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2020 Financial Markets Update

Week in Review: March 4, 2022

Recap & Commentary

Global equity markets ended the week lower as investors remained fixated on developments surrounding Russia’s invasion of Ukraine. Investor demand for safe-haven assets drove positive fixed income returns, as yields measured by the 10-Year Treasury fell 0.24% to end the week at 1.73%. As a reminder, bond prices and yields move inversely of one another. Commodities saw strong returns as investors continued to assess the impacts of recently enacted, as well as proposed, sanctions on Russian energy supplies.

Initial expectations following Russia’s invasion of Ukraine were that they would quickly overthrow the Ukrainian government and effectively seize control of the country. However, in the face of fierce resistance, Russia’s military advances have slowed, leading to the realization that the current fighting is unlikely to end soon. While markets are unlikely to react to every twist and turn in the fighting as they did in the hours and days immediately following the invasion, major events such as the fall of large cities, successful talks between the two sides, or other unexpected developments, such as the threat to Ukraine’s nuclear reactors, will continue to influence the markets. In addition, markets will be watching closely to determine the effects of recently enacted sanctions on Russia’s economy as well as any ripple effects on the broader global economy.

Speaking before Congress, Federal Reserve Chair Jay Powell voiced his support for a 0.25% rate hike at the Fed’s March meeting. Before the fighting in Ukraine began, continued strong inflation and employment data had increased expectations that the Fed would raise rates by 0.50% in March. However according to Powell, he wants the Fed to “avoid adding uncertainty to what is already an extraordinarily challenging and uncertain moment.”

Economic Commentary

February’s employment report surprised to the upside with nonfarm payrolls adding 678K new jobs, significantly better than the consensus estimate of 400K, and up from January’s 481K. The result was a 0.2% decline in the unemployment rate, down to 3.8%. On top of the 687K individuals who found jobs in February, another 304K entered the labor force in search of work. That had the effect of boosting the labor force participation rate by 0.1% to 62.3%, the highest level since March 2020. With over 1M new jobs created in the first two months of the year, the economy has now recovered all but 2.1M of the 22M jobs lost in March and April of 2020.

Data released by industry group ISM showed that manufacturing accelerated in February, while services decelerated. Manufacturing was aided by a further improvement in new orders and additional employment gains. On the inflation front, input prices saw a slight decline but remained stubbornly high. Unlike manufacturing, the services sector experienced a slowdown in new orders and an outright decline in employment, the first since June 2021. Overall, the decline seemed to be more attributable employers attracting/retaining workers (supply side issue) than employers looking to hire (demand side issue).

Of Note

Global index providers MSCI, FTSE Russell, and S&P Dow Jones all announced that they will remove Russian equities from their benchmarks the week of March 7. The move will further isolate Russia from global equity markets.

S&P 500-1.3%
Small Caps-2.0%
Intl. Developed-6.5%
Intl. Emerging-2.3%
Commodities13.0%
U.S. Bond Market1.0%
10-Year Treas. Yield1.73%
US Dollar2.0%
WTI Oil ($/bl)$115
Gold ($/oz)$1,975

The Week Ahead

  • Consumer Inflation (CPI)
  • Consumer Sentiment
  • JOLTs Job Openings
  • Trade Balance
  • Weekly Jobless Claims

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