As March begins, the world’s eyes are fixed on the invasion of Ukraine by Russia and no one knows what the coming days hold. U.S. equity indices endured a challenging February, with Russia, interest rate uncertainty, and inflation being the main market drivers. This triple whammy created headwinds for U.S. equities throughout the month, although buyers have appeared upon the invasion—notably on February 24th and 25th.
The Russia/Ukraine Narrative
The news throughout February was consistent, labeling the Russian invasion of Ukraine as “imminent” for several weeks. This long period of anticipation sent U.S. equities into sell mode, as analysts and amateurs alike speculated on the details of the invasion.
On February 24th the event became a reality and buyers came into U.S. equities on what can be viewed as a “sell the rumor, buy the fact” type of mentality—you could call it “buying the event.”
Follow-through buying continued on February 25th, sending the Dow Jones Industrial Average higher by 834.92 points, its best day since November 2020[iv]. At the time of this writing, the invasion is a fast-developing situation–with many reports now indicating that Ukraine is defending its country in a better-than-expected[v] fashion. Ukraine seems to be sending women and children out of the country while men of all ages stay to fight for their country.
Cutting Putin off financially[vii] remains the consensus as the best way to weaken him. According to some analysts, however, many wonder if sanctions imposed by the U.S. pack enough punch to alter the course of this invasion.
The recent sanctions that include SWIFT have been viewed by many as incomplete [x]—including Ukrainian Minister Dmytro Kulba. “I will not be diplomatic. Some countries are trying to leave loopholes by excluding a number of banks so they can apply some measures with their left hands and continue to trade with Russia with their right hands,” said Kuleba.
U.S. Gas Prices Soar & Interest Rate Hike Questions Remain
And amid continued geopolitical turmoil, the question remains whether the Fed will raise interest rates at the next meeting. As of right now, it looks like a resounding yes—it’s just a question of how much.
The odds of a 0.50% hike in March increased before Russian tensions came into play. The current consensus is for a 0.25% rate hike in March (a 76% probability at the time of writing). The probability of a 0.50% rate hike is currently 24%. Probabilities are according to data from the CME[xiii].
Consumer Inflation Persists
Consumer inflation continued to run at high levels in January. February’s Consumer Price Index (CPI) data release showed inflation running higher by 7.5% for[xv] January versus one year prior—a 40-year high.
Nonfarm Payrolls: A Bright Spot
Our last read on jobs was back on February 4th, and the data was much better than expected[xvi]: 467K jobs added in January vs.150K consensus estimates. A noteworthy bright spot amidst the current landscape.
However, the good news was overshadowed quickly, with Russia dominating the headlines in the days and weeks that followed.
New Nonfarm Payrolls data will be released on March 4th. Expectations are for around 400K jobs created in February.
February featured downward price action in major U.S. equity indices, as the buildup of emotion reached an inflection point when the Russian invasion of Ukraine occurred. Interest rates and inflation remain center stage along with Ukraine and oil. It seems a game of emotional roulette is playing on the world stage.
It is an opportune time to revisit the benefits of long-term investing[xvii]. Acting on short-term emotions and news flow can be extremely challenging and damaging to an investor’s performance in the long run. This month we published an article about dollar-cost averaging and how Emerald views it that you may find interesting.
The current market landscape could provide benefits for long-term investors with certain investment objectives and risk tolerances. If you have questions about any of this information or would like to discuss it in more detail, please don’t hesitate to reach out.
Disclosure: Emerald Advisors, LLC is a registered investment adviser. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and, unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Past performance is not indicative of future performance.
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[iii] (2022, March 1). Dow Jones Industrial Average. Google.com. [online] Available at: .DJI 33,294.95 (▼1.76%) Dow Jones Industrial Average | Google Finance
[iv] Venema, K. (2022, February 25). Stock Market Today: Dow Dashes to Best Gain Since November 2020. Kiplinger.com. [online] Available at: Stock Market Today: Dow Dashes to Best Gain Since November 2020 | Kiplinger
[v] Ali, I. & Stewart, P. (2022, February 25). Russia facing more resistance than it expected in Ukraine-U.S. official. Reuters.com. [online] Available at: Russia facing more resistance than it expected in Ukraine- U.S. official | Reuters
[vi] Sangal, A., et al. Russia invades Ukraine. Cnn.com [online] Available at: Live updates: Russia invades Ukraine and Vladimir Putin news (cnn.com)
[vii] Knickmeyer, E. & Hussein, F. (2022, February 22). Here Are the Toughest Sanctions That the U.S. Could Impose on Russia over Ukraine. Time.com. [online] Available at: Here Are the Major Sanctions Russia Could Face Over Ukraine | Time
[viii] (2022, February 22). Russian sovereign debt market ‘is now effectively untradeable’: IIF economist. Finance.yahoo.com. [online] Available at: Russian sovereign debt market ‘is now effectively untradeable’: IIF economist (yahoo.com)
[ix] Casert, R., et al. (2022, February 27). West unleashes SWIFT bans, more crushing penalties on Russia. Apnews.com. [online] Available at: West unleashes SWIFT bans, more crushing penalties on Russia | AP News
[x] Barigazzi, J. (2022, February 27). Ukraine foreign minister urges EU to close SWIFT loopholes. Politico.eu. [online] Available at: Ukraine foreign minister urges EU to close SWIFT loopholes – POLITICO
[xi] Pitofsky, M. (2022, February 24). What is SWIFT? How could banning Russia from the banking system impact the country? USAtoday.com. [online] Available at: SWIFT, explained: Here’s what banning Russia from system could mean (usatoday.com)
[xiii] (2022) CME FedWatch Tool. CMEgroup.com. [online] Available at: Countdown to FOMC: CME FedWatch Tool (cmegroup.com)
[xiv] (2022, March 1). Treas Yld Index-10 Yr Nts. Google.com. [online] Available at: TNX 17.07 (▼7.18%) Treas Yld Index-10 Yr Nts | Google Finance
[xv] McCormick, E. (2022, February 10). Inflation reaches 40-year high: January CPI posts 7.5% annual gain. Finance.yahoo.com. [online] Available at: Inflation reaches 40-year high: January CPI posts 7.5% annual gain (yahoo.com)
[xvi] Cox, J. (2022, February 4). Payrolls show surprisingly powerful gain of 467,000 in January despite omicron surge. CNBC.com. [online] Available at: Jobs report January 2020: Payrolls show surprisingly strong gain of 467,000 despite omicron surge (cnbc.com)
[xvii] Dierking, D. (2021, December 31). Benefits of Holding Stocks for the Long-Term. Investopedia.com. [online] Available at: Benefits of Holding Stocks for the Long-Term (investopedia.com)