Week in Review: February 25, 2022
Recap & Commentary
Markets bucked conventional wisdom by ending the week higher, not lower, following Russia’s invasion of Ukraine. In a prime example of how difficult it is to time market events and why trying to do so is often fruitless, the S&P 500 gained 3.7% in the two day’s after Russia’s invasion of Ukraine, following a 5.6% decline in the four days prior to the invasion. Interest rates were also volatile during the week, with the U.S. 10-Year Treasury yield ranging from 1.85% to 2.01%, before ending the week at 1.97%, up 0.04% from where it began the week.
Over the course of the week and into the weekend, the U.S., European Union, Japan, Australia, and others, enacted a series of economic sanctions first intended to dissuade, and then punish, Russia for its actions. The sanctions targeted a wide range of industry’s including Russia’s technology, finance, energy, aerospace, and military sectors. In addition, the foreign assets of many Russian oligarchs, and even Putin himself, were frozen. On Thursday, following the commencement of the invasion and the ongoing levying of sanctions, the Russian stock market fell 33%, while the ruble fell to an all-time low against the dollar. Both recovered some of those losses on Friday.
Determining how the ongoing conflict evolves is difficult, with conflicting reports related to Russian progress. A Russian “victory” may prove to be pyrrhic, however, depending on the extent of longer term damage, the Russian economy suffers from recently enacted sanctions. One thing that does seem certain is that after years of vacillation in which the US and Europe alternately attempted to engage and contain Putin, they will now view him firmly as an adversary.
The Federal Reserve’s preferred measure of inflation, core personal consumption expenditures (PCE) rose 5.2% in January, compared to a year ago, marking the highest level since 1983. Though the current conflict in Ukraine introduces a new degree of uncertainty with respect to global economic growth, the Fed is nonetheless expected to begin raising rates at its March meeting. Currently the market is forecasting a total of six rate hikes in 2022.
New home sales fell 4.5% in January to an annualized rate of 801K as higher mortgage rates likely weighted on activity. However, the decline followed a 12% increase in December, highlighting the degree of volatility inherent in housing data. Compared to a year ago, sales fell just over 19%.
Headline durable goods orders rose 1.6%, led by a 15.6% increase in commercial aircraft orders. Core business orders rose 0.9%, nearly twice what economists had expected, suggesting business spending remained strong to start the year.
Consumer spending jumped 2.1% in January, the largest monthly gain since March 2021, led by robust spending on durable goods including automobiles. Adjusted for inflation, spending was still strong at 1.5%. Income growth for the month was flat as higher wages were offset primarily by the end of advance Child Tax Credit payments.
Berkshire Hathaway published its annual report this weekend. The widely anticipated report generally provides as much insight into Warren Buffett’s market-view as it does the performance of Berkshire. Notable, lamenting on the scarcity of attractive investments, Buffett reported spending $27B buying back shares of Berkshire Hathaway.
|U.S. Bond Market||-0.3%|
|10-Year Treas. Yield||1.97%|
|WTI Oil ($/bl)||$92|
The Week Ahead
- Feb. Employment Report
- ISM Manufacturing
- ISM Services
- Factory Orders
- Weekly Jobless Claims