Weekly Extract | Low Prices

Week of May 2 to 6

A U-Turn back to Low Prices

The most important news of the week was the announcement by Federal Reserve Chairman Jerome Powell that the next rate hike will be 50 basis points and not 75 as expected. Despite being a threat to companies in the growth sector that have been acquiring leverage, it has been taken as a positive in relation to the estimate. For that reason, the market on Wednesday after the news, experienced a strong rally that took the S&P 500 to new highs of its average of the last few weeks and saw some companies like Starbucks (SBUX) reach over 8% before the close of the day.

However, everything that goes up must come down, and growth with volatility does not always imply sustainability. On Thursday, just hours after the open, stocks not only returned to their "normal" levels, but experienced sharp declines, wiping out any gains that could have been seen for the previous day and incurring additional potential losses for holders.

One of the possible explanations for the market's U-turn during the week may be the difficulty investors have in integrating inflation and the impact of rate hikes on asset valuations.

But the U.S. is not alone in experiencing problems with its monetary policies. Japan has announced that April saw the cost of living in Tokyo rise at the fastest pace in nearly three decades. Mainly due to rising energy prices, a result that complicates the Bank of Japan's messages about inflation and the need for continued stimulus of money supply (fresh banknotes from the printer).