Nonfarm payrolls rose by 431,000 jobs MoM in March. Excluding government hiring and firing, private-sector payrolls advanced by 426,000, versus the forecasted rise of 496,000. The unemployment rate dropped to 3.6%, from 3.8%, with forecasts calling for it to dip to 3.7%.
The bond market suffers - The bond market has been signalling more caution. A key part of the U.S. treasury yield curve, the difference between 10-year and two-year yields, has now inverted on two occasions for the first time since 2019. While a negative spread is considered a leading indicator of economic slowdown and recession, historically the indicator is more reliable when the inversion lasts for at least a month, and when other parts of the curve are also inverted.
Aggressive Rate expected: US Federal Reserve officials hint at a more aggressive hike of the benchmark interest rate pushing up key Treasury yields and concerns over a possible economic recession in 2023 or later. The Federal Reserve may hike official short-term rates by 50 basis points (0.50%) in May.
Oil reserves: After rising briefly on the renewed tensions, oil prices resumed their decline following the Biden administration’s announcement of an extended release from the nation’s Strategic Petroleum Reserve to combat inflationary pressures. The WTI crude fell by more than 12% over the week below $100 per barrel.