Keeping focused on your long-term goals

Weekly Market Commentary | Week ending March 11, 2022

Commentary provided by Mark Szycher, Vice President, Investment Specialist, AIG Retirement Services

Market Performance Snapshot* (Week ending March 11, 2022 and Year to Date)

  • Dow Jones Industrial Average®:  -2.0% | -9.3%
  • S&P 500® Index: -2.9% | -11.8%
  • NASDAQ Composite® Index: -3.5% | -17.9%
  • Russell 2000® Index: -1.1% | -11.8%
  • 10-year U.S. Treasury note yield:  2.00%
    • Up 27 basis points from 1.73% on March 4, 2022
    • Up 49 basis points from 1.51% on December 31, 2021
  • Best-performing S&P 500 sector this week: Energy, +1.9%
  • Weakest-performing S&P 500 sector this week: Consumer Staples, -5.8%

     *Past performance is no guarantee of future results.

Volatility continues across sectors and asset classes

The Russia-Ukraine conflict continued to roil markets, with equities, government bonds, and commodities all experiencing wide price swings during the week.

  • On Monday, the Dow Jones Industrial Average fell into correction—10% below its January high—and the NASDAQ Composite fell into a bear market—20% below its November high—as soaring oil prices generated fears about global economic growth, sustained inflation, and the Fed’s response. Stocks spent the rest of the week moving up and down on oil price signals and headlines from Ukraine. All major indices finished the week solidly in the red.
  • Government bonds continued their recent rollercoaster ride as war-driven economic uncertainty competed with inflation fears and expectations of rising interest rates. Prior to Monday’s open the 10-year U.S. Treasury yield dipped below 1.7%. By Friday it had risen to 2.02% and closed the week at 2.0%. The 2-year yield was also turbulent, trading between 1.46% and 1.76%, closing at 1.75%.
  • The global Brent Crude oil benchmark nearly touched $140/barrel while the U.S. West Texas Intermediate (WTI) benchmark surpassed $130—the highest since 2008—before pulling back sharply and finishing the week around$112 (Brent) and $109 (WTI), each down about 5%.
  • President Biden issued an executive order banning new U.S. imports of Russian crude oil, petroleum products, natural gas, and coal. Russia currently accounts for about 8% of U.S. oil imports. The executive order also bans Americans from investing in Russia’s energy sector. Companies will have 45 days to unwind existing positions and find alternate sources of supply. Separately, President Biden announced plans, in concert with allies, to strip Russia of Most Favored Nation trading status, which would result in higher tariffs for Russian imports.
  • The European Commission unveiled plans to reduce Europe’s dependence on Russian gas by two-thirds by the end of this year. The UK said it will phase out Russian oil imports by the end of the year while China, the largest buyer of Russian crude exports, has not indicated plans to shun Russian oil.
  • Market participants had already been effectively boycotting Russian oil exports. Shell faced backlash after buying a shipment of Russian crude at a steep discount; the company pledged to give the proceeds to charity and end purchases of Russian crude. Businesses across industries continued to shutter their Russian operations, pushing the country deeper into economic isolation. Major credit rating agencies Moody’s, S&P, and Fitch all downgraded Russian sovereign debt to levels indicative of a high likelihood of default.
  • In response to international actions, the Russian government banned exports of more than 200 goods to countries that have imposed sanctions on Russia, including the U.S. and EU, and threatened to nationalize assets of Western companies leaving the country.
  • Average U.S. gasoline prices reached $4.33/gallon according to the American Automobile Association (AAA), a rise of 50 cents in the past week and 85 cents over the last month. Rising pump prices could have broader economic ramifications by pressuring consumers who are already dealing with decades-high inflation.
  • Trading in nickel futures was halted in London on Tuesday after prices surged past $100,000/ton from under $30,000/ton the week before. The market remained closed the rest of the week. Russia is a significant producer of nickel, a key component of electric vehicle batteries, among other uses. Trading in other agricultural and metals futures was more tempered, though wheat is still up 39% in the past month and palladium up 22%. Gold, typically viewed as a safe haven asset and inflation hedge, is up nearly 7% in the past month.

Final CPI report before Fed meeting shows prices rising sharply

Inflation continued at 40-year highs as February’s Consumer Price Index (CPI) rose 0.8% for the month and 7.9% year-over-year, both figures a bit higher than expected and higher than January. Core CPI, stripping out food and energy costs, rose 0.5% for the month and 6.4% for the year, slightly lower than January on a monthly basis but higher year-over-year.

  • Gasoline, housing, and food were the biggest contributors to the headline CPI figure, with gas prices—up 6.6% in February—accounting for about a third of the increase. Food prices—up 1.0%—rose at the fastest monthly rate since April 2020. Food prices have risen 7.9% over the last 12 months, the biggest jump since July 1981.
  • Used vehicle prices dipped 0.2% in February, the first decline since September, but are up 41.2% on the year. New vehicle prices rose 0.3% for the month and 12.4% for the year.
  • February’s CPI report was the last major inflation update before the Federal Open Market Committee meets March 15-16. Policymakers are now grappling with high inflation and added economic uncertainty from the war in Ukraine. Markets are anticipating a 0.25% increase in the federal funds target rate. The Fed’s asset purchases are also scheduled to end this month.
  • On Thursday, the European Central Bank kept interest rates steady but said it will now aim to end its asset purchase program in the third quarter, earlier than previously anticipated. The Eurozone is experiencing the highest inflation on record as well as heightened energy supply and cost challenges arising from the Russia-Ukraine conflict.
  • The U.S. Department of Labor’s Job Openings and Labor Turnover Survey (JOLTS) found job openings little changed at the end of January at 11.3 million—though this followed a sharp upward revision to December’s originally reported figure. Omicron was still influencing the labor market at the time of the survey. Openings decreased in accommodation and food services as well as transportation, warehousing, and utilities, while increasing in other services and manufacturing.
  • Job quits—generally considered a sign of worker confidence in the job market—edged down in January to 4.3 million (-151,000), but remained elevated. For full-year 2021, quits reached a series high of 47.8 million compared to 42.2 million in 2019, a year in which the job market was considered strong.
  • Congress passed a bill to fund the federal government through the rest of fiscal year 2022 (ending September 30, 2022), eliminating any near-term threat of a government shutdown.

Final thoughts for investors

High inflation, high volatility, and high uncertainty make for a challenging market environment, but you don’t have to face it alone. Speak with a financial professional about staying focused on your long-term goals.

VC 30955 (03/2022)  J832201 EE

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