March 11, 2022
The chart above is of the S&P 500. On the bottom left side of the chart note the red line is where the market was as of March 25th, 2021. The dotted vertical line is January 1, 2022.
Since the beginning of this year the S&P 500 has declined almost 15%. A bear market is when a market experiences prolonged price declines when securities prices fall 20% or more from recent highs amid widespread pessimism and negative investor sentiment. Very few people are saying we are in a bear market but with the Russian Invasion and rising inflation we are not far off. As noted on the right side of the chart you can see the red arrows indicating the price decline and you can also see that the market can reverse very quickly and bounce up as indicated by the green arrows. This is a very difficult trading environment. The news is driving the markets and escalating volatility. It is also impossible to know when the decline we are experiencing will be over. We will be watching for a change in sentiment which could happen very quickly.
The VIX Index closed at 30.75 slightly higher than last month at 30.15. A rising VIX is normally bearish for the markets. I prefer the VIX below 20 and a VIX below 15 is more bullish.
Percent of stocks above their 50 day and 200 day moving average: Last month 33% of stocks were above their 50-day moving average, this month only 25% are above their 50-day moving average. Last month 44% of the stocks are above their 200-day moving average, today only 35% are above their 200-day moving average. When 60% of stocks are above their 200-day moving average and the 50-day is rising, that is bullish. A sign of strength would be if the stocks above their 50-day moving average begin to rise higher, and even stronger when the 50DMA is above the 200DMA.
Federal Reserve: The next FOMC meeting announcement will be Wednesday March 16th. There is a 98% expectation that the Federal Reserve will raise rates at least a quarter percent which is expected and should not be a surprise.
Unemployment Rate: Total nonfarm payroll employment rose by 678,000 in February, and the unemployment rate edged down to 3.8 percent, the U.S. Bureau of Labor Statistics reported on March 4th. Job growth was widespread, led by gains in leisure and hospitality, professional and business services, health care, and construction.
Inflation Rate: The annual inflation rate for the United States is 7.9% for the 12 months ended February 2022 — the highest since January 1982 and after rising 7.5% previously, according to U.S. Labor Department data published March 10. The next inflation update is scheduled for release on April 12 at 8:30 a.m. ET. It will offer the rate of inflation over the 12 months ended March 2022.
The 10-year Treasury index yield: The rate today is at 2.04%, higher than last month’s close at 1.83%
Trading continues to be choppy and unpredictable. Caution is advised.
To view past Market Newsletters, go to www.freedomcapitalmanagement.com and on the home page you will see recent newsletters and for older newsletters go to the blog page tab at the top of the home page.
In this month’s recap: Stocks dropped as escalating tensions in Eastern Europe upended the market.
Monthly Economic Update
Presented by Guy Woolley, March 2022
U.S. Markets
Escalating tensions in Eastern Europe upended markets in February, sending stocks lower for the month.
The Dow Jones Industrial Average dropped 3.53 percent while the Standard & Poor’s 500 Index fell 3.14 percent, and the Nasdaq Composite lost 3.43 percent.1
Ukraine’s Influence
The buildup of Russian troops on the Ukrainian border dominated the market last month, even before it culminated in a late-February invasion. Volatile stock prices turned lower as hopes for a diplomatic solution faded over the course of the month. The S&P 500 Index fell into correction territory on the eve of the invasion.
As investors woke up to learn that the invasion was underway, stocks suffered steep declines in early trading on February 24. However, they soon staged an extraordinary rally that saw the S&P 500 end the day 1.5 percent higher, after being down more than 2.6 percent. The Nasdaq Composite closed 3.3 percent higher after dropping nearly 3.5 percent during the day. That momentum continued into the following day but then faltered on the final trading day of a difficult month for investors.2
Economy Watch
Prior to the geopolitical tensions, investors had been focused on market fundamentals like economic data and corporate earnings. Continued positive corporate earnings surprises buoyed investors, outweighing hot inflation numbers.
With the Omicron variant waning, investors were looking forward to an economic recovery in 2022, but the economic impact of the invasion may dampen that forecast. Those events have also placed the Fed in a more difficult position. It’s looking to lower inflation this year but must balance a potential slowdown in economic growth due to geopolitical events.
Sector Scorecard
Except for Energy (+7.07 percent), all industry sectors closed the month with losses, including Communications Services (-7.44 percent), Consumer Discretionary (-4.07 percent), Consumer Staples (-1.41 percent), Financials (-1.38 percent), Health Care (-0.97 percent), Industrials (-0.84 percent), Materials (-1.27 percent), Real Estate (-4.80 percent), Technology (-4.88 percent), and Utilities (-1.91 percent).3
What Investors May Be Talking About in March
The Federal Open Market Committee (FOMC) is meeting on March 15–16. The Fed is expected to announce the first of several federal fund rate hikes in 2022 and provide greater clarity on its monetary tightening plans.
While the market consensus is that the Fed will hike interest rates by 0.25percent, the Russian invasion of Ukraine has added a layer of uncertainty. Raphael Bostic, President of the Federal Reserve Bank of Atlanta, commented in a late-January interview that the Fed has not ruled out a 50-basis point hike.4
In the past, markets have reacted to FOMC meeting updates and the follow-up remarks made by Fed Chair Jerome Powell at post-meeting press conferences: March may be no different.
T I P O F T H E M O N T H
Anyone who starts a business needs an operational strategy. A good one includes metrics, a day-to-day plan detailing who will do what, and an assessment of external and internal risks.
World Markets
Overseas markets reacted to the events in Eastern Europe, as the MSCI EAFE Index slipped 2.01 percent in February.5
Major European markets were mostly lower: Germany dropped 6.53 percent, Italy fell 5.21 percent, and France lost 4.86 percent. The U.K. was flat (-0.08 percent) as it loosened its Covid-related restrictions.6
Stocks in the Pacific Rim markets were mixed, with Australia gaining 1.11 percent on higher commodity prices. China’s Hang Seng index lost 4.58 percent while Japan’s Nikkei slipped 1.76 percent.7
Indicators
Gross Domestic Product: The second update on fourth-quarter GDP was revised higher, from 6.9 percent to 7.0 percent.8
Employment: The economy added 467,000 jobs in January, exceeding expectations. The participation rate rose as the unemployment rate ticked up to 4.0 percent, which was due to more workers entering the labor market. Wages climbed 0.7 percent last month, bringing year-over-year wage increases to 5.7 percent.9
Retail Sales: Retail sales rebounded in January, rising a better-than-expected 3.8 percent. The increase was led by strong gains in furniture and home furnishing sales and in motor vehicle and vehicle parts sales.10
Industrial Production: Industrial output surged 1.4 percent, which was nearly triple the consensus expectation. Capacity utilization increased 1.0 percent, reaching its highest level since March 2019.11
Housing: Housing starts slipped 4.1 percent in January due to freezing temperatures across the nation.12
Existing home sales surged 6.7 percent as the supply of homes dropped 16.5 percent from a year earlier.13
New home sales slipped 4.5 percent from December and 19.3 percent from January 2021.14
Consumer Price Index: Inflation rose to a 40-year high, with January prices climbing 0.6 percent and year-over-year costs increasing 7.5 percent. Core inflation (excluding food and energy) grew 6.0 percent from January 2021.15
Durable Goods Orders: Orders for long lasting goods rose 1.6 percent, double the consensus estimate.16
Q U O T E O F T H E M O N T H
“You must expect great things of yourself before you can do them.”
Michael Jordan
The Fed
In minutes from the Federal Open Market Committee (FOMC) two-day meeting ending January 26, the Fed reaffirmed its plans to raise interest rates and shrink the Fed’s balance sheet. Some officials expressed concern about financial stability and the stubbornness of inflation.17
“Some (Fed) participants reported that their business contacts remained concerned about persistently high inflation and that they were adjusting their business practices to cope with higher input costs—for instance, by raising output prices or utilizing contracts that were contingent on their costs,” according to the minutes. “Participants generally expected inflation to moderate over the course of the year as supply and demand imbalances ease and monetary policy accommodation is removed.”
|
MARKET INDEX |
Y-T-D CHANGE |
February 2022 |
|
DJIA |
-6.73% |
-3.53% |
|
NASDAQ |
-12.10% |
-3.43% |
|
S&P 500 |
-8.23% |
-3.14% |
|
BOND YIELD |
Y-T-D |
February 2022 |
|
10 YR TREASURY |
0.33% |
1.84% |
Sources: Yahoo Finance, February 28, 2022
The market indexes discussed are unmanaged and generally considered representative of their respective markets. Individuals cannot directly invest in unmanaged indexes. Past performance does not guarantee future results. U.S. Treasury Notes are guaranteed by the federal government as to the timely payment of principal and interest. However, if you sell a Treasury Note prior to maturity, it may be worth more or less than the original price paid.
T H E M O N T H L Y R I D D L E
You walk into a restaurant and the wood beneath your feet is neither straight nor smooth – even though the manager tells you the wood was just laid down the night before. The pieces are uneven, yet no one trips or falls. What kind of wood is on the floor of this restaurant?
LAST MONTH’S RIDDLE: Add missing vowels to these three trios of letters to get the six-letter names of three different countries: PNM, MXC, KWT
ANSWER: Panama, Mexico, Kuwait.
Guy Woolley may be reached at 415-236-5364 or guy@freedomcapitalmanagement.com
www.freedomcapitalmanagement.com
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This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. The information herein has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. Investments will fluctuate and when redeemed may be worth more or less than when originally invested. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All market indices discussed are unmanaged and are not illustrative of any particular investment. Indices do not incur management fees, costs, or expenses. Investors cannot invest directly in indices. All economic and performance data is historical and not indicative of future results. The Dow Jones Industrial Average is a price-weighted index of 30 actively traded blue-chip stocks. The NASDAQ Composite Index is a market-weighted index of all over-the-counter common stocks traded on the National Association of Securities Dealers Automated Quotation System. The Standard & Poor’s 500 (S&P 500) is a market-cap weighted index composed of the common stocks of 500 leading companies in leading industries of the U.S. economy. The Russell 2000 Index measures the performance of the small-cap segment of the U.S. equity universe. The CBOE Volatility Index® (VIX®) is a key measure of market expectations of near-term volatility conveyed by S&P 500 stock index option prices. NYSE Group, Inc. (NYSE:NYX) operates two securities exchanges: the New York Stock Exchange (the “NYSE”) and NYSE Arca (formerly known as the Archipelago Exchange, or ArcaEx®, and the Pacific Exchange). NYSE Group is a leading provider of securities listing, trading and market data products and services. The New York Mercantile Exchange, Inc. (NYMEX) is the world’s largest physical commodity futures exchange and the preeminent trading forum for energy and precious metals, with trading conducted through two divisions – the NYMEX Division, home to the energy, platinum, and palladium markets, and the COMEX Division, on which all other metals trade. The SSE Composite Index is an index of all stocks (A shares and B shares) that are traded at the Shanghai Stock Exchange. The CAC-40 Index is a narrow-based, modified capitalization-weighted index of 40 companies listed on the Paris Bourse. The FTSEurofirst 300 Index comprises the 300 largest companies ranked by market capitalization in the FTSE Developed Europe Index. The FTSE 100 Index is a share index of the 100 companies listed on the London Stock Exchange with the highest market capitalization. Established in January 1980, the All Ordinaries is the oldest index of shares in Australia. It is made up of the share prices for 500 of the largest companies listed on the Australian Securities Exchange. The S&P/TSX Composite Index is an index of the stock (equity) prices of the largest companies on the Toronto Stock Exchange (TSX) as measured by market capitalization. The Hang Seng Index is a free float-adjusted market capitalization-weighted stock market index that is the main indicator of the overall market performance in Hong Kong. The FTSE TWSE Taiwan 50 Index is a capitalization-weighted index of stocks comprising 50 companies listed on the Taiwan Stock Exchange developed by Taiwan Stock Exchange in collaboration with FTSE. The MSCI World Index is a free-float weighted equity index that includes developed world markets and does not include emerging markets. The Mexican Stock Exchange, commonly known as Mexican Bolsa, Mexbol, or BMV, is the only stock exchange in Mexico. The U.S. Dollar Index measures the performance of the U.S. dollar against a basket of six currencies. Additional risks are associated with international investing, such as currency fluctuations, political and economic instability, and differences in accounting standards. This material represents an assessment of the market environment at a specific point in time and is not intended to be a forecast of future events or a guarantee of future results. MarketingPro, Inc. is not affiliated with any person or firm that may be providing this information to you. The publisher is not engaged in rendering legal, accounting, or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional.
CITATIONS:
1. WSJ.com, February 28, 2022
2. CNBC.com, February 23, 2022
3. SectorSpdr.com, February 28, 2022
4. CNBC.com, January 30, 2022
5. MSCI.com, February 28, 2022
6. MSCI.com, February 28, 2022
7. MSCI.com, February 28, 2022
8. CNBC.com, February 24, 2022
9. CNBC.com, February 4, 2022
10. CNBC.com, February 16, 2022
11. CNBC.com, February 16, 2022
12. Reuters.com, February 18, 2022
13. CNBC.com, February 18, 2022
14. Reuters.com, February 24, 2022
15. WSJ.com, February 10, 2022
16. FoxBusiness.com, February 25, 2022
17. CNBC.com, February 16, 2022