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March Economic Update

Market Summary

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)

Ukraine’s Impact

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)

Looking Ahead...

Over the next month, all eyes will be on the developing situation in Europe and how that unfortunate co