Last week the Dow Jones Industrial Average (-2.3%) and Russell 2000 (-2.9%) each fell more than 2.0% and the S&P 500 and Nasdaq Composite declined 1.0% and 0.8%, respectively. Nine of the 11 S&P 500 sectors finished lower. The health care sector (-3.1%) saw the steepest decline after the government left its originally proposed payment rate increase for Medicare Advantage plans for 2024-2025 unchanged at 3.70% against expectations for an increase. The real estate (-3.0%) and consumer staples (-2.7%) sectors were also notable laggards. Meanwhile, the energy (+3.9%) and communication services (+2.5%) sectors were alone with gains at the end of the week.
The downside was driven to a sharp increase in interest rates amid some solid economic data and worrying inflation figures. The yield on the 10-yr US Treasury yield jumped 12 basis points to 4.33% and the 2-yr note yield rose 10 basis points to 4.72%.
Specifically, the February Personal Spending and Income report, released on Friday March 29th (on a holiday), showed some sticky inflation figures in the form of the PCE Price Indexes. Some of last week’s data, which included the March ISM Manufacturing Index and the March employment report, reflected ongoing strength in the economy.
Furthermore, several Fed officials spoke last week and for the most part, the discourse was quite hawkish. This included Minneapolis Fed President Neel Kashkari saying it’s possible the Fed might not cut rates this year if progress on inflation stalls.
Finally, increased geopolitical tensions in the Middle East related to a potential retaliation by Iran against Israel also contributed to the negative bias this week.