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Weekly Investment Perspective

A rough second quarter in the market will come to an end this week. Of a positive note is the S&P 500 rose by more than 3% on Friday and gained 6% for the week. That is the second-best week of 2022 and its first full weekly rise since late May. The economic calendar in the week ahead includes updates on durable goods orders on June 27, home prices on June 28, GDP on June 29, PMI on June 30, and construction spending on July 1. At the end of the week, traders will be watching the OPEC meeting to see if the plan is to proceed with the targeted August oil production increase against a backdrop of high prices and limited spare capacity for some members.

Fed Chairman Powell told the House Financial Services Committee members last week that “we have a labor market that is sort of unsustainably hot and we’re very far from our inflation target. We really need to restore price stability, get inflation back down to 2%, because without that we’re not going to be able to have a sustained period of maximum employment.” Inflation is high and is not slowing down yet. One lesson of the ’70s and early ’80s was that allowing high inflation to fester is worse than doing something about it, even if doing something is painful. Many of those around at the time will remember the fear that double digit inflation would give way to true hyperinflation, the kind we associate with emerging economies and politically captive central banks. The risk, of course, is that the Fed may unwittingly tighten policy too much and induce a recession. Chairman Powell touched on this risk: "we are not trying to provoke and do not think we will need to provoke a recession, but we do think it's absolutely essential" to bring down price pressures. One silver lining during this policy uncertainty was the result of the annual stress test of bank’s balance sheets, which showed all banks have an adequate capital buffer to withstand a significant market downturn.

Russia has defaulted for the first time since the Bolshevik Revolution in 1917, after a 30-day grace period for the country to disburse two Eurobond interest payments expired on Sunday night. It's a symbolic move given that the Moscow has enough money to pay off the debt but is barred from doing so because of the Western sanctions leveled on the government for starting a war in Ukraine.

Over 1,200 flights were canceled this weekend in the United States. A combination of factors has led to the travel hassles. Flight demand has bounced back faster than the airline industry anticipated, with many staff members finding permanent jobs elsewhere, and the pandemic slowed training of air traffic controllers and pilots. Normal issues like thunderstorms during the spring and summer have also continued to plague key travel routes, while COVID infections continue to sideline airline and airport employees, further frustrating holiday travelers.

 

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Previous Perspectives

Weekly Investment Perspective May 11, 2021

May 11, 2021
Despite an underwhelming employment report on Friday, U.S. equities edged higher last week driven by continued focus on reopening momentum and rising corporate earnings expectations amid strong first quarter results. For the week, the S&P 500 and Dow Jones gained 1.3% and 2.7% respectively, but the tech heavy Nasdaq Composite fell -1.5% as the rotation out of expensive, high-growth stocks into cyclical stocks leveraged to the economic reopening gained traction

Weekly Investment Perspective May 4, 2021

May 4, 2021
U.S. equity markets broadly moved sideways last week but closed out the month of April with the highest monthly gain since November amid a streak of strong earnings reports and continued signs of a robust U.S. economic recovery powered by stimulus and the vaccine rollout. The S&P 500 gained 5.3% for the month of April, bringing its year-to-date performance to 11.8%, while the Nasdaq Composite and Dow Jones advanced 5.4% and 2.8% for the month, respectively, with tech stocks retaking the lead on strong earnings results.

Weekly Investment Perspective April 27, 2021

April 27, 2021
Despite another strong week of corporate earnings announcements, U.S. equity markets took a pause from their year-to-date surge last week as market participants digested the announcement of President Biden’s proposal to increase the capital gains tax rate for high income households and monitored concerning global trends in Covid-19 cases. The major U.S. equity indices ended the week in the red but recouped most of their losses on Friday following robust economic data including indications of growing demand for the U.S. service sector and a 20% month-over-month increase in new home sales in March. The S&P 500 ended -0.1% lower for the week and the Dow Jones and Nasdaq Composite were down -0.4% and -0.3%, respectively.