Worst week since the beginning of the pandemic

US stocks sank again as investors continued to digest the Fed's 75-basis-point hike amid recession fears.

The Dow Jones industrial average sank 1,504 points or 4.79% (-17.75% year-to-date), and the tech-heavy Nasdaq dropped 4.78% (-30.98% year-to-date), while the S&P 500 fared even worse, tumbling 5.79%. The benchmark index has just entered into a bear market (-22.90% for the year). Wall Street closed out its worst week since the start of the COVID-19 pandemic in March 2020.

European indexes followed suit with weak UK growth data raising fears of an economic slowdown in the region. The MSCI EMU slumped 4.51% (-19.98% for the year) while the FTSE slipped 4.12% bringing its year-to-date performance to -4.99%. 

In Asia, the Nikkei plunged 6.69% (-9.82% for the year) while the Bank of Japan maintained ultra-low interest rates on Friday. By contrast, the Shanghai Composite edged up +0.97% (-8.87% for the year) despite China's inability to live with Covid-19.

Bloodbath for all the S&P sectors     

No matter where you look, all the S&P sectors took a drubbing. Energy stocks (best performers this year: +31.44%) were the worst performers this week (-17.16%), wiping out almost half of their annual gains. WTI crude oil prices plunged 9.21% to $109.56 from $120.67 a barrel, though gasoline inventories fell as demand from American drivers remained strong. 

There was no safe haven. More defensive sectors tumbled in unison though to a lesser extent (“best performer”: health care with a decline of -4.51%).

Tsunami in bond and crypto markets

The US 10-year Treasury yield finished up for the fourth week in a row (+7 basis points at +3.23%, just above the 2-year yield at +3.18%), on bets of steeper Fed rate hikes ahead. Unsurprisingly, Europe followed the same path with the 10-year Germany bund yield up 14 basis points, from +1.52% to +1.66%. The yield on the French 10-year OAT closed at +2.20% (+ 10 basis points), after topping +2.48% in session on Thursday. 

Against this backdrop, all the bond segments fell sharply. Investment grade corporate bonds plunged for the third consecutive week (-2.26% in Europe; -1.66% in the US, bringing their YTD performance to -16.08%). Bonds continue to move in tandem with stocks as evidenced by the double-digit losses currently suffered by both asset classes. Bond’s diversification power remains a mirage in an inflationary environment.

High-yield bonds similarly fell -3.01% in Europe and -2.51% in the US. Emerging debt in local currencies lost -2.08% (-16.98% YTD) while the Dollar Index was cooling down (around 104.65). Elsewhere, precious metals trended lower with gold down -2.36% (spot price at $1,839.39/Oz).

In the crypto space, Bitcoin [BTC] nosedived below $18k (down -32% week-over-week). Prices are now at their lowest since November 2020 reflecting their descent into hell in 2022.