Market Perspective for March 13, 2022

The week of March 7 was another negative for the stock market and the fifth week in a row that the major stock market indexes declined. Russia’s ongoing war in Ukraine continued to unsettle the markets as many cease-fire announcements failed to materialize. The war has caused both the stock markets and commodities to be volatile.

Last week, the Dow Jones Industrial Average dropped for a fifth straight week, its longest losing streak since 2019. The Dow ended the week down 2 percent and has lost 9.3 percent year-to-date. The S&P 500 lost 2.9 percent and is now down 11.8 percent YTD. The news at the NASDAQ is just as gloomy, losing 3.5 percent for the week, for a year-to-date loss of 17.9 percent.

Commodities continue to increase in price. As expected, President Biden banned oil imports from Russia, causing oil prices to surge. On Monday, oil surged to $130, sending stocks down once again. At one point last Monday, the DJIA was down 573 points or 1.7 percent. The S&P 500 was down 2.1 percent, and the NASDAQ fell 2.5 percent.

Oil prices dropped back to close the week at $109.16, down 5.6 percent for the week. West Texas Intermediate is now up 46.12 percent YTD, and its 1-year price is up 83.44 percent.

Even though oil receded to these levels, gas prices at the pump continued to climb. According to AAA, as of Friday, the average for regular gas stood at $4.32 nationally, with California the highest at $5.73.

As usually happens during geopolitical concerns and inflationary worries, gold also saw an increase last week, touching $2,043 on March 7. It ended the week at $1,985, which is up 8.74 percent year-to-date, and its 1-year price is up 14.87 percent.

Inflation continued to increase. The consumer price index was released on March 12, showing that inflation has accelerated at the fastest pace since January 1982. During the past 12 months, the wide-ranging basket of consumer goods and services that make up the consumer price index increased 7.9 percent.

Excluding volatile products like food and energy, core inflation was up 6.4 percent. Even though this is in line with estimates, this is the highest increase since August 1982. The core consumer price index was up 0.5 percent for the month, again in line with what Wall Street expected for the month.

Food prices continued their upward spiral, with the food index rising 1 percent and the food at home index was up another 1.4 percent. Inflation continues to eat away at paychecks. When taking into consideration the real inflation-adjusted hourly wage for February, hourly earnings fell 0.8 percent last month and a 2.6 percent drop from a year ago.

The cost of housing or shelter, which accounts for one-third of the consumer price index, rose another 0.5 percent, with a 12-month rise of 4.7 percent. This is the fastest increase in the cost of shelter since May 1991.

It is still believed that inflation will continue until the supply chain problems ease and the price of oil drops.

For housing, supply is still the major problem. In many cities, the supply of homes is at all-time lows. For example, in Denver, the seven-county metro area had 1,486 homes for sale in February. Just five months ago, there were 5,200 homes for sale, which was half the usual number of homes for sale in 2010.

With the dropping supply of homes for sale available, prices are continuing to rise at a record-breaking pace. In Denver, sales prices for homes increased $84,000 in just 30 days.

The Federal Reserve will have its much-anticipated FOMC meeting on March 15-16. It is now widely believed that there is no chance of a 50 basis point increase and that the Fed will raise the rate by 25 basis points. A slower approach to fighting inflation now looks like the Fed will raise rates 0.25 percent at each of the next four or five FOMC meetings. Balance-sheet reductions will most likely begin in the second half of this year. What Mr. Powell says at this meeting will be just as important as the amount of the rate hike.

Source link