Investment Commentary – March 2, 2022

Year to Date Market Indices as of March 2, 2022
• Dow 33,384 (-7.95%)
• S&P 4,305 (-9.38%)
• NASDAQ 13,369 (-14.12%)
• Barclay Bond Aggregate (-2.89%)
• Fed Funds Rate 0-0.25 (0-0.25) Next decision March 15th
• Annual Inflation Rate 7.5% (As of Jan 22)

Fed Chair Powell notes ‘highly uncertain’ Ukraine impact, but says rate hikes are still coming

Fed Chairman Jerome Powell said Wednesday he still sees interest rate hikes ahead though he noted the “implications for the U.S. economy are highly uncertain” from the Ukraine war.
Powell called the labor market “extremely tight” and said inflation has risen well above the Fed’s 2% target.

His remarks are part of mandatory appearances this week before House and Senate committees in Congress.

Federal Reserve Chairman Jerome Powell still sees interest rate hikes coming, but noted Wednesday that the Russia-Ukraine war has injected uncertainty into the outlook.

In remarks prepared for dual appearances this week before House and Senate committees in Congress, the central bank chief acknowledged the “tremendous hardship” the Russian invasion of Ukraine is causing.

“The implications for the U.S. economy are highly uncertain, and we will be monitoring the situation closely,” Powell said.

“The near-term effects on the U.S. economy of the invasion of Ukraine, the ongoing war, the sanctions, and of events to come, remain highly uncertain,” he added. “Making appropriate monetary policy in this environment requires a recognition that the economy evolves in unexpected ways. We will need to be nimble in responding to incoming data and the evolving outlook.”

The remarks come amid 40-year highs for inflation in the U.S., complicated by a Ukraine war that has driven oil prices to around their highest levels in a decade. Consumer prices increased 7.5% from a year ago in January, and the Fed’s preferred inflation gauge showed its strongest 12-month gain since 1983.

Powell and his fellow policymakers have been indicating for weeks that they plan to start raising benchmark interest rates to tackle inflation. He reiterated the stance Wednesday that the process will involve “interest rate increases,” along with indications that the Fed eventually will start reducing its bond holdings.

News Around The web:

Russian volatility: The impact of the Russian-Ukrainian war and resulting international economic sanctions weighed heavily on Russia’s stocks and its currency. A Russian equity index tumbled 33% on Thursday but climbed about 19% the next day. The ruble shed about 8% on Thursday before gaining around 3% on Friday.

Volatility spikes: A gauge of investors’ expectations of short-term stock volatility soared about 22% on Thursday morning to the highest level in a month, but it quickly retreated to end up slightly lower for the day. For the week, the Cboe Volatility Index—also known as the VIX—fell slightly.

Market affordability: A down day for U.S. stocks on Wednesday sent the S&P 500’s forward price-to-earnings ratio to 18.5—below its five-year average for the first time since April 2020, according to FactSet. The forward P/E ratio is a valuation measure comparing the current share price of a stock or an index with its estimated earnings per share over the next 12 months.


The week ahead:

Jobs ahead: A monthly U.S. labor market update due out on Friday will show whether the strong growth recorded in January carried over into February. In January, the economy generated 467,000 jobs—well above economists’ consensus forecast— and upward revisions to job totals in late 2021 provided a further indication of the labor market’s resilience despite the Omicron variant. (indices)