Weekly Market Update 03/05/2022
by Justin J. Long CFP®, on Mar 05, 2022
It's been another week with the world's eyes on Ukraine. Most of the update below is related to this, but as I did last week, I want to take a moment to reflect on the message of the Diazo Insights blog we published earlier this week on recent developments of the Russia-Ukraine situation.
We can't know or control what happens next. We can hope, pray, donate, and speak out. And we can focus on what's in our control: Ourselves, our actions and reactions, and our strategies for uncertain times. Let's hug the people we love extra tightly today and be very grateful for our blessings. You can read that entire blog post here.
And now on to the recap of this week:
Week in Review: Spike in oil prices dampens risk sentiment
The stock market was afflicted by a 25% pop in oil prices, which were driven by worsening developments surrounding Russia's invasion of Ukraine. The Nasdaq Composite dropped 2.8%, followed by losses in the Russell 2000 (-2.0%), Dow Jones Industrial Average (-1.3%), and S&P 500 (-1.3%).
WTI crude futures finished the week at $115.27 per barrel, which was responsible for the 9.3% gain in the S&P 500 energy sector. The utilities (+4.8%), real estate (+1.7%), and health care (+1.2%) sectors also closed higher amid some defensive positioning.
The biggest laggards were found in the financials (-4.9%), information technology (-3.0%), communication services (-2.7%), and consumer discretionary (-2.6%) sectors, which dropped between 2-5%.
This week, Russian forces attacked civilian areas and seized Europe's largest nuclear power plant in Ukraine. Russia was undeterred by an expansion of sanctions, which blocked select Russian banks from the SWIFT financial transactions system and prevented Russia's central bank from accessing its foreign currency reserves.
Two rounds of ceasefire talks only produced an agreement to designate humanitarian corridors to safely evacuate civilians from the country. The threat of nuclear conflict (President Putin also put his nuclear forces on high alert) worsened the market's low spirits.
Fed Chair Powell said the central bank would "proceed carefully" because of the geopolitical uncertainty and that he would support hiking rates by 25 basis points later this month. He acknowledged, though, that a 50-bps hike is still possible in the future if inflation is higher than expected.
On a related note, Russia's central bank hiked its key rate to 20.0% from 9.5% to protect the ruble, which plunged against the dollar. The U.S. Dollar Index rallied 1.9% to 98.50 amid weakness in the euro.
The Treasury market was a signpost for growth concerns, which were exacerbated by disappointing guidance from high-growth story stocks, a relatively disappointing ISM Non-Manufacturing Index for February, and stagnant wage growth for February in an escalating inflationary environment.
The 10-yr yield dropped 27 basis points to 1.72%, and the 2-yr yield dropped 10 basis points to 1.49% amid expectations for the Fed to be less aggressive when it comes to removing policy accommodation.
Providing more color on the move in oil, prices received little relief from an agreement among 31 IEA member countries to release 60 million barrels of oil from their reserves. Crude futures leveled off amid speculation that a nuclear deal with Iran could be signed soon, then rallied back to the highs on news that the White House is considering a ban on Russian oil imports.
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As always, it is my pleasure to bring you this weekly update. If this or anything else is causing you pause or you would like further details, please feel free to reach out to me and we can schedule some time to chat.
Justin J. Long CFP®
Diazo Wealth Group
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Source: 1. FactSet
Source: Week in perspective provided by Briefing.com. Briefing.com offers live market analysis on their web site www.Briefing.com.
The data provided is for informational purposes only and is not an endorsement of any security, mutual fund, sector, or index. The information contained here is not guaranteed as to accuracy or completeness. All economic and performance information is historical and does not guarantee future results.
The Dow Jones Industrial Average is a price-weighted index comprising 30 widely traded blue chip U.S. common stocks. The NASDAQ Composite Index is a market-value-weighted index of all common stocks listed on the NASDAQ stock exchange. The S&P 500 Index tracks the performance of 500 of the largest publicly traded companies in the United States. The MSCI Europe, Australasia, and Far East (EAFE) Index tracks the performance of publicly traded large- and mid-cap stocks of companies in those regions. The Cboe Volatility Index (VIX) shows the market’s expectation of 30-day volatility and is constructed using the implied volatilities of a wide range of S&P 500 Index options. Weekly and year-to-date figures for the VIX show percentage changes, not investment returns. The Russell 2000 Index tracks the performance of approximately 2,000 publicly traded small-cap companies in the United States. It is not possible to invest directly in an index.
The Treasury yield curve is derived from available U.S. Treasury securities trading in the market and is provided directly by the U.S. Federal Reserve. The spread measures the difference in yield between two government securities. A normal (positive) yield curve occurs when longer-term rates are higher than shorter-term rates. The opposite holds true for an inverted yield curve. Year-to-date changes in U.S. Treasury bond yields are shown in basis points (bps). One hundred basis points equals one percent.
Oil prices are represented by West Texas Intermediate (WTI) crude oil.
The G20 countries comprise a mix of the world’s largest advanced and emerging economies, representing about two-thirds of the world’s population, 85% of global gross domestic product, and over 75% of global trade.
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