Stocks down before the Good Friday holiday

Traders preferred to lighten up their exposure ahead of the long holiday weekend. The S&P 500 fell 2.13%, and the Dow Jones Industrial Average slipped 0.78%. The Nasdaq slid 2.63% as rising bond yields pressured growth stocks. The yield on the 10-year T-note reached its highest level (+2.83%) since December 2018 amid soaring inflation. The consumer price index (CPI) climbed to 8.5% in the 12 months through March, slightly above economists’ forecasts of 8.4% and far from the Federal Reserve’s 2% target. Yet the core CPI, which excludes food and energy, rose 0.3% last month, missing economists’ forecast for a rise of 0.5%. Against this challenging backdrop, it’s worth noting that small cap stocks bucked the trend (Russell 2000 up 0.52%).

Elsewhere, most equity indices closed lower. The MSCI World fell 1.74%. In Europe, the MSCI EMU edged down 0.24% and the FTSE lost 0.69%. The European Central Bank held its latest policy-setting meeting on Thursday. There was no change to the policy outlook. Unsurprisingly, the ECB left the key rates unchanged. In Asia, the Shanghai Composite lost 1.25% as Chinese shares remained pressured by the Covid-19 pandemic. By contrast, Japan's Nikkei gained 0.40% while the U.S. dollar was trading strongly, especially against the Japanese Yen.

Tech hit again by surging Treasury yields  

The pace of the surge in Treasury yields hit growth stocks, with big tech leading the decline. Information technology was the worst performer (-3.82% week-to-date) among the S&P sectors, weighed down by Microsoft (-5.77% week-over-week). Communication services were not far behind (-3.00%), as FB-Meta and Google-Alphabet plunged 5.46% and 5.04% respectively. In addition, Twitter turned negative (down -2.5%) after Elon Musk offered to buy the company for $54.20 a share. Many traders doubt that such an offer will succeed.

Health care also lost ground (-2.93%), as well as financials (-2.65%) though the latter are usually boosted by rising yields. Unfortunately, at the same time, many banks warned that expenses will continue to climb this year, hurting their margins. As a result, the financials sector faced the largest weekly net redemptions.

Despite the rally in travel-related stocks after better than feared results from Delta Airlines (stock up 15.3% over the week) pointed to strong travel demand, the consumer discretionary sector slid 0.81% with Amazon and Tesla down 1.79% and 3.95% respectively.

Only four sectors managed to stay in positive territory: materials (+0.69%), industrials (+0.43%), consumer staples (+0.15%), and energy (+0.32%) as natural gas prices jumped 14% above $7.3/MMBtu (+27.5% month-to-date) and WTI crude prices bounced back (+8.84%) after losing 13.73% over the last two weeks.

Big decline in bonds

The selloff in U.S. Treasuries deepened on Thursday, with spillover effects on the other bond segments. In Europe, the yield on German 10-year government bonds rose 13 basis points, from +0.71% to +0.84%. The yield on the French 10-year OAT topped +1.34% (+9 basis points), the highest level since September 2014 amid inflation fears and political risk in the wake of the presidential election, as the run-off between Emmanuel Macron and Marine Le Pen could be much closer than expected.

Once again, investment grade corporate bonds suffered heavy losses (-0.63% in Europe, -1.17% in the U.S.). High-yield bonds fell -0.72% in Europe and -0.15% in the U.S.

Emerging debt in local currencies edged down -0.21% as the greenback continued to strengthen (dollar index up +0.67% at 100.50, i.e. its highest level in twenty years), helped by another wave of safe-haven flows. In the same vein, gold rose again (+1.58% WTD, spot price at $1,978.24/Oz).

Lastly, it was another tough week for the major cryptocurrencies. Bitcoin [BTC] edged toward $40k (down 5.5% week-to-date) while Ethereum [ETH] plunged 7.5%, both assets moving in tandem with tech stocks.

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