Powell dashes Fed pivot hopes

Unsurprisingly, the Federal Open Market Committee delivered its fourth straight rate hike of 75 basis points in November. Yet the Fed is not as close to the end of its tightening cycle as many market participants had thought it would be. Nonfarm payrolls grew by 261,000 in October, better than the estimate for 205,000. Average hourly earnings grew 4.7% from a year ago and 0.4% for the month. It’s slightly higher than the 0.3% estimate.

Wall Street's main indexes reversed two weeks of gains after Jerome Powell said Wednesday that the "ultimate level of interest rates will be higher than previously expected.” Stock markets were not hedged enough for a hawkish Powell. At the same time, we learned from the Unusual Whales twitter account that Delaware Senator Tom Carper, a Finance Committee member who said the US economy headed in the “right direction”, had bought $110K in the Ranger Equity Bear ETF (HDGE), an active fund that shorts US listed stocks. Though members of Congress are allowed to buy and sell stocks, provided that they disclose their transactions, this short position could be seen as a kind of “cognitive dissonance”, leaving a bitter taste for investors.

The S&P 500 fell 3.35% week-over-week (down 20.89% year-to-date). The Dow Jones Industrial Average slid 1.40% or 459 points (down 10.83% for the year). The tech heavy Nasdaq suffered the most (down 5.65% over the week, down more than 33% year-to-date) as Treasury yields were on the rise, putting pressure on rate-sensitive sectors such as tech.

European stocks bucked the trend with the MSCI EMU up 1.62% (-16.83% YTD). The FTSE also finished the week in positive territory (+4.07%, almost flat YTD) as the UK benchmark's dollar-earning constituents benefitted from the weaker pound (GBP-USD below 1.14). 

Same trend in Asia with the Shanghai Composite up 5.31% (down 15.63% YTD). After the recent rout in Chinese stocks, State banks have been reportedly ordered to purchase shares in an effort to prevent excessive selling. It’s worth noting that foreign investors were heading for the exit in the wake of the 20th Communist Party Congress that saw President Xi Jinping securing a third term in office and installing loyalists to the Politburo and its Standing Committee. The move appears to aim at stabilizing the local market amid weak economy and new lockdowns. Elsewhere, Japan’s Nikkei edged up 0.35% (down 5.53% YTD). In India, the NIFTY 50 rose 1.86% (up 4.40% YTD). 

Tech giants in freefall   

It was a tough week for tech giants. Most of them had missed earnings estimates last week. Surging yields dealt another blow to their market capitalization this week.

Netflix (NFLX) plunged 11.81% week-over-week (down 56.71% YTD), Alphabet (GOOG) lost 10.23% (down 40.07% YTD) and Meta platforms (META) fell 8.48% (down 73.01% YTD). As a result, communication services ended the week in deep red (-7.44%). This is the worst YTD performer (-43.03%) among the S&P sectors. Information technology was also hit hard (-6.89%) with Apple (AAPL) down 11.15% (-22.07% YTD) and Microsoft down 6.14% (-34.17% YTD). Consumer discretionary did not fare better (-5.78%) as Amazon (AMZN) took a nosedive (down 12.02% over the week, down 45.43% YTD).    

By contrast, energy stocks climbed to fresh multi-year highs, extending their winning streak to a third straight week (+2.37%). Up more than 66% so far in 2022, energy is the only S&P 500 sector delivering positive returns this year. Materials (+0.86% for the week) and industrials (+0.44%) also closed higher, boosted by earnings growth.