Weekly Market Recap

Stocks finished higher for the second straight week despite surging bond yields. The energy sector led the way with a 7.4% return on the back of a sharp rebound in oil prices, while all other sectors besides healthcare posted positive returns on the week. Small caps lagged the rally and finished slightly lower. International stocks posted smaller gains than the US, with Chinese equities temporarily range-bound after a dramatic reversal the week before.

Treasury yields rose significantly last week, particularly in the front end as increasingly bearish rates forecasts were published by sell side economists. A note from Citi on Friday predicted that the Fed would enact four consecutive 50bp hikes this year, and that the terminal Fed Funds rate would reach 3.5-3.75%, well above the ~2.8% rate currently implied by the Fed’s “dot plot”. Meanwhile, credit spreads narrowed for the second straight week, in line with the improvement in equities.

Oil prices rose by more than $9/barrel as an Iran nuclear deal looked increasingly unlikely in the near term, and Yemeni rebels stepped up attacks on Saudi Arabian Aramco facilities. Non-energy commodities also finished higher on the week. In economic news, mortgage applications and new home sales fell as mortgage rates rose, weekly jobless claims hit fresh pandemic lows, durable goods orders fell more than expected in February, and S&P’s US Manufacturing and Services PMIs exceeded expectations in preliminary March data. Overall, incoming data point to a still-strong economy with a resilient consumer, despite signs that rates are beginning to have an impact on the pace of transaction activity in housing.

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