Attacking Nuclear Power Plant Obscures a Historic Jobs Report and Sends Markets Down for a Fourth Consecutive Week (March 4 Market Recap)
March 4 Market Recap – Attacking Nuclear Power Plant Obscures a Historic Jobs Report and Sends Markets Down for a Fourth Consecutive Week.
Dow 33,614 or (1121) or (3.2%)
Nasdaq 13,313 or (478) or (3.5%)
S&P 4,328 (90) or (2.0%)
USD10Y 1.724% (23.9 bp) or (12.17%)
The Hardest Thing to Do…
Is to do nothing. However, that is precisely what we are doing in our portfolios currently. At the inception of each relationship, and at each subsequent review, we work with our clients to ensure that they are in the proper portfolio with respect to risk, goals, and time horizon. The war in Ukraine will end or come to some type of stalemate at some point. The market will then return to fundamentals whereby the U.S. economy is strong enough to endure multiple rate hikes in the face of exploding employment growth and high and seemingly intractable inflation. While we reserve the right to make changes to the portfolio at any time, we believe that any changes will wait until our next rebalancing in mid/late April.
Russia’s War of Aggression
Putin’s insanity continued this week as Russian forces shelled and engaged in firefights at Europe’s largest nuclear power plant (six reactors), Zaporizhzhia, in Ukraine. While the fires were eventually extinguished, and international radiation monitoring stations reported no increase in radiation levels, the fact that the Russian army would put a nuclear power plant at risk sent markets shuddering mid-week.
Ukrainians continue to defy conventional wisdom that their defenses are no match for the Russian onslaught and continue to inflict meaningful losses on Russian forces. Ukrainian President Zelenskyy claimed that 10,000 Russian soldiers have been killed thus far (unconfirmed). Some 60,000 Ukrainians living abroad have returned to fight and European and United States armaments continues to flow into the country. As of now there is no end in sight to this conflict with French President Macron stating “the worst is yet to come.”
Economic Data, Inflation and The Fed
The war overshadowed everything this week, including an incredible jobs report that saw 678,000 jobs added in February. Most economic data was in line with expectations as well. However, with crude trading at $115/bbl (Brent) and the situation in the Ukraine continuing to deteriorate, fundamentals will not matter.
This week Core CPI (Consumer Price Index) will be released, and expectations are for a 7.8% increase year over year and a 0.3% increase over January. Week after next the Fed will meet and will have little choice given the inflation picture but to raise rates 0.25%. Only the war in Ukraine prevented a 50bp hike given the inflation outlook.
The President declared victory over Covid-19 in his State of the Union speech this week and for the most part, the statistics bear witness to that claim. While deaths are still unacceptably high, the expectation is that they will continue to drop rapidly in the coming weeks as it is a lagging indicator.
A light economic calendar, the last vestiges of earnings season and the Fed in their quiet period all adds up to a slow news week next week. As usual, JOLTS, Initial Jobless Claims, and the latest data point on inflation (Core CPI) will all generate headline noise.
Market Data Points Next Week
- Monday – N/A.
- Tuesday – N/A.
- Wednesday – Job Openings and Labor Turnover Survey (JOLTS).
- Thursday – Initial Jobless Claims, Core CPI.
- Friday – March Preliminary University of Michigan Consumer Sentiment.
March 4 Market Recap Trading…
Monday – Dow (166) to 33,892, Nasdaq +56 to 13,751, S&P (10) to 4,373, USD10Y (13.4) bp to 1.829%
- Seven of eleven S&P sectors traded in the red today led lower by Real Estate, Financials, and Consumer Staples. Energy was the big winner, +2.57%
- Chicago February PMI missed badly at 56.3 vs estimates of 63.4 and January’s 65.2 print.
- The broadest deepest sanctions enacted in history hit Russia today, sending the Ruble plunging 30%. To encourage the citizenry to keep their monies on deposit, the Russian Central Bank raised its interest rates from 9.5% to 20%.
Tuesday – Dow (597) to 33,294 Nasdaq (218) to 13,532, S&P (67) to 4,306, USD10Y (13.2) bp to 1.707%
- Markets traded down swiftly today as Russia’s war of aggression continues in the Ukraine. Oil traded above $100/bbl, levels not seen in seven years. Three major oil companies Shell, BP and Norway’s Equinor all announced their intent to divest from their Russian partnerships. Mastercard and Visa blocked all Russian financial institutions from their networks. The VanEck Russia ETF traded down 30% yesterday and fell an additional 19% today.
- Ten of the of the eleven S&P sectors traded down today led lower by Financials, Materials and Tech. Energy again was the best performer, up 0.76%.
- Economic Data: Jan Construction spending beat expectations, up 1.3% vs expectations of +0.2%. Feb Markit Manufacturing missed slightly while ISM Manufacturing slightly beat expectations.
- Earnings: Salesforce (CRM) beat on all metrics and traded up 3% post close. Target (TGT) crushed their earnings number on slightly fewer revenues than expected; the stock traded up 9% intraday. Kohl’s (KSS) beat on earnings, missed on revenues and issued optimistic 2022 guidance; the stock traded up 2% intraday. Nordstrom (JWN) beat on all metrics and trades up 37% post close.
Wednesday – Dow +596 to 33,891, Nasdaq +219 to 13,752, S&P +80 to 4,386, USD10Y +15.8 bp to 1.865%.
- All three indices rallied hard in a broad-based advance after Fed Chair Jerome Powell’s testimony to Congress. Powell stated that rate hikes should begin in March but had not finalized a plan to reduce its balance sheet. Further he commented that the Fed would proceed carefully as the implications of the Ukraine war become clearer.
- January Retail Sales popped 3.8% month over month bouncing back from a poor December which was revised lower from –1.9% to –2.5%. Auto sales and car parts were especially strong.
- All eleven S&P sectors traded higher today led by Financials, Materials, and Energy.
- Earnings: Snowflake (SNOW) fell 25% post close after missing revenue projections.
Thursday – Dow (622) to 34,312, Nasdaq (407) to 13,716, S&P (94) to 4,380, USD10Y (2.1) bp to 1.844%.
- Seven of the eleven S&P sectors traded higher today led by defensive sectors Real Estate, Consumer Staples, and Healthcare. Tech was the second worst performer as poor earnings reports from Snowflake (SNOW) and Okta (OKTA). Crude continued its dizzying ascent and closed at $110/bbl (Brent).
- Jobless claims beat expectations at 215,000 claims vs expected 226,000 claims and last week’s slightly revised higher print of 233,000 claims.
- Earnings: BestBuy (BBY) missed revenue expectations and reported inline earnings. The company also lowered forward guidance and announced a 26% increase of its quarterly dividend which sent the stock trading up 9.22%. Costco (COST) beat their estimates and the stock traded down 2.87% post close.
Friday – Dow (179) to 33,614, Nasdaq (224) to 13,313, S&P (34) to 4,328, USD10Y (12 bp) to 1.724%.
- Markets traded down to end a fourth street negative week. Markets were negatively influenced by last night’s attack by Russian forces on the largest nuclear power plant in Europe.
- Brent Crude traded up 6.81% and closed at $115/bbl.
- Six of the eleven S&P sectors traded negative today led lower by Financials, Tech, and Consumer Discretionary. Energy and Utilities were the two best performing sectors trading up over 2% each.
- The February Jobs report was gangbusters with an addition of 678,000 jobs vs expectations of 440,000 job and last month’s 481,000 additions.
- The Unemployment Rate dipped to 3.8% and labor participation rose by 301,000 persons to 62.3%, the highest of the pandemic era but still below the pre pandemic level of 63.4% in February 2020.
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