Market Update 04/11/22

Katerina Berezovsky

Concerns over the Federal Reserve’s stricter monetary policy along with global supply chain pressures pushed major indexes lower from April 5 to April 11.

As a consequence of rising inflation, Fed Gov. Lael Brainard announced on Tuesday that the Fed plans to shrink its $9 trillion asset portfolio as soon as May, with potential rate increases that will supersede the initial 0.25% increase that was approved in March.

In response to the announcement, the Nasdaq composite fell 2.26%, the Dow Jones Industrial Average fell 0.8% and the S&P 500 fell 1.26%.

“Currently, inflation is much too high and is subject to upside risks,” Lael Brainard said in prepared remarks. “The Committee is prepared to take stronger action if indicators of inflation and inflation expectations indicate that such action is warranted.”

The major indexes continued to decline on Wednesday following the release of the Fed minutes, which confirmed plans for tighter monetary policy. The minutes showed that the Fed is prepared to raise rates by 0.5% during its next meeting and laid out the Fed’s plan to shrink its balance sheet.

Following two days of losses, the major indexes rebounded on Thursday, with the Dow rising 0.25%, the S&P 500 rising 0.4% and the Nasdaq rising 0.1%. The improvement in market performance follows positive economic data, showing that unemployment benefits applications fell to a 54year low during the previous week, while initial jobless claims fell from 171,000 to 166,000 during the week that ended April 2.

Thursday’s rally can also be attributed to the slight alleviation of oil prices due to the ongoing COVID-19 lockdowns in Shanghai as well as the planned release of oil reserves by the Biden administration. Compared to last month, when oil hit $130 per barrel, Thursday’s closing price of Brent crude was $96.03 per barrel, settling at $98.48 per barrel by Monday’s close.

On Friday, the major indexes finished the week in red territory. The declines continued into Monday, with the technology sector feeling the hit as its stock valuations are more sensitive to rising rates. As such, by Monday’s close, the Nasdaq declined 2.2% while the S&P 500’s technology sector lost 2.6%.

Adding onto anxieties surrounding a tighter monetary policy, investors remain concerned over rising commodity prices as the European Union and United States impose harsher sanctions on Russia.

Over the week, the EU proposed a ban on the importation of Russian coal, while the United States announced a ban on all new investments in Russia as well as other measures aimed at weakening Russia’s financial institutions.

Although the Fed has been signaling a more aggressive strategy to combat inflation, markets continue to react abruptly to new statements from the Fed. Moving forward, investors will continue to monitor new statements and advancements in Ukraine and Shanghai.

With the release of corporate earnings next week, investors will likely look to gauge how companies are faring with the current economic state and what their financial performance implies for equity markets.