All eyes were on the Fed chair at the Jackson Hole economic summit. Inflation was the hottest topic. Jerome Powell confirmed Friday that the Fed’s mission to fight inflation was “unconditional,” and would require “maintaining a restrictive policy stance for some time” even at the expense of economic growth. That means a weaker job market and "some pain" for households and businesses, he added.

The Dow closed sharply lower after his speech (-4.22% week-over-week, or 1,423 points, -11.16% year-to-date). The Nasdaq Composite was down 4.44% (-22.39% YTD) as Powell's hawkish tone sparked a tech rout. The S&P 500 fell 4.04% (-14.87% YTD). European markets followed suit. The MSCI EMU dropped 3.40% over the week (-17.08% YTD) while the FTSE slipped 1.63% (+0.58% YTD). Asia was not the silver lining to depressed markets. Japan’s Nikkei lost 1.00% (-0.52% YTD) and the Shanghai Composite edged down 0.67% (-11.09% YTD). 

Energy sector under the spotlight   

Despite reports indicating that a deal reviving a nuclear agreement between the Western powers and Iran was close to being agreed upon, U.S. crude oil prices rose 2.52% on the week. As a result, energy was the only S&P sector in the green (+4.27%). Interestingly, nuclear energy was the best theme this week with several funds such as Global X Uranium ETF and Sprott Uranium Miners ETF exhibiting double-digit performance. Nuclear energy sentiment is improving worldwide as governments realize that global decarbonization aligns with nuclear growth.

By contrast, Powell’s speech triggered a sea of red among the other S&P sectors with declines of between 1.33% (materials) and 5.58% (information technology with the free fall of Microsoft, down 6.31%). High-growth and tech stocks were the most severely hit as Treasury yields climbed again following the pushback from Powell. Communication services also took a nosedive (-4.82%, weighed down by Alphabet stocks which lost 5.77%) as well as consumer discretionary (-4.75%) in the wake of Amazon (down 5.41%).

Defensive sectors did not help investors weather the storm. Health care plunged 4.32%, consumer staples fell 3.33% and utilities shed 2.60%.

Upward pressure on bond yields 

U.S. government yields jumped as Powell said that the central bank would continue raising interest rates and keep them elevated for a while. The benchmark 10-year U.S. Treasury yield rose from +2.97% to +3.04% while the 2-year Treasury yield, which is very sensitive to monetary policy expectations, advanced 17 basis points to 3.40% (i.e., +36 basis points higher than the 10-year yield). It is useful to remember that an inversion of the yield curve has preceded every U.S. recession for the past half-century. 

Unsurprisingly, rising yields hit investment grade corporate bonds whose prices fell 0.51% in the U.S. and 1.03% in Europe (fourth straight week of losses). The surge in Treasury yields also hurt high-yield bond markets (down 0.64% in Europe and down 0.92% in the U.S.). On a more positive note, emerging debt edged up 0.38%.

Elsewhere, gold slid 0.66% as the U.S. dollar remained strong in the foreign exchange markets (dollar index topping 108.8). In the crypto space, Bitcoin was under intense selling pressure, falling below $20k. 

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