With the Fed embarking on a new course of monetary tightening amid continued fighting in Ukraine, stocks staged a powerful, broad-based rally last week.
The Dow Jones Industrial Average jumped 5.49%, while the Standard & Poor’s 500 gained 6.16%. The Nasdaq Composite index soared 8.18% for the week. The MSCI EAFE index, which tracks developed overseas stock markets, advanced 5.17%.1,2,3
Stocks Roar
After surrendering gains on Monday, stocks surged higher for four consecutive days. The rally was propelled by strong economic data, the outcome of last week’s Federal Open Market Committee (FOMC) meeting, and reports that Russia made interest payments on its sovereign debt, avoiding technical default.
The uptrend began with a drop in oil prices and a lighter-than-expected wholesale inflation report. Stock prices initially buckled following Wednesday’s hawkish FOMC announcement, but turned higher as investors interpreted the Fed’s news as a welcome plan to combat inflation. Stocks extended their gains into the final two trading sessions, cementing their best weekly performance since November 2020.4
The Fed’s Plan
For the first time since 2018, the Federal Reserve hiked the federal funds rate, increasing it by 0.25% and signaling that it expected to raise rates at a faster pace than originally outlined in December. Based on its projections of future fed fund rates, the Fed may implement seven quarter-point rate hikes this year and another three to four next year.5
In a statement following the FOMC meeting, Fed officials expressed rising concerns over inflationary pressures made more acute by the war in Ukraine. Members also indicated that they would soon announce a plan to reduce the Fed’s $9 trillion balance sheet.6
Footnotes and Sources
- The Wall Street Journal, March 18, 2022
- The Wall Street Journal, March 18, 2022
- The Wall Street Journal, March 18, 2022
- CNBC, March 18, 2022
- The Wall Street Journal, March 16, 2022
