U.S. equity markets posted their worst weekly performance since March of 2020 last week as market participants continue to grapple with the change in direction of policy from the Federal Reserve towards tightening financial conditions.

A sharp rise in interest rates weighed on bond and equity markets last week as market participants assessed the potential for tightening financial conditions in the year ahead. The 10-year U.S. Treasury yield surged to close the week at 1.77% from 1.51% at year end.

After a spectacular run this year, the major indices traded lower for the last day of 2021 after some late selling but closed out the year with the strong gains noted below. The S&P 500 Index dropped 0.3% and ended December about 4.5% higher, the third-best month of the year and best December since 2010.

Stocks ended last week down after the simultaneous expiration of single-stock options, single-stock futures, and stock-index options. Stock-futures also added to the volatility. The 10-year U.S. Treasury note dropped to its lowest yield in two weeks at 1.401% despite the Fed’s hawkish turn.

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