Markets took a risk-off tone last week as investors grappled with the twin concerns of rising covid-19 case counts and an inflation-fighting Fed. As was widely expected, Fed Chair Jerome Powell announced an increase in the pace of asset purchase tapering, and the updated “dot plot” indicated that FOMC members expect 3 rate hikes by the end of 2022.
Traditional defensive sectors registered gains on the week, including healthcare, staples, real estate, and utilities. Meanwhile, cyclicals and tech finished lower, as did small and midcap stocks. International markets were also down on the week. Bond markets rallied as the Treasury yield curve flattened once again. While 2y yields were mostly stable, 10y yields fell 8bp to finish at 1.40%, while 30y yields ended the week 7bp lower at 1.81%. Credit spreads widened moderately, resulting in more muted price gains for corporates.
Most commodity prices slipped a bit last week on concerns that omicron could impact short-term demand. Oil fell by a little less than $1/barrel.
Other economic news was mixed last week. Retail sales for November missed consensus estimates, jobless claims remained low, housing starts and new residential building permits gained strength, and inflation data (PPI and import/export prices) continue to run hotter than expected.