February 25, 2022

Weekly Market Commentary February 21st to February 25th 2022

It was a busy week with lots of broad-based economic data being released, including Consumer Confidence, an updated Q4 GDP estimate, New Home Sales, Durable Goods Orders and Personal Income. However, the weekly news was ultimately dominated by the invasion of Ukraine by Russia.

The HIS Markit U.S. Manufacturing PMI index kicked off the holiday-shortened week with a positive result, posting a 57.5, slightly above the estimate. The IHS Markit Services PMI, which also surprised to the upside, registering a 56.7, well-above consensus. Respondents reported that demand increased in the month, and supply chain issues remain but moderated somewhat.

The Conference Board’s Consumer Confidence reading came in at 110.5, down from 111.1 in the prior month and the second consecutive monthly decline. Overall, consumer confidence remains high in the U.S., despite surging prices, but may be showing signs of negatively impacting consumers expectations in the coming months.

The government released its second estimate for fourth-quarter growth on Thursday, revising it to 7.0%, up slightly from 6.9%, reflecting a sizable boost from inventories. Consumer spending advanced at a 3.1% pace, softer than previously reported and falling short of most estimates.

Residential sales statistics for new homes in January were at a seasonally adjusted annual rate of 801k, down -4.5% from the prior month and 19.3% below the rate from a year ago.

Friday was the busiest day of the week with Personal Income coming in flat for January, above the -0.3% estimate, while Personal Spending increased 2.1%, above the 1.6% consensus.

Durable Goods orders increased for a fourth consecutive month by 1.6%, twice the consensus expectation, driven by higher orders of transportation and machinery equipment. Excluding transportation, new orders were up 0.7%, ahead of the 0.4% estimate. Overall, durable goods orders have increased in 8 of the past 9 months.

The most anticipated release was the Personal Consumption Expenditures or PCE inflation data. PCE inflation increased 0.6% in January, matching the estimate and a 6.1% year-on-year increase. Core PCE (excluding food and energy) increased 0.5%, also matching the estimate, and a 5.2% year-on-year increase. With inflation coming in as expected it is likely that the Federal Reserve’s plans for a rate increase in March remain unchanged.

After the President’s Day long holiday weekend stocks fell Tuesday, as intensifying tensions between Russia and Ukraine weighed on market sentiment. The dollar rallied against a basket of currencies, while U.S. Treasury yields fell as investors sought safety. The S&P 500 fell for a fourth straight session Wednesday, while the DOW fell for a fifth straight day. Markets slid into correction territory, as Russia-Ukraine tensions escalated. Despite Russia’s continued military action, investors bought the dip on some of the biggest tech names during Thursday’s volatile session erasing sharp declines from earlier in the day. Stocks rose Friday on continued momentum as investors assessed the financial risks stemming from Russia’s invasion of Ukraine. After a tumultuous week, the S&P 500 closed higher by 0.8% to 4,384.

The 10-Year U.S. Treasury opened the week at 1.94% and reached a low of 1.86% on Thursday as investor angst and volatility increased but abated to end the week on hopes of talks between the Ukraine and Russia, closing at 1.97%. The yield curve remains flat with the 2-Year and 10-Year Treasury spread at 0.40%.

Key economic releases next week include regional and national manufacturing and services data and key employment data.

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