Week in Review: April 1, 2022

April 4, 2022

Recap & Commentary

The S&P 500 ended the week slightly higher as equity markets continue to fluctuate from headline to headline. There has been little change to the narrative in recent weeks, with geopolitical tensions and monetary policy continuing to dominate the tape. Despite a strong finish to the month of March, the S&P 500 finished the first quarter of the year down -4.9%, snapping a streak of seven consecutive positive quarters since Q1 2020.

On the geopolitical front, optimism early in the week for a diplomatic resolution to the Russia-Ukraine conflict was reversed as a Kremlin spokesperson downplayed any notion of progress occurring during a meeting between the two countries’ delegations in Turkey. Notably, WTI Crude ended the week below $100, marking the first sub-$100 close since mid-March. News of lockdowns in Shanghai – a city of 25 million people – and the Biden Administration’s announcement for a record release of oil from the Strategic Petroleum Reserve provided a modest counter-narrative to recent supply related concerns.

The spread between yields on the 2-year and 10-year Treasury bonds turned negative this week as the Federal Reserve continues to push front-end yields higher. The 2-10 spread last inverted in late 2019 during the Fed’s most recent rate hiking cycle. The signaling power of an inversion of this part of the yields is tenuous. Bears might argue that a 2-10 inversion has preceded the last six recessions, but bulls may counter with the fact that some of these recessions have occurred as many as 24-months after inversion  and have been caused by exogenous shocks – such as the coronavirus pandemic in 2020.

Economic Commentary

The S&P/Case-Shiller Home Price Index posted a +19.2% year-over-year (yoy) growth rate in February, a slightly faster increase than expected and up sequentially from January.

The February core PCE  Price Index – the Fed’s preferred measure of inflation – rose +5.4% yoy, roughly inline with estimates. On a month-over-month basis, the core index increased +0.4%, a slight deceleration from January’s +0.5% increase, but still at a level that implies an annual rate well above the Fed’s target.

The Employment Situation report showed that non-farm payrolls rose by 431k in March as employment continues to recover from record layoffs at the onset of the pandemic. Approximately two years later, the number of total non-farm employees is just 1% below pre-pandemic levels. For reference, employment took more than six years to recover following the Great Financial Crisis. The unemployment rate came in at 3.6%, nearly back to its pre-pandemic level of 3.5%.

The March ISM Manufacturing Index came in at 57.1, below expectations and down sequentially, but still firmly in expansionary territory.

Of Note

According to the WSJ, Walmart is ending cigarette sales in some of its locations and plans to reallocate the square footage to self-checkout registers and other higher margin products. Goldman Sachs estimates that Walmart represents about 5% of U.S. cigarette sales volumes.

S&P 5000.1%
Small Caps0.7%
Intl. Developed0.8%
Intl. Emerging1.9%
U.S. Bond Market0.8%
10-Year Treas. Yield2.39%
U.S. Dollar-0.2%
WTI Oil ($/bl)$99
Gold ($/oz)$1,924

The Week Ahead

  • Durable Goods Orders
  • ISM Non-Manufacturing
  • March FOMC Minutes
  • Continuing Jobless Claims


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