Seventh-straight weekly slump for U.S. stocks 

Stocks were in the ascendency earlier this week even though Fed Chairman Jerome Powell said on Tuesday the U.S. central bank would “keep pushing” interest rates higher until the pace of inflation cools. But the rally led by growth stocks quickly waned on Wednesday. The rout in retailers following weaker-than-expected quarterly results triggered a new storm, leaving the broader market on a seventh-straight weekly loss. 

The S&P 500 fell 3.05% week-over-week (-18.14% year-to-date). It could have been even worse without a wave of dip-buying activity shortly before Friday’s close. The Dow slid 2.90% or 935 points (-13.97% YTD). The Nasdaq composite shed 3.82% (-27.42% YTD). Small cap stocks remained under pressure too. The Russell 2000 closed down 1.08%, bringing its YTD return to -21.02%, beyond the bear-market threshold. 

In Europe, the MSCI EMU followed suit, though to a lesser extent (-0.79% WTD, -14.74% YTD). The FTSE 100 edged down 0.38% after struggling to stay in the green (+0.07% YTD).

Fortunately, good news came from emerging markets (MSCI EM up 3.07%, -15.97% YTD) and Asia. Chinese and Japanese markets bounced back. The Shanghai Composite shined again (+2.02%, -13.55% YTD) though retail sales data showed that the Chinese economy was harder hit by recent Covid-19 restrictions than expected. Market sentiment turned positive after China’s central bank cut a key interest rate to support the economy. Japan's Nikkei 225 rose 1.18% (-7.13% YTD). 

Tough week for consumer staples, TGT stock in the doldrums   

After Home Depot [HD] delivered improved guidance earlier this week, Walmart Inc [WMT] and Target Corporation [TGT] reported substantial drops in quarterly earnings because of higher fuel, freight, and labor costs. Last but not least, they also warned that surging prices are forcing consumers to cut their spending which is a major driver of the U.S. economy. Walmart Inc and Target Corporation stocks nosedived by 19.5% and 29% respectively, triggering a selloff in retailers that pushed consumer discretionary and staples indices below their March lows (-7.44% and -8.63% week-over-week respectively). Consumer discretionary is the worst performer among the S&P sectors since the beginning of the year (-31.78% YTD). 

Big tech also participated in the market selloff (information technology down 3.77%) as Apple shares plunged 6.47%. Communication services failed to fare better (-3.01%), weighed by Alphabet stocks (down 6.18%.)

Only three sectors managed to stay above the flatline. Energy led the pack (up +1.09% over the week) as WTI crude oil traded above $113 per barrel (+2.48%). U.S. crude oil inventories unexpectedly dropped by 2.4 million barrels last week. This is the only positive S&P 500 sector year to date (+46.41%). The most defensive corners of the market also bucked the bearish trend. Health care (+0.90%) and utilities (+0.30%) rounded out the podium.

U.S. 10-year Treasury yield falls as economic slowdown fears mount 

The U.S. 10-year Treasury yield finished down 14 basis points from +2.93% to +2.79%, pressured by safe-haven buying as investors remain worried about slowing growth amid tighter monetary policy. The yield curve continued to flatten, with the 2-year to 10-year spread narrowing from +34bps to +20bps, increasing the likelihood of an inversion. By contrast, Treasury yields stabilized in Europe. The 10-year Germany bund yield was virtually unchanged at +0.94% (-1 basis point) while the yield on the French 10-year OAT rose from +1.45% to +1.47% (+2 basis points).

Investment grade corporate bond prices were up 0.70% in the U.S. (-13.21% YTD). High-yield bond prices fell 0.32% (-9.21% YTD). Emerging debt bounced back (+2.70% in local currencies, -14.61% YTD) snapping a six-week losing streak. 

The U.S. dollar index closed lower (-1.46%) after hitting a 20-year peak last week. Lastly, gold bulls had good upside momentum on their side. The spot price was up 1.92% at $1,846.50/Oz, well above the more-than-three-month low level hit by the yellow metal last week.

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