After a seesaw start to the week, stocks surged 1.6% on Friday and helped the S&P 500 Index log its first weekly gain in a month1.
Following the worst week of 2023 for stocks – driven lower by hotter-than-expected inflation reports –equities bounced on Monday thanks to a weak durable goods print that provided some evidence the economy continues to cool1. The report also provided some relief, at least temporarily, for the fearful bond market.
But on Tuesday markets reversed course and ended February on a sour note. The Dow gave back more than 4% for the month, while the S&P 500 slipped more than 2.5%1. Stock prices were driven lower, in part, by rising bond yields. The 10-year Treasury yield climbed from 3.4% on February 1 to 3.9% at month end. Further, the two-year Treasury yield reached 4.8%, providing a tempting 24-month rate of return for investors looking to avoid the risks of the stock market and longer-term bonds.
The 10-year yield briefly topped 4% on Wednesday, as market participants settled into the reality that interest rates will likely stay higher and for longer than had been hoped as the new year began. Further, Minneapolis Federal Reserve President Neel Kashkari discussed being open to the possibility of a larger rate increase when the Fed meets later in March1. Financial markets had been pricing in a 25bps increase in the Fed Funds Rate, so any increase beyond that level would likely spook stock and bond investors2.
Thankfully, Atlanta Fed President Raphael Bostic came out Thursday in favor of just two more quarter-point increases, and then a pause at 5%-5.25%3. The Bostic comments spurred a relief rally that carried through Friday’s close. Stocks ended the week higher, with the S&P 500 gaining nearly 2%. Bond prices were little changed, with the benchmark 10-year Treasury yield finishing the week just under 4%1. Looking ahead, the financial markets will turn their attention to jobs, with unemployment reports and payroll data releases due later this week.
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Asset Management Department
Sequoia Investment Group
 CME FedWatch