March 6, 2022

Weekly Market Commentary February 28th to March 4th 2022

Chicago PMI, one of the most closely watched manufacturing gauges, disappointed by delivering a 56 reading vs. an analyst projection of 63. Although the survey still showed manufacturing expansion, New Orders and manufacturing employment reading dropped. The Dallas Fed’s regional manufacturing survey countered that narrative, showing rising order demand and employment, as well as sky-high raw material prices. Differences in COVID case counts during the survey period likely played a part in the divergence.

ISM Manufacturing, a national survey, showed an expansionary 58.6 reading vs. an estimate of 58. Employment levels expanded slowly, although new order volume was strong. Suppliers reported longer delivery times and backlogs of orders. The Services component of ISM was much weaker, falling 3.4 points from last month to 56.5. That’s the lowest reading for this gauge since November 2020, reflecting lower orders and employment, and continued supply chain struggles.

Federal Reserve Chairman Jerome Powell spoke in front of Congress on Tuesday, and his commentary was well-received by the markets. Powell expressed that the Fed can be nimble in the face of the Ukraine crisis and will almost certainly raise short-term interest rates by 0.25% at their upcoming meeting. The Fed is concluding their bond purchases (known as Quantitative Easing) this month, but it is unclear when they will begin to let bonds mature without replacing them. The speed of this maneuver will be one of the biggest factors on interest rates and stock market sentiment this year.

Friday’s Jobs Report was a slam dunk. 678,000 jobs were added, and wages didn’t budge from last month, which allows the Fed to be more cautious in raising interest rates to combat inflation. However, at 5.1% annually, wage growth is still very high by historical standards. The Unemployment Rate declined to 3.8% and the Labor Force Participation Rate increased slightly to 62.3%. The view of the labor market has changed significantly in the past few months. Job growth has been stellar, and the Labor Department has been consistently revising employment figures higher. This suggests they had trouble collecting accurate data during the most stressful period of the pandemic. Weekly Jobless Claims of 215,000, the lowest in two months, added to the good news.

Although a secondary concern relative to its humanitarian impact, the war in Ukraine has impacted U.S. markets to a significant degree. This week, the S&P 500 fell -1.3% to 4,329, while the NASDAQ slipped -2.9% to 13,313, as shares of high-flying technology stocks went out of favor for the time being. Meanwhile, the yield on the 10-year U.S. Treasury plummeted to 1.74%, after finishing last week at 1.98%. “Safe Haven” investments are in style, as gold also rose. The price of oil has been an obvious focus point as sanctions loom and demand for Russian oil declines. West Texas crude oil for April delivery now contracts for $115, compared to $92 just a week ago. Several other commodities that are produced in Russia or the Ukraine exploded in price this week, namely palladium and wheat.

Next week, important reports to watch include the monthly CPI inflation report, Job Openings, and surveys of small business and consumer optimism.

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