Stocks and Bonds Mixed on Fed Rate Hike and AI Concerns

Good morning,

The Dow (-1.7%), NASDAQ (+0.7%), S&P 500 (-0.1%), and EAFE (-1.6%) finished mixed for the week.  Meanwhile, taxable bonds were roughly flat, but tax-free municipal bonds fell 0.3%.  The 10-year Treasury yield rose 0.04%, finishing the week at 5.01%.  In the past, when the 10-year Treasury yield reached the 5% mark, it triggered buying, which drove the rates down.  We will see what happens this time.

• The Fed raised interest rates by 0.25% last week which was the first interest rate hike in 3 years.  While this rate hike was widely expected by investors and triggered little reaction, things quickly changed after Fed Chairman Warsh gave hawkish comments regarding inflation concerns.  Further, 16 of the 18 Fed participants expect at least one more rate hike in 2026.
• Earlier in the week, concerns were raised about AI being a danger to society and may necessitate government oversight and regulation.  Those concerns sent AI-related stocks falling.  Amazingly, those same tech stocks rebounded, and finished the week higher, as evidenced by the positive week for the NASDAQ.
• The continued rise in energy prices along with the sustained war with Iran could cause damage to the economy if these prices persist and/or go up from here.
• Despite AI concerns and the rising energy prices, the US economy continues to remain on strong footing.  In fact, the S&P 500 is still up 12.7% YTD, even with all the volatility we’ve experienced over the past six months with these headlines.

Have a great day and terrific week!

^{Source:  Yahoo Finance}

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^{The Standard & Poor’s 500 Index (S&P500) is a capitalization-weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries. The NASDAQ Composite Index measures all NASDAQ domestic and non-U.S. based common stocks listed on The NASDAQ Stock Market. The market value, the last sale price multiplied by total shares outstanding, is calculated throughout the trading day, and is related to the total value of the Index. Government bonds and Treasury bills are guaranteed by the US government as to the timely payment of principal and interest and, if held to maturity, offer a fixed rate of return and fixed principal value.}