Market week: Stocks sink on hints of Fed hawkishness

Market week: Stocks sink on hints of Fed hawkishness

Rotation out of cyclicals as growth trade resumes


Except for the Nasdaq Composite Index, the major North American stock market gauges retreated on the week, following the U.S. Federal Reserve Board’s rate announcement on Wednesday. Leaving its federal funds rate unchanged, the Fed maintained its official dovish stance, outlined in its previous announcement, but revised its fourth quarter median inflation forecast to an annual 3% and its median growth forecast to an annual 7% in the fourth quarter.

Investors, however, took St. Louis Fed President James Bullard’s comments on Friday as a straw in the wind for possible increasnig Fed hawkishness in coming months. Bullard said in a speech he expected the Fed to raise rates in 2022, and that he was “leaning” toward the Fed’s ending purchases on mortgage-backed securities in the face of a booming housing market. Bullard is not currently a voting member of the Fed’s rate-setting Open Market Committee, but will be in 2022.

With the U.S. central bank policy rate unchanged for now, yield on the benchmark 10-year U.S. Treasury bond eased back to around 1.47% from 1.6% in early June. That triggered something of a rotation away from cyclical issues back into rate-sensitive technology and growth stocks, compounded by volatility induced by the so-called triple witching hour, as single-stock options, single-stock futures, stock-index options, and stock-index futures all expired simultaneously.

The blue-chip S&P 500 Composite Index retreated 1.9% on the week, while the technology-weighted Nasdaq Composite Index ended nearly flat edging back a marginal 0.3% on the week. Toronto’s benchmark S&P/TSX Composite Index fell 0.7% on the week, as gold fell 6.2% and energy, base metals, and industrials all came under selling pressure. Crude oil remained above water on the week, with a gain of 1.7%, for a year-to-date advance of 47.6%.

Fund news

* Franklin Templeton launches 10 new funds. Franklin Templeton Canada announced on June 17 the addition of 10 new funds to its line-up from specialist investment managers Brandywine Global, ClearBridge Investments, Martin Currie, and Royce Investment Partners. The offering consists of five funds and five ETFs.

  • Franklin Brandywine Global Sustainable Income Optimiser Active ETF (FBGO)
  • Franklin ClearBridge Sustainable Global Infrastructure Income Fund
  • Franklin ClearBridge Sustainable Global Infrastructure Income Active ETF (FCII)
  • Franklin ClearBridge Sustainable International Growth Active ETF (FCSI)
  • Franklin ClearBridge U.S. Sustainability Leaders Fund
  • Franklin Martin Currie Global Equity Fund (formerly Franklin Mutual Global Discovery Fund)
  • Franklin Martin Currie Sustainable Emerging Markets Fund
  • Franklin Martin Currie Sustainable Emerging Markets Active ETF (FSEM)
  • Franklin Martin Currie Sustainable Global Equity Active ETF (FGSG)
  • Franklin Royce Global Small Cap Premier Fund

For details, visit the Franklin Templeton website.

* Dynamic launches two new active ETFs. Dynamic Funds announced on June 15 the debut of two addtions to its Active ETF line-up: Dynamic Active Energy Evolution ETF (TSX: DXET) and Dynamic Active Emerging Markets ETF (TSX: DXEM). “Dynamic Funds remains committed to providing timely and innovative ETFs,” says Mark Brisley, Managing Director, Dynamic Funds. “This is why we are pleased to launch new Active ETFs in two exciting areas of the market – one invests in companies supporting the transition to renewable energy and the other in the evolving emerging markets space – where clients don’t typically have much exposure.”

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