February Market Commentary

Market Commentary

US Stocks posted a second straight negative month as uncertainties over Russia’s invasion of Ukraine and continued concerns over high inflation weighed on US markets. Earnings for S&P 500 companies have continued to be strong, but many firms are lowering their forward earning guidance as they see the economy slowing from 2021 levels. Economic news was positive over the month showing a robust economy. US hiring surged in January adding 467,000 jobs while the unemployment rate ticked up to 4% from 3.9% in December. US consumer spending rose in January, up 2.1% after being down 0.8% in December. The pace of manufacturing slowed as the spread of the Omicron variant created supply chain disruptions. Inflation continued to climb, rising 7.5% over the last twelve months, higher than the expected 7.2%. Retail sales rose by a seasonally adjusted 3.8% in January from the prior month. Home price growth jumped 18.8% in 2021 as low mortgage rates and limited supply drove prices up.

Foreign stocks fell over the month, driven by the Russian invasion of Ukraine, sanctions imposed by the West, and record high inflation in Europe. In response to the invasion, the U.S. and its allies implemented significant sanctions that limited Russian banking institutions and halted the Nord Stream 2 natural-gas pipeline. Eurozone consumer prices rose 5.8% over 2021, setting another all time record high as Russia’s invasion of Ukraine threatens to send energy costs soaring. The Bank of England enacted its first back to back rate hikes since 2004. The European Central Bank signaled its willingness to use rate increases to slow surging inflation. This was a major change from its view a few weeks prior where it said it would not raise rates this year. Oil prices touched $100 a barrel during the month for the first time since 2014 before ending at $95.12 a barrel. Oil rose 7.9% for the month as the war in Ukraine created supply shortage concerns. Emerging markets trailed developed markets in February, but have outpaced developed markets over the year to date.

Bonds declined in February driven by high inflation levels and the expectation the Fed will need to make multiple Fed Rate increases over the year. Fed officials at their January meeting discussed an accelerated timetable for raising rates with the first increase in March. After the meeting officials pushed back against the possibility they would begin with a half-percent increase. The 10-year Treasury yield climbed above 2% for the first time since 2019, before easing to end the month on the hostilities between Russia and Ukraine. The 10-year yield ended the month at 1.83% up from 1.79% to start the month. Treasuries and Munis were the top performers for the month, while credit and muni bonds led the way for the trailing year. Shorter term bonds topped longer term bonds for the month and trailing year.