Stocks ended last week higher after rising four out of five days. The S&P 500 accelerated through Thursday before letting up on Friday to close out the week 1.66% higher. The index has returned over 22% this year despite multiple economic and geopolitical headwinds. Inflation from global supply-chain constraints continues to spook investors as evidenced by the market movement proceeding comments by Federal Reserve Chairman Jerome Powell on Friday. Investors are concerned that higher costs resulting from supply-chain disruptions will lead the Fed to raise interest rates faster than expected. This forward looking view has been offset by strong earnings reports from many companies leading major market indexes to near record highs.
Each spot rate on the U.S. Treasury Curve rose last week as yields marched higher in the face of inflation and the looming Fed taper. The fixed income market’s confidence in transitory inflation is weakening after investors digested an equity earnings week filled with supply chain issues and higher input costs. The 5-Year breakeven rate – a gauge of implied 5-year inflation expectations – surged to its highest level since being introduced in 2002. The index touched 3% on Friday before retreating to 2.90% at week end. On Friday, Fed Chairman Jerome Powell spoke at the Bank for International Settlements conference for the final time before the highly anticipated Fed policy meeting on November 2 & 3 and reaffirmed the Fed’s plan to begin asset purchase tapering this year.