Market week: Rate hike promises sink stock indexes

Inflation, Fed rate-jawboning contribute to market losses

Stock markets posted another week of losses, as the U.S. Consumer Price Index telegraphed more bad news on the rate hike front. With the CPI showing prices increasing at an annual rate of 8.3% in April, and the Producer Price Index showing wholesale prices up 11%, Federal Reserve Board Chair Jerome Power in a radio interview last week reiterated the Fed’s plans for two more rate hikes of half a percentage point each in coming months. He softened the blow by adding that the Fed isn’t “actively” considering even more aggressive hikes of three quarters of a percentage point.

With high inflation and a tight labour market, investors are pricing in a Fed-made economic cool-down – or “soft landing” – to get inflation back down close to its pre-pandemic level without plunging the economy into a full-blown recession.

Though corporate earnings have held up fairly well, stocks are being repriced mainly on the basis of a higher interest rate environment. The S&P 500 Composite Index fell 2.4% on the week, coming perilously close to the standard definition of a bear market (a sustained decline of 20% from recent highs). The technology weighted Nasdaq Composite Index fell 2.8% on the week, as billionaire Elon Musk “paused” his bid for social media platform Twitter Inc. (NYSE: TWTR), which slid to further losses on the week, joining other technology mega caps such as Amazon.com Inc. (NSD: AMZN), Apple Corp. (NSD: AAPL), and Netflix Inc. (NSD: NFLX) on the losing side of the ledger so far this year.

Toronto’s benchmark S&P/TSX Composite Index retreated 2.6% on the week, with both energy and financials losing ground. Crude oil ended the week just about flat, while gold fell 3.04%.

Monitor the main stock and commodity indexes daily with the Fund Library’s interactive Markets Page.

Fund news

* Harvest shuts down two ETFs. Harvest Portfolios Group Inc. announced on May 13 that it will be terminating the Class A and U units of the Harvest Digital Sports & Entertainment Index ETF (TSX: HSPN) and the Harvest Space Innovation Index ETF (TSX: ORBT) effective at the close of business on or about July 15, 2022.

* Fidelity terminates four bond funds. Fidelity Investments announced on May 12 that it will terminate four of its bond ETFs and associated mutual funds effective Aug. 19, 2022.

Fidelity Systematic U.S. High Yield Bond ETF (TSX: FCHY) and Fidelity Systematic U.S. High Yield Bond ETF Fund

Fidelity Systematic U.S. High Yield Bond Currency Neutral ETF (TSX: FCHH) and Fidelity Systematic U.S. High Yield Bond Currency Neutral ETF Fund

Fidelity says it will declare, pay and reinvest final distributions for these funds before termination.

* Horizons launches copper ETF. Horizons ETFs Management on May 11 announced its Horizons Copper Producers Index ETF (TSX: COPP), which will begin trading on May 17.

The fund provides exposure to companies involved in copper mining by tracking the Solactive North American Listed Copper Producers Index. The Index is designed to provide exposure to the performance of companies active in copper ore mining, including small, mid, and large-capitalization North American listed companies.

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Disclaimer

The foregoing is for general information purposes only and is the opinion of the writer. No guarantee of investment performance is made or implied. It is not intended to provide specific personalized advice including, without limitation, investment, financial, legal, accounting or tax advice.