Friday, March 11, 2022
U.S. and International Equities
Markets Pull Back
For the second straight week, all major equity markets finished lower. The Russia-Ukraine conflict and its effects on oil prices and thus inflation have added to the previously existing monetary policy uncertainty which continues to give market participants pause.
Energy, which has dominated all S&P 500 Index sector returns year to date, continued to lead all sectors as oil recently reached levels not seen since 2008. Energy prices, the aftermath of economic sanctions levied against Russian companies, along with the strong U.S. dollar drove down international equities across the board this week.
Fixed Income Reverses Course from Week Prior
The Bloomberg Aggregate Bond Index finished lower, reversing course from last week, continuing its trek lower in 2022. This sentiment also carried over to investment-grade credit, as tracked by the Bloomberg Credit Index. High-yield corporate bonds, as tracked by the Bloomberg High Yield index, fared no better as traders continue to weigh the effects of inflation on fixed income in light of next week’s Federal Open Market Committee (FOMC) meeting.
Oil and Natural Gas Lower; Gold and Silver Shine
In what has been a banner year for the commodity so far in 2022, crude oil pulled back over 5% this week on potential diplomatic talks in Ukraine. Natural gas prices pulled back as well. Additionally, gold and silver finished the week higher while copper prices declined.
Economic Weekly Roundup
Headline Inflation Reaches 40-Year High
February’s Consumer Price Index (CPI) growth was reported at almost 8% year over year. This was in line with economists’ expectations; however it was the highest reported since early 1982. Core CPI (excluding food and energy) rose almost 6.5% year over year. Both readings were in line with economists’ expectations. High inflation reflected ongoing supply challenges in the face of continuing strong demand and the increase in energy prices, which started to spike towards the end of the month as concerns over the Russian invasion of Ukraine rose.
Growth Expectations Adjusted
LPL Research expects the U.S. economy to grow 3.7% in 2022, with risks to the downside. The U.S. economy grew over 5.5% in 2021, exhibiting strength after an unprecedented global pandemic. But as the economy marched into 2022, the Omicron variant squelched some of the rebound in economic activity. As this data came out, we saw the need to revise down our forecast for the year. The risks are to the downside since the Federal Reserve (Fed) may err on tightening too fast, the recent commodity spike may trickle down to the U.S. consumer, and supply and demand imbalances may last longer than expected.
Jobless Claims Increase Marginally
Initial claims for unemployment insurance for the week ending March 5 came in above last weeks’ total as well as above economists’ expectations. In addition, continuing claims increased marginally from the prior week and came in above economists’ estimates. This data continues to illustrate a tight labor market that is unlikely to hold back the Fed from focusing on the inflation side of its mandate in 2022.
The following economic data is slated to be released during the week ahead:
- Tuesday: February producer price index (PPI)
- Wednesday: February export/import prices, retail sales, January business inventories, National Association of Home Builders March Housing Price Index, Federal Open Market Committee (FOMC) meeting concludes
- Thursday: Weekly initial and continuing unemployment claims, February housing starts, building permits, housing starts; manufacturing production
- Friday: February leading indicators, existing home sales
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