The markets were volatile this week, with a clear character shift after the Fed statements on Wednesday. The meeting and comments from the Fed this week shifted the outlook from analysts and investors in surprising ways. In addition, the quadruple witching day on Friday added extra volatility that helped amplify what we might expect in the coming weeks.
It was a volatile week in the indexes and the sector list as investors rotated on the Fed’s new hawkish stance toward inflation . Energy ( XLE ) led early in the week, but Technology ( XLK ) topped the list by the end of the week, ending the week as the only sector to hold onto gains.
The quadruple witching day amplified some rotations that happened yesterday and brought all the major indices lower. Value stocks sold off far more than growth stocks, while the US Dollar continued to strengthen.
Technology stocks moved higher today, helping boost the Nasdaq while the other major indexes retreated. The mix of investments in growth sectors and defensive sectors show some indecision about the new Fed policy. At the same time, there was an apparent sell-off in cyclical sectors.
The Fed has spoken. The market came to life after the Fed pulled forward projected dates for interest rate hikes into 2023. As a result, the US Dollar spiked about 1%, long-term Treasury yields rose, and equities dropped. Equities found support after the initial reaction but couldn’t quite recover all the losses.
After higher than expected producer price index data this morning, investors prepared themselves for the Fed comments scheduled on Wednesday. Major indices fell on the fear that Fed officials will start to push for earlier interest rate hikes and tapering of asset purchase programs.
The Nasdaq continued its march higher while the other major indices paused or pulled back. The gains focused on mid and large-cap growth stocks.
It was a week of slow but sure advances, with every day reaching a higher high than the previous day. Only one day saw a decline in the closing price, and that was only -0.09%. Volume was high entering the week and then wained later in the week while the advance/decline line remained above 1.0 on average through the week. Crazy meme stocks aside, the week wasn’t exhilarating, but it’s a good week of building support for higher prices.
It was a mix of defensive sectors and growth stocks at the top of the sector list this week, while the cyclical sectors took a step back.
The gains in equities were small but steady through this week. On Friday, the market rallied into close and headed into the weekend with a confidence boost.