Wall Street bounces back despite Powell's hawkish comments

Wall Street's main indexes snapped a three-week losing streak though Fed Chair Jerome Powell will continue hiking rates “until the job is done.” The Fed’s “unconditional” objective is to bring inflation back down to its 2% target even if this policy threatens to send the U.S. economy into a recession, with a negative impact on risk assets.

The benchmark S&P 500 rose 3.65% week-over-week. Still, it is down 14.66% year-to-date. The Dow Jones Industrial Average gained 2.66% (down 11.52% YTD), the Nasdaq was up 4.14% (down 22.58% YTD).

European equity markets followed suit, though to a lesser extent (MSCI EMU up 0.89% bringing its YTD performance to -17.51%). The European Central Bank mirrored the Bank of Canada on Thursday with an unprecedented 75-basis-point interest rate hike. The Governing Council “expects to raise interest rates further” as inflation “is likely to stay above target for an extended period.” According to Eurostat’s flash estimate, the inflation rate reached 9.1% in August. 

Asian stock markets also recovered gradually over the week. The Shanghai Composite index added 2.37% (-10.38% YTD) as the Chinese government announced measures to support economic growth after new COVID-19 lockdowns and the risk incurred by a potential energy shortage. Japanese stocks also turned north (Nikkei up 2.04% over the week, -2.00% YTD) though data showed household spending grew at a slower-than-expected pace in July. Furthermore, wage growth eased, pointing to more pressure on Japanese consumers from surging inflation.

All 11 sectors of the S&P 500 are in positive territory   

After three weeks in the red, all the economic sectors closed higher. Energy was the poorest performer (0.60% week-over-week) as oil prices treaded water (WTI crude oil down 0.09% below $87 a barrel) on demand worries related to looming recession risks.

Unlike the previous week, consumer discretionary stocks led the pack (+5.62%) in the wake of Tesla (up 10.91%) following reports that the EV maker is considering constructing a “battery-grade lithium hydroxide refining facility.” 

Materials offset the loss suffered last week (+4.94%) as key metal prices skyrocketed (silver, platinum, palladium, copper, nickel, and uranium once again).

Broad market gains were also driven by banks (financials up 4.38%) tracking gains in Treasury yields, after the latest remarks from Fed officials. Defensive sectors fared well with health care and utilities up 4.35% and 3.68% respectively. Information technology made a comeback (+3.24%) but rising yields remain a drag on the sector.