A Rally Amid a “Challenging” Backdrop

Weekly Market Update | June 27, 2022

Highlights

The global equity market staged an impressive rally with the MSCI World Index surging 4.8% last week. In the United States, the tech-heavy NASDAQ experienced a 7.5% comeback while the S&P 500 jumped an impressive 6.5%. The rally came on the back of a modest decline in Treasury yields and a steady decline in long-run breakeven inflation rates. Non-U.S. markets posted positive returns as well but were more muted with European stocks climbing 3.3% and Japanese stocks rising 1.7%. Emerging market stocks rose just 0.8%.

Interestingly, this rally occurred in the same week that Fed Chair Powell told Congress that a “soft” landing for the U.S. economy would be “very challenging.” While bond yields and commodity prices have been on the decline due to rising fears of an economic slowdown, they also suggest that the Fed’s desire to bring down inflation by impacting expectations may indeed be working, which could potentially lower the odds of a “hard” landing.

A prolonged, substantial rally seems a bit unlikely as the potential for a U.S. recession remains elevated with investors probably needing more signs of an “all-clear” before sentiment materially improves. However, we still suspect that the bulk of the drawdown is behind us, not in front of us.

The next Weekly Market Update will be published on July 11, 2022, as we observe U.S. Independence Day.