Breaking the Cycle

Weekly Market Update | April 4, 2022


The MSCI AC World Index logged its third straight week of gains as oil prices continued to ease. In the United States, the S&P 500 was basically flat while the Dow Jones fell slightly, and the NASDAQ rose 0.7%. European stocks continued to rebound - adding 1.5%. The 10-year U.S. Treasury yield came off its recent high - slipping 9 basis-points to 2.38%.

The Federal Reserve is trying to break the cycle of rising prices without breaking the economic cycle. This is not an easy task and has led investors to price in an aggressive monetary policy tightening cycle. These expectations are being reflected in the bond market with the 2s10s yield curve recently inverting. A general rule of thumb is that recessions tend to occur sometime in the two years that follow an inversion. However, that rule of thumb tells us very little about near-term U.S. equity market performance.

Importantly, the future is not yet written. If inflation gradually falls and the Fed eventually shifts to a less aggressive stance, then the odds of a “soft landing” will rise. Investors will receive more guidance from the release of the Fed’s March 16th meeting minutes, which are likely to shed light on the Fed’s plans for balance sheet reduction.