Week in review:
Markets take a breath after recent turbulence from US regional banks. Last week, the US Federal Reserve hiked another 25bps, bringing the policy rate to 4.75-5.0 zone. Importantly, chairman Powell expressed a dovish tone, hinting that the hiking cycle is likely over. Along with monetary policymakers, fiscal authorities have also expressed their commitment to support the US banking system given further hardships arise. Similarly to Powell, the Treasury secretary Janet Yellen was also careful with her message, emphasizing that support from the Treasury will not be universal and would discriminate between bank and deposit types. Overall, the S&P 500 Financials sector traded flat during last week, with large systemic banks (e.g., JPMorgan, Bank of America, and Wells Fargo) mostly underperforming their smaller peers.
Overall, the outlook for markets is clearer than it was earlier this year. Extra support is likely in the short term if economic conditions worsen considerably and Fed starts cutting rates earlier than expected. It must be also noted that equities and risky assets tend to outperform in a year following the end of hiking cycles: S&P 500 has posted an average annual return of 17.6% after past 6 cycles of monetary tightening. Lastly, low-risk fixed income securities are trading at historically appealing yields, providing real income, a trait they lacked for years.
Week ahead
Macroeconomics: The list of this week’s major macroeconomic news includes speeches from monetary authorities of US Fed, ECB, and BoE, as well as inflation data from US and Europe.
Earnings: The list of this week’s major earnings releases includes BioNTech (BNTX), Carnival Corp (CCL), Walgreen Boots (WBA), Micron (MU), and Lululemon Athletica (LULU).
