March Economic Update
Escalating tensions and uncertainty between Russia and Ukraine upended markets in February, sending stocks lower for the month. While U.S. companies continued report solid earnings for the previous quarter, the market is also beginning to price-in higher interest rates as we move further into this year. The Dow Jones Industrial Average dropped 3.53%, the S&P 500 fell 3.14%, and the Nasdaq Composite slipped 3.43%. (1)
The buildup of Russian troops along the Ukrainian border dominated the headlines last month, even before it culminated in a late-February invasion. Stocks turned volatile and moved lower as hopes for a diplomatic solution faded over the course of the month.
The financial implications have revolved around the U.S. and Europe imposing sanctions against Russia in hopes of deterring further escalation in Ukraine. While the fighting has not ceased, these sanctions have inflicted tremendous economic damage to the Russian stock market which has remained closed since February 25th. As of the close on March 4th, Russia’s currency has lost 30% of its value relative to the U.S. dollar since the conflict began. (2,3)
While these sanctions were intended to inflict economic damage to Russia, negative impacts have spilled over into the western financial markets; most notably the large price increases to oil and natural gas. The potential for longer-term risks to the global markets remains to be seen and will be dependent on the course of the evolving conflict.
Interest Rates & Inflation
Amid the tensions in Europe, the markets have also been grappling with inflation which hit a 40-year high in January with consumer prices rising 7.5% year-over-year. To combat these inflationary pressures, the Federal Reserve reaffirmed its plans to raise interest rates beginning in March to slow demand for goods and services. While this may slow down the rate of inflation, it could also hinder the rate of economic growth. (2)
Over the next month, all eyes will be on the developing situation in Europe and how that unfortunate conflict may impact the U.S. and global financial markets. While it has been a choppy start to 2022, the S&P 500 has held up relatively well when compared to European and Asian stocks. We are watching for this trend to continue into March with hopes of global tensions easing.
There are also many similarities to the beginning of last year, particularly with the Nasdaq and technology sector. In February and March of 2021, the Nasdaq experienced a 10% pullback, which was largely attributed to rising interest rates - similar to the current pressures we are experiencing. The Nasdaq went on to finish the year by gaining 32% from those March lows. While we cannot assume we will have a similar move this year, it is important to properly frame this market pullback within a recent historical context.
Regardless of the month-to-month fluctuations, it is important to keep a long-term perspective while seeking opportunities to buy during pullbacks. We will continue to monitor the risk / reward ratio as we move into the end of the first quarter.
Monthly Financial Tip:
Always explore the alternatives before you make a big-ticket purchase. A few minutes of online searching may bring you exactly what you want (or close) at considerable savings.
1 WSJ.com, February 28, 2022
2. Marketwatch.com, March 01, 2022
3. Yahoo Finance, March 05, 2022
This post has been derived from sources believed to be accurate. Please note - investing involves risk, and past performance is no guarantee of future results. Bob Lawson is not engaged in rendering legal or accounting services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.