After five straight weeks of gains, the S&P 500 Index posted a -0.27% return last week. The index has gained 26.21% YTD with all but two months in 2021, January and September, posting positive returns. Wednesday’s release of the October CPI numbers put downward pressure on equities with energy and information technology taking the largest lumps. CPI came in higher than expected, increasing concern that the Federal Reserve may speed up tapering and act sooner than expected in raising rates.
Treasury yields rose significantly over the course of the week on the passing of the infrastructure plan and inflation concerns. Over the previous weekend, the U.S. House of Representatives approved an infrastructure package already approved by the Senate that went on to President Biden to be signed into law. This caused traders to seek a more risk on approach on Monday, as yields rose materially. Yields reversed themselves and dropped on Tuesday, despite U.S. wholesale inflation rising in October. Federal Reserve Chairman Jerome Powell had said the previous week that the Fed would be patient about raising interest rates, so investors shrugged off inflation concerns on Tuesday. However, those concerns were realized further on Wednesday as inflation surged 0.9% MoM and 6.2% YoY, compared to estimates of 0.6% and 5.9%, respectively.