Stocks and bonds moved lower last week in choppy trading after the Fed enacted the first 50bp rate hike in more than 20 years (May of 2000 was the last one). The market’s initial reaction was positive, as investors expressed relief that a 75bp hike appeared to be off the table for the June meeting, and that the initial pace of Fed balance sheet reduction (aka Quantitative Tightening, or “QT”) would be somewhat slower than feared. Most major US stock indices rallied ~3% in afternoon trading on Wednesday following the Fed’s announcement and accompanying press conference.

The optimism was short-lived, however. An hour before equity markets opened on Thursday, the Bureau of Labor Statistics released a disappointing productivity number and higher-than-expected unit labor cost data for Q1, sending bond yields sharply higher as investors worried anew about inflation. Stocks had nowhere to go but lower, and the selloff quickly became self-reinforcing.

In the end, most major US benchmarks were down modestly on the week. As has been the case throughout much of 2022, energy stocks and some defensives (especially utilities) outperformed, while most growth/tech sectors lagged. Small caps and international benchmarks also underperformed, as they have for much of the year.

Finally, the carnage continues in bond markets, as rising yields pushed prices lower once again last week. Average yields on US investment grade corporates are now at 12-year highs, as are rates on 30-year fixed rate mortgages.

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