No surprise that the markets pulled back late last week, knowing the Russia/Ukraine conflict could flare up and the markets would be closed for 3 days (in honor of President’s Day). Many, including myself, believed the conflict would not escalate until after the Winter Olympics’ closing ceremony.
Investors and advisors are now dealing with 2 issues: The Federal Reserve tightening monetary policy (very late), and the Russia/Ukraine conflict.
As the Russia issue can certainly cause worries, it’s the course the Federal Reserve chooses to take going forward that will determine our economic direction. I’m guessing Chairman Powell may need Melatonin to get some shut-eye, as he grapples with how quickly to tighten and when to pause.
The average 30-year mortgage rate has already risen from 3% a year ago, to approximately 4.2%. As most of us would agree, 4.2% is extremely low historically; however with the nose-bleeding rise in housing prices, many who are not wealthy may no longer qualify for new mortgage loans. I don’t have to remind anyone how important the housing market is for the health of our economy!
Last week, all major market indexes fell with the Dow Jones losing (1.77%), the S&P 500 (1.52%), the Nasdaq (1.76%) and the Russell 2000 (1.0%).
Over the pond, equities followed suit as foreign stocks fell (1.86%) and emerging market stocks (.67%).
Bond yields held tight, as the Russia/Ukraine issue drove a little flight to safety, with the 10-Year Treasury ending last week with a yield of 1.93%.
Where do we go from here?
With markets testing the January lows, investors tend to focus on the worst-case scenarios. Certainly, if you are overweight equities, your concerns are escalated.
I’m not suggesting the markets will not move lower, as I believe in the short-term that will be the direction. Having some cash in the short-term may prove to be a good idea….
On the flip side, corporate profits are still forecasted by most prognosticators to grow by 8% this year. We still have a lot of pent-up demand with many looking forward to being able to travel freely without face coverings and/or restrictions. As the summer months inch closer, more people will be out and about spending money.
We just need the Fed to do their job responsibly!