The major indexes ended mixed for the week, with the S&P 500 Index closing out its best month since December but its worst quarter since early 2020. Cyclically sensitive stocks underperformed as investors girded for a slowdown in growth, with the financial services and industrials sectors in the S&P 500 among the losers. Higher interest rate expectations took a toll on the information technology sector, while the typically defensive consumer staples and utility sectors outperformed.
Stock prices fluctuated over the week in apparent response to the evolving situation in the war in Ukraine. The week started off on a strong note, which traders attributed to reports that Russia was prepared to allow Ukraine to join the European Union in return for a pledge to stay out of NATO as well as progress in ceasefire talks. The S&P 500’s four-day winning streak was broken on Wednesday after a Russian official said that talks with Ukraine yielded no breakthroughs and that Russia was regrouping forces in a push to complete the takeover of the eastern Donbas region. The mood soured further on Thursday, as Ukrainian President Volodymyr Zelenskyy said that Ukrainian forces are preparing for new Russian attacks. 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 week brought several closely watched economic reports, most of which came in roughly in line with consensus expectations. The most prominent may have been the March nonfarm payrolls report, which showed that job gains fell somewhat below expectations at 431,000 versus 490,000, but the unemployment rate fell a bit more than expected, to 3.6%. Monthly growth in average hourly earnings met expectations, at 0.4%, as did monthly consumer income gains, at 0.5%. Personal spending, reported Thursday, only rose 0.2%—less than expected and perhaps reflecting a growing unwillingness to pay higher prices. February job openings remained little changed and near-record highs.
President Vladimir Putin signed a decree stipulating that foreign buyers must pay for Russian natural gas in rubles from April 1 onward, raising concerns about possible supply disruptions in Europe and the potential economic implications. The G-7 countries unanimously rejected the directive. Germany said it would continue paying for Russian energy in euros and set in motion an emergency plan for rationing natural gas in case deliveries cease or are curtailed.
Prices of U.S. Treasuries rose for the week as the yield on the benchmark 10-year U.S. Treasury note fell slightly, but the Bloomberg U.S. Aggregate Bond Index rounded out its worst quarter since late 1980, and its third-worst quarter since the index’s inception. March was the worst monthly performance for the index since July 2003. (Bond prices and yields move in opposite directions.)
Shares in Europe gained ground in a choppy week of trading, overcoming concerns about the macroeconomic outlook amid strong inflation and the ongoing Russian invasion of Ukraine. In local currency terms, the pan-European STOXX Europe 600 Index advanced 1.06%. Germany’s DAX Index climbed 0.98%, France’s CAC 40 Index tacked on 1.99%, and Italy’s FTSE MIB Index added 2.46%. The UK’s FTSE 100 Index added 0.73%.
Core eurozone bond yields fluctuated over the week but ended the period roughly level. Higher-than-expected inflation data boosted expectations for further interest rate increases and drove yields higher. The move reversed as optimism over Russian-Ukrainian peace talks faded and European Central Bank (ECB) chief economist Philip Lane said that the ECB should be ready to revise policy should macroeconomic conditions deteriorate significantly. Peripheral eurozone government bond yields broadly tracked core markets. UK gilt yields fell in line with U.S. Treasuries, which declined on geopolitical tensions and fears of a recession.
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