Last week’s news was highlighted by the U.S. Federal Reserve hiking interest rates a bit, for the first time in three years. Other data included positive results for retail sales and jobless claims, flattish industrial production, and declines in housing starts. Stocks were mixed, but mostly down for the week, with higher yields and energy prices weighing on sentiment. Bonds were also mixed, as several central banks hiked shortterm rates. Commodities saw gains in metals, while energy prices were stable. U.S. stocks experienced a mixed week and began down on Monday as the prior week’s gloomy predictions about AI’s future continued to rattle general sentiment and some stocks in the sector. To some degree, this surrounded the calls for a curtailment, or at least a slowdown, in advancement of the technology, which would obviously impact the current buildout of infrastructure and advanced chip production. By Thu., stocks had celebrated the Fed rate hike, in terms of commitment to fighting inflation. Small cap stocks reacted worst to the Fed hike, as they’re notoriously more sensitive to higher rates than large caps, as they carry more short-term and floating debt. By sector, health care (medical equipment more than pharma), technology, and communications were the sole gainers for the week, while utilities and financials lagged by the largest amounts, down several percent each (Bank of America fell back after expectations of flat trading revenue for the quarter). Real estate also fell back by -2% as interest rates rose. Foreign stocks performed positively in local currency terms, but fell back after adjusting from a headwind from a stronger U.S. dollar, which was up about a percent for the week, along with the rate hike. Europe fared slightly worse than other groups, largely due to declines in France and Italy. In addition to the U.S. rate hike, the Bank of Japan raised rates by 0.25% to 1.25% (the highest level since 1995), while the Bank of England held steady at 3.75%, but pointed to potential future hikes due to high energy prices. Inflation concerns overseas remain high, due to the closer connection to Middle East oil shipments. In EM, Taiwan and China showed the sole positive results, while most other nations fell back, including Türkiye, which suffered from redemptions involving a few scandal-plagued investment funds. Bond indexes were little-changed last week, as shorter- and intermediate-duration bonds lost ground as yields rose, while long-term bonds actually gained with a leveling off in yields. The Fed raising rates was an obvious catalyst, but the move and dot plot solidified market expectations for the coming few months, settling things down. Unhedged foreign bonds lost ground, as the value of the dollar rose. Long-term rates continue as a market concern, as the 10yr and 30yr hover around to above yields of 5%+. However, as recent Capital Group/Robert Shiller data reminds us, long-term rates have been in the 3-6% range for 62% of all monthly observations from 1870-2025, so the recent return to long-term ‘normal’ continues to be something investors still aren’t used to, following years of ultra-low rates and minimal expectations for fixed income. Commodities were mixed, with minor gains in industrial and precious metals, offset by small declines in energy and agriculture. Crude oil bounced around last week but ended up down less than a percent to $99/barrel, with few major escalations in the Middle East to speak of and Saudi pipeline damage revealed to be less than first feared.
