03|15|2022

Fever Pitch | March 11, 2022

AUTHOR: Jason J. Roque, MS, CFP®, APMA®, AWMA®
TITLE:       Investment Adviser Rep – CCO
TAGS:   S&P 500, NASDAQ, Rates, Inflation

The Federal Reserve would like to hike at a fever pitch. What did last week tell us about their ability to do so?

Monday                            S&P 500 2.95% | NASDAQ 3.62%

The weekend yielded enough negative news to give us a red Monday. Continued failure of ceasefire agreements spells uncertainty, which the market loves… More and more companies are coming out against Russia’s actions, resulting in more supply chain issue expectations. Interestingly, yields rose with the market fall. This was as a result of inflation concerns that would stoke the need for additional Federal Reserve Board (FRB) action.

Tuesday                            S&P 500 0.72% | NASDAQ 0.28%

The United States announced an embargo on Russian oil imports. Meanwhile, actions out of Europe were more measured. The UK announced a phase out, while the EU announced a 2/3 reduction by year end. Markets travelled between green and red all day, but one thing was consistent: the NASDAQ outperformed the S&P 500. This marks a deviation from recent norms.

Wednesday                      S&P 500 2.57% | NASDAQ 3.59%

In a stark contrast to the first few days of the week, Wednesday surged greatly. The move represents investor fears that inflation will persist, and the FRB will be able to do little about it. The inflation source will be fuel/food, which will erode consumption: the same net effect of an FRB raising interest rates. Bottomline, when you are spending on gas, you are less likely spending elsewhere.

Thursday                          S&P 500 0.43% | NASDAQ 0.95%

Investor sentiment was decidedly sour at the open as markets were down more than 1% at points. They rebounded late to cut losses. This happened in the face of a stalemate in talks over Ukraine. The driver was a statement by Putin that gave hope that oil shortages may not occur. He indicated that they would honor all energy commitments (even with countries that are not aligning with them). This brings hopes of contained inflation, which would keep from eroding consumer spending.

Friday                                S&P 500 1.29% | NASDAQ 2.17%

Markets spiked at open but faded throughout the day. Markets accelerated their losses into the close. Hurting confidence from the start of the session was weakening Consumer Sentiment. It had fallen to the low 70’s when the pandemic began, but it is now projected into the high 50’s. This is a level not seen since mid-2011, when the US breached the debt ceiling. Additionally, energy prices provided pressures to the market concerning investors that inflation would remain pervasive. The see-saw around oil prices will continue to drive investor sentiment until more certainty is known about Ukraine’s future.

Conclusion                       S&P 500 2.88% | NASDAQ 3.52%

The week looked much like the last several. The NASDAQ fell harder than the S&P 500 as inflation concerns make an FRB rate hike all but certain. This would mark the second lift off for the FRB over the last 7 years. During the last rate hike environment, the FRB increased the rate from 0.0% to 2.25% – 2.5%. The move took four years to happen. This time it is expected by many that the FRB would make that same progress in about one years’ time. This is why the aggressive repricing of stocks occurred at the start the year. Investors are pricing in the impact higher rates will have on earnings. Realistically, headline risk evolves and may cause reason for pause over time. FRB progress to 2.5% would likely take two years given headline risks.

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