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Weekly Market Update (February 26, 2023)


S&P500 dropped more than 3% this week after the release of the Fed’s minutes. 10Y treasury yield continues to jump higher and hit 3.97% this week. The dollar continues to surge due to speculation around higher rates. The swap is now pricing in 25bps hikes in the coming 3 meetings, and traders are betting on the peak rate will surge to around 5.4% by July.

No Deflation: US inflation gauge came in above expectation, raising the wagers on additional hikes from the Fed. Many investors are expecting an additional hike in June. Other than the US, Europe’s inflation also hit a record level after the revision. ECB is expected to raise 50bps in the next meeting.

Duration Cut: Investors are positioning their portfolios to hedge against the risk of the prolonged inflation period. They tend to cut the duration (sensitivity to interest rate) to limit their exposure to the change in central bank policy. Some of them are sticking with the short-term notes as the marginal benefit from equities is too little to justify the additional risk.

Aluminum Tariff: US is going to impose a 200% tariff on Russian aluminum imports, which could ripple through the supply chains. It had fueled a jump in aluminum prices, while it retreated as market participants realized the tariff will not significantly tighten the aluminum market in the US as only 3-4% of its aluminum is imported from Russia. The supply of aluminum is also sufficient in the market.





S&P 500















*Data as of market close. 5-day change ending on Friday.



Goldman Sachs: Retail stocks fell more than 4%, underperformed the overall S&P500 this week. Market is questioning the strength and longevity of consumer spending, especially on discretionary goods.

Credit Suisse: Due to the geopolitical uncertainty, the downward pressures on the equity market increased, leading to the selloff this week. Market is concerned about the Biden’s trip to Ukraine and the coming meeting of presidents Xi and Putin.

Fixed Income

Morgan Stanley: As the recent CPI and PPI data have increased the uncertainty on the inflation progress, bond market pricing is more conservative now. 2Y breakeven rate (difference between nominal bond yield and inflation-linked bond yield) increased to nearly 3%, which is still above Fed’s 2% target. Fed is likely to overshoot than quit inflation fight early.

Julius Baer: We have witnessed the yield rise since last year, 5Y treasury yield jumped from 1% to 4%, creating a mess in the global bond market. Our expected return for corporate bonds in 10 years is at 3.8%, while for high-yield bonds is at 6.8%.


Morgan Stanley: We doubt the possibility of a “no landing” scenario. Although the stimulus is unique, the structure of the labor market has changed, the balance sheet is healthy and low locked-in borrowing costs, we believe stocks cannot ignore the consequences of the strong economy amid the tightening cycle.

J.P. Morgan: At the beginning of the month, the market priced the terminal rate lower than the FOMC’s projection. After the inflation, job and retail sales reports, market repriced the terminal rate more in line with the projection. However, the strong economic data is suggesting that inflation may stay longer than expected to align with the level of the FOMC’s mandate.


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This newsletter is meant for informational purposes only and is not investment advice. Always consult a licensed investment professional before making important investment decisions. Advertising and sponsorship do not influence editorial content or decisions. Market Hedwig is not responsible for the promises made or the quality or reliability of the products or services offered in any advertisement.


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