The S&P 500 (SP500) on Friday retreated 1.56% for the week to end at 5,123.41 points, posting losses in three out of five sessions. Its accompanying SPDR S&P 500 ETF Trust (NYSEARCA:SPY) slipped 1.46% for the week.
The benchmark index put in its worst weekly performance since late October last year, while extending its April losses to about 2.5%. It also notched a two-week losing streak.
This week’s decline was primarily due to yet another hotter-than-expected consumer inflation report. After last week’s stronger-than-anticipated labor market data, traders and the Federal Reserve were both watching the consumer inflation report closely in order to glean clues about the future of monetary policy.
But on Wednesday, both the headline and core consumer price index (CPI) for March increased more than anticipated on a M/M basis. On a Y/Y basis, core CPI moved further away from the Fed’s 2% inflation target.
Markets participants reacted to the data by rapidly shutting the door on a 25 basis point rate cut at the Fed’s June monetary policy committee meeting, with the CME FedWatch tool showing a ~27% probability of such a cut compared to a nearly 51% probability last week.
“The March consumer price data dominated the economic discussion this week and are the latest to support that the timing and degree of Fed easing will be later and smaller than many of us previously expected. We’re not yet there. We now expect the FOMC won’t begin to ease policy until its Sept. 18 meeting,” Wells Fargo said.
Wednesday’s dramatic sell-off in equities and bonds did stabilize to a great degree on Thursday, especially after the latest producer inflation report came in cooler than expected and, in notable global central bank action, the European Central Bank signaled that a rate cut could be coming at its next meeting.
Stocks were also pressured this week by Treasury yields, which surged to their highest levels of 2024 after the hot CPI data as investors dumped bonds. Yields recovered somewhat over Thursday and Friday, but still end with strong weekly gains.
Additionally, geopolitical tensions in the Middle East this week also played a part in denting sentiment for equities. Multiple media reports of an imminent attack on Israel by Iran by Friday or Saturday sent market participants scrambling to the relative safety of assets such as bonds and the dollar, and resulted in WTI crude oil futures (CL1:COM) fluctuating.
Finally, Friday closed out the week by kicking off the first quarter earnings season in earnest with reports from major banks and asset managers. JPMorgan (JPM) disappointed Wall Street with a soft annual net interest income guidance, while Citi (C) delivered a top and bottom line beat and Wells Fargo’s (WFC) quarterly provision for credit losses came in significantly below estimates.
Meanwhile, asset managers BlackRock (BLK) and State Street (STT) reported solid assets under management growth.
Turning to the weekly performance of the S&P 500 (SP500) sectors, all 11 ended in the red. Rate-sensitive and defensive sectors such as Financials, Health Care, Materials and Real Estate fell more than 3% each, while Technology saw a loss of just 0.2%. See below a breakdown of the performance of the sectors as well as their accompanying SPDR Select Sector ETFs from April 5 close to April 12 close:
#1: Information Technology -0.22%, and the Technology Select Sector SPDR Fund ETF (XLK) -0.50%.
#2: Communication Services -0.50%, and the Communication Services Select Sector SPDR Fund (XLC) -1.44%.
#3: Consumer Discretionary -0.68%, and the Consumer Discretionary Select Sector SPDR ETF (XLY) -0.97%.
#4: Consumer Staples -1.20%, and the Consumer Staples Select Sector SPDR Fund ETF (XLP) -1.28%.
#5: Utilities -1.49%, and the Utilities Select Sector SPDR Fund ETF (XLU) -1.47%.
#6: Energy -1.93%, and the Energy Select Sector SPDR Fund ETF (XLE) -1.99%.
#7: Industrials -2.22%, and the Industrial Select Sector SPDR Fund ETF (XLI) -2.20%.
#8: Real Estate -3.06%, and the Real Estate Select Sector SPDR Fund ETF (XLRE) -2.97%.
#9: Materials -3.10%, and the Materials Select Sector SPDR Fund ETF (XLB) -3.07%.
#10: Health Care -3.12%, and the Health Care Select Sector SPDR Fund ETF (XLV) -3.01%.
#11: Financials -3.60%, and the Financial Select Sector SPDR Fund ETF (XLF) -3.63%.
For investors looking into the future of what’s happening, take a look at the Seeking Alpha Catalyst Watch to see next week’s breakdown of actionable events that stand out.