It was another incredibly volatile week for stocks. Inflation readings came in hotter than expected on Wednesday, intensifying investor fears over the Federal Reserve’s efforts to curb prices by raising interest rates. Despite a bounce back in stocks Friday, all major averages still finished lower this week. The Dow fell more than 2%, adding to its streak of seventh straight week of losses. The tech-heavy Nasdaq dropped 2.8% on the week, while the S&P 500 slid 2.4%.

The broad-based S&P is down about 16% from its high, hovering around bear market territory, defined as down 20% or more from its prior high. It is important note that on Monday, the S&P500 nearly touched the bear market territory, but saw dip buyers come in. This should be an important level to watch (~ 3850 - 3900). The Nasdaq is already in a bear market territory.

Under the hood, Consumer Staples was the only sector to squeak out a gain for the week, with all other sectors closing in the red with real estate leading to the downside, followed by financials and information technology. Meanwhile, the U.S. dollar index moved above the 104 level. Gold pulled back slightly to around the $1,800 level. WTI crude prices are holding at around $110 per barrel. The yield on the 10-year Treasury pulled back below 3%.

Everything so bad that they're good?

On Thursday afternoon, after finally being confirmed by the Senate for his role as the Chairman of the Federal Reserve, Jerome Powell addressed the Fed's fight against inflation in an interview with Marketplace. To summarize, Powell remains that getting inflation under control is the Fed's main focus, however he cannot promise a soft-landing (getting inflation back to 2% while keeping the labor market strong) because it depends on factors he doesn't control, therefore there would be some economic pain along the way. This headline at first pass appears overwhelmingly hawkish and bearish. However, surprisingly, the market screamed many percentage points higher on Friday. We're not saying the move up is totally attributable to this comment as we were also due for an oversold bounce. Yet, it is very promising to see the market able to rally after hawkish commentary. 

Here's how we view this behavior. What Powell said was not actually new. The bond and the stock market had been doubting Powell since he said in March that he would engineer a soft landing. Put it another way, the market didn't believe Powell and was preparing for the worst. When Powell caught up with the market this Thursday, it was finally time for the market to move on, and that's how we got a powerful rally on Friday.    

Looking back

Within the portfolio this past week, we received earnings results from Disney (DIS).

The Consumer Price Index (CPI) report was released Wednesday, pointing to an 8.3% annual increase in prices, higher than the 8.1% expected but a cool-down from the 8.5% last month. Core CPI also came in hotter than expected at 6.2% versus a 6% consensus.

On Thursday, the April Producer Price Index (PPI) showed an 11% annual increase, exceeding the 10.7% estimate. Core PPI also came in stronger than expected at 6.9% year over year, versus a 6.5% consensus. 

What’s ahead

Portfolio stock reporting earnings next week include Cisco Systems (CSCO) on Wednesday after the bell.