Investment update

Weekly insight into the marketplace.

May 2 to 6, 2022

The Fed raised interest rates another half point

The key market-moving event of the week came Wednesday, when Federal Reserve (the Fed) policymakers unanimously voted to increase the benchmark rate by 50 basis points. The U.S. central bank also confirmed that it will begin selling off its holdings of treasuries and mortgage-backed securities (purchased to support the U.S. economy through the pandemic), starting in June, with the pace of tapering to accelerate over the next three months. During his first in-person press conference since the pandemic began, Fed Chair Jerome Powell explained: “Inflation is much too high and we understand the hardship it is causing and we are moving expeditiously to bring it back down.” He added that there was “a broad sense on the committee that additional 50-basis-point increases should be on the table for the next couple of meetings.” Powell also tamped down market speculation over a 75-basis-point increase coming later this year, saying it’s “not something that the committee is actively considering.” This sent equity markets into rally mode and, by Wednesday’s close, helped the major North American indexes turn in their best daily performances in almost two years.

The stock-market rallies stalled on Thursday, as investor concerns resurfaced over the ability of central banks to rein in skyrocketing inflation without triggering a recession. By Thursday’s close, the shares of 95% of S&P 500–listed companies were down. The tech-heavy Nasdaq led losses across the benchmarks, falling 5%. A sell-off in longer-duration treasuries – which influence borrowing costs for companies and households – pushed yields to multi-year highs, with the rate on the benchmark 10-year climbing to 3% for the first time since 2018.

Oil prices surged mid-week over Europe’s plans to ban Russian oil

On Wednesday, with the European Union’s announced plans to ban Russian oil by the end of the year, global oil prices surged, and futures for benchmark WTI crude rose over 5%. European Commission President Ursula von der Leyen said: “This will be a complete import ban on all Russian oil, seaborne and pipeline, crude and refined.” Global supply is tight and Europe relies heavily on Russian oil (in 2021, importing about 720,000 barrels of crude a day), making a phase-out plan extremely costly for the region.

Prices cooled on Thursday, after OPEC and its allies announced an increase in production – by 432,000 barrels a day as early as June – and the International Energy Agency said that its members were able to release more oil stockpiles, if needed. The decline was short-lived, as WTI futures rose to nearly US$110 a barrel on Friday and posted a second-straight week of gains.

Lacklustre earnings from e-commerce firms weighed on stock-market performance

On Thursday, Shopify saw its shares plunge to their lowest price since April 2020, after releasing financial results that came in below market expectations. Shares for the Canadian e-commerce software company – an influential listing in the TSX’s technology sector – have declined more than 70% this year. Investors also took notice of the company’s weak outlook for growth, with fewer merchants using their platform in 2022. E-commerce stocks have taken a beating this earnings season, given concerns that online shopping is slowing as pandemic restrictions lift. Shares of Wayfair, Etsy and eBay were all down on Thursday, as part of a broader tech-sector sell-off across stock markets. By Friday’s close, all the major North American equity benchmarks were down for a fifth-consecutive week.

The stock and bond market
Index Close Week YTD
S&P/TSX Composite 20,633.29 -0.62% -2.78%
Dow Jones Industrial Average 32,899.37 -0.24% -9.46%
S&P 500 Index 4,123.34 -0.21% -13.49%
NASDAQ Composite 12,144.66 -1.54% -22.37%
10-year Canadian Bond Yield 3.03% 0.15% 1.61%
10year US Treasury Yield 3.12% 0.23% 1.60%
WTI Crude Oil US$/barrel 109.77 4.85% 45.95%
Canadian Dollar US$0.7747 -0.36% -2.09%
Bank of Canada Prime Rate 3.20%

*Weekly performance ending May 6, 2022. Source: Bloomberg.

Key take-away

Countless factors influence market cycles. The market’s day-to-day ups and downs can cause stress and anxiety. But it’s important to put market performance into perspective, keeping your goals front and centre. A solid financial roadmap is the best way to weather ever-changing market conditions. Designing that roadmap – and staying the course – can be easier with the help of a Co-operators financial representative. You can also find strategies for navigating market volatility on our Market View page.

What’s ahead

U.S. inflation data (May 11): In March, the annual rate of inflation in the U.S. rose to 8.5% – the highest level recorded since 1981. The U.S. Bureau of Labor Statistics is scheduled to release April data on Wednesday.

Circle these dates

May 23 Canada’s TSX closed for Victoria Day holiday

May 30 U.S. markets closed for Memorial Day holiday

June 1 Bank of Canada interest-rate announcement

June 14 to 15 U.S. Federal Reserve meetings and statement

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