Weekly Market Commentary March 14th to March 18th 2022
In a week where newly released economic data already seems old, one event stands out above all the rest. After months of speculation as to when they would start to raise short-term interest rates due to sky-high inflation and the rapidly improving employment situation, the Fed finally announced a quarter percent boost to short-term rates. It was completely expected and therefore shocked no one. Some of the Fed “hawks” had called for a 0.50% increase, but instead we received stronger indication that the Fed could raise rates up to six more times by the end of 2022. Stubbornly high inflation is the main driver as the days of it being “transitory” and therefore normalizing on its own, are in the rearview mirror. The Fed clearly feels ready to help and only time will tell if we can get that soft landing which has eluded so many previous Federal Reserve Boards. Through 2022, look for a series of 0.25% increases until inflation shows a pattern of returning to normalcy.
Regarding the data releases this week that are seemingly old, it’s simply because most important data that came out is from a period prior to the Ukraine war, an event that upended markets and compounded overall global economic instability. For starters, and speaking of inflation, the Producer Price Index, a key statistic in wholesale pricing, reached 10% in February indicating the hottest inflation rate in 40 years is likely to continue through the spring. Retail sales for February underwhelmed but there was a nice upwards revision for January. Remove vehicles and the results missed consensus and came in at the low end of the range. Weekly Initial Jobless Claims stayed steady in the low 200k’s. Housing Starts and Building Permits both came in slightly higher than expectations, while Existing Home Sales marginally disappointed. February is always a difficult month for housing statistics as weather can play such a variable role. Lastly, both the Industrial Production Index and Capacity Utilization rate for February both matched expectations.
The overall equity markets had a nice recovery after two down weeks and posted their best week since 2020. The Dow Jones Industrials finished up 5.5%; the S&P 500 was up 6.2%; and the Nasdaq beat both by finishing up 8.2%. In fixed income markets, yields were up across the board while the yield curve continued to flatten, even inverting at certain points on the curve. The 2-year, 10-year, and 30-year US Treasuries finished at 1.95%, 2.15%, and 2.42% respectively.
Next week’s economic releases include New Home Sales, Markit Manufacturing and Services PMI’s, Durable Goods, and weekly Initial Jobless Claims.