Hello all - we hope your February was a nice one.
It wasn’t a great month for the markets, with the Dow lower by 3.5%, the S&P 500 lost 3.1%, and the Nasdaq, which has a higher concentration of technology companies, was down 3.4%.
It wasn’t a great month for the markets, with the Dow lower by 3.5%, the S&P 500 lost 3.1%, and the Nasdaq, which has a higher concentration of technology companies, was down 3.4%.
February may be the shortest month, but it packed a lot of action into it.
Stocks opened the month higher, but fell as it looked like the Fed was poised to pull back on their stimulus even more than expected. Putin’s invasion into Ukraine caused even more selling. Stocks posted a slight rebound late in the month as bargain-hunting investors tried to find some cheap deals.
Stocks opened the month higher, but fell as it looked like the Fed was poised to pull back on their stimulus even more than expected. Putin’s invasion into Ukraine caused even more selling. Stocks posted a slight rebound late in the month as bargain-hunting investors tried to find some cheap deals.
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Russia was the big story this month, which shouldn’t be a surprise. The markets have been very volatile this year and the Ukraine news kept that volatility high.
In fact, the markets have been so volatile that the Nasdaq index even saw a 7% move in one day - that’s something that hasn’t happened since the financial crisis over a dozen years ago!
Commodities saw even more volatility than stocks. With Russia being such a large oil producer, our already-high oil prices shot up to levels we haven’t seen since 2014.
Gold investors did well, though, as investors looking for safety found it in gold.
Not surprisingly, the Russian stock market fell sharply.
How much will this war impact our markets? We still must see how much it escalates, but in reality, it will have little impact on our economy and our businesses. For the companies in the S&P 500, only 1% of their revenue comes from either Russia or Ukraine.
However, the commodity markets will see more of an impact. Oil prices, as the earlier chart shows, will rise and so will our gas prices at the pump. They are also big exporters of other commodities like wheat, so these products will also see higher prices.
Overall, though, markets have historically moved higher during times of war (we think the decline in 2001 was more due to the dot-com bust at that time).
However, the commodity markets will see more of an impact. Oil prices, as the earlier chart shows, will rise and so will our gas prices at the pump. They are also big exporters of other commodities like wheat, so these products will also see higher prices.
Overall, though, markets have historically moved higher during times of war (we think the decline in 2001 was more due to the dot-com bust at that time).
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While the war grabbed headlines, the Fed is still likely to have the biggest impact on our markets.
The Fed has been widely expected to pull back on their stimulus and because inflation is so high, many investors believed the Fed will pull back significantly. However, the war made a large pullback less likely and this news actually helped stocks rise at the end of the month.
The chart below shows how much investors think the Fed will pull back on their stimulus. Without going into the specifics of the chart, you can clearly see how it reversed course in February, indicating investors don’t think the Fed would pull back on their stimulus as much as originally believed.
The Fed has been widely expected to pull back on their stimulus and because inflation is so high, many investors believed the Fed will pull back significantly. However, the war made a large pullback less likely and this news actually helped stocks rise at the end of the month.
The chart below shows how much investors think the Fed will pull back on their stimulus. Without going into the specifics of the chart, you can clearly see how it reversed course in February, indicating investors don’t think the Fed would pull back on their stimulus as much as originally believed.
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The economic data out this month was mostly poor.
Inflation, again, was the big topic as the inflation levels remain high. The consumer price index, or CPI, again hit its highest level in 40 years.
Inflation, again, was the big topic as the inflation levels remain high. The consumer price index, or CPI, again hit its highest level in 40 years.
Inflation at the business level (the PPI) moved slightly lower last month, though it still remains very high.
Small businesses are especially concerned with inflation. Bigger companies are better able to raise prices to offset these higher costs, but its more difficult with small businesses.
Both the manufacturing and service sectors weakened for the second-straight month.
Retail sales were higher…
…but it may be that people are spending more because inflation is higher.
Durable goods - which are items with a longer life, like a phone or dishwasher - keep rising.
Sentiment among the general public is low and falling.
Small business owners are a little less optimistic.
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Where does the market go from here?
Stocks look very oversold (cheap) and due for a rebound, but that doesn’t mean they can’t go lower as the Ukraine fight evolves. As we discussed earlier, wars have historically been good buying opportunities.
We don’t think any rise will last long, though. The days of the market steadily rising are probably over as the Fed removes more and more of its stimulus, economic growth slows, and the chance of a recession increases. There may be buying opportunities from time to time, but we think they will be short-lived.
This commentary is for informational purposes and is not investment advice, an indicator of future performance, a solicitation, an offer to buy or sell, or a recommendation for any security. It should not be used as a primary basis for making investment decisions. Consider your own financial circumstances and goals carefully before investing. Past performance cannot guarantee results.
Stocks look very oversold (cheap) and due for a rebound, but that doesn’t mean they can’t go lower as the Ukraine fight evolves. As we discussed earlier, wars have historically been good buying opportunities.
We don’t think any rise will last long, though. The days of the market steadily rising are probably over as the Fed removes more and more of its stimulus, economic growth slows, and the chance of a recession increases. There may be buying opportunities from time to time, but we think they will be short-lived.
This commentary is for informational purposes and is not investment advice, an indicator of future performance, a solicitation, an offer to buy or sell, or a recommendation for any security. It should not be used as a primary basis for making investment decisions. Consider your own financial circumstances and goals carefully before investing. Past performance cannot guarantee results.
