February was an extremely volatile month for both stock and bond markets. The S&P had a daily move of over 1% in 10 of the 18 trading days of the month. That’s over 55%. For comparison, the same move occurred only 20% of the time in all of 2021. February started the month up about 2% in the first week of trading. The early rally quickly faded, though, as January CPI data came in hotter than expected, with annualized headline inflation at the highest levels since February 1982 and core inflation at its highest since August 1982. We have continually talked about our inflation concerns and its widespread impact on the stock and bond markets. The graph is telling. As troubling as inflation looks, much of the increase is in goods. The service increase has been moderate. As the supply chain loosens, the inflation in goods should moderate.
CPI’s 7.50% Year on Year validated the market’s assumption that inflation was not “Transitory” renewing calls from some Fed officials for a 50-bps rate hike at the March meeting. This weighed on both stocks and bond markets. Just as the market appeared to come to terms with the potential of a more aggressive than projected Federal Reserve rate hike, the crisis in Ukraine became front and center. Markets sank on the news of the invasion but quickly rallied back after sanctions were initially seen to be less severe than expected. After fighting picked up over the final weekend of the month, harsher sanctions were introduced, including removing some Russian banks from the SWIFT network and freezing Russian central bank assets held in the United States.
As we mentioned in the January newsletter, we continue to anticipate increased volatility in all markets until there is a resolution of this conflict. As the price of crude oil jumps to a 14 year high of 110 (1) a barrel, it is just a matter of time until the increase is reflected at the pumps. This along with overnight rate hike will wear on the consumer and the Federal Reserve will need to monitor consumer spending closely. Aggressive rate hikes coupled with higher energy prices have the potential to significancy reduce economic activity.
On a total return basis, Micro and small caps were the top performers over the month, while large-cap growth stocks took the brunt of the pain. At the sector level, Energy stocks were by far the best performers, finishing up 7.1% - the only sector to close in the green. Communications stocks were the worst performers finishing down 7%, followed by REITs, Technology, and Consumer Discretionary, which were all down between 4-5%. (2)
In our previous communication we continuously speak to increased market volatility in both stock and bond markets. Our job is to ensure proper asset class balance ensuring portfolio diversification.
As always please reach out if you have any questions.
Best regards, Bob
This material is intended for general public use and is for educational purposes only. By providing this content, Park Avenue Securities LLC is not undertaking to provide any recommendations or investment advice regarding any specific account type, service, investment strategy or product to any specific individual or situation, or to otherwise act in any fiduciary or other capacity. Please contact a financial professional for guidance and information that is specific to your individual situation. S&P 500 Index is a market index generally considered representative of the stock market as a whole. The index focuses on the large-cap segment of the U.S. equities market. NASDAQ Composite Index is a market value-weighted index that measures all NASDAQ domestic and non-U.S. based common stocks listed on the NASDAQ stock market. Each company's security affects the index in proportion to its market value. Indices are unmanaged, and one cannot invest directly in an index. Past performance is not a guarantee of future results. All investments contain risk and may lose value. Investing in the bond market is subject to certain risks including market, interest rate, issuer, credit and inflation risk. Equities may decline in value due to both real and perceived general market, economic and industry conditions Opinions expressed are those of the author and not necessarily those of Guardian or PAS. 2022-132 646 Exp 03/23
This material contains the current opinions of the author but not necessarily those of The Guardian Life Insurance Company (Guardian), New York, NY or its subsidiaries and such opinions are subject to change without notice
Sources Bloomberg, FactSet and CNBC. Sources: 1) Bloomberg 2) Nasdaq.com
Jeremy has been in the financial advisory business since 2005 after graduating from Fordham University’s School of Business. He joined Tomoro as a managing partner in 2014. During his tenure, Jeremy has consistently excelled as an advisor in both the personal household and business planning arena. As a managing partner, Jeremy also serves as a mentor to all associates and is hands-on in supporting Tomoro’s growth planning. He has completed various curriculums and certifications, such as New York University’s graduate studies in financial planning, is a Certified Exit Planning professional, and Investment Advisor Representative. He and his family reside in Colts Neck, NJ.
Registered Representative and Financial Advisor of Park Avenue Securities and Financial Representative of Guardian, AR insurance license #8401385 CA insurance license #0F94382
The S&P 500 Index is a market index generally considered representative of the stock market as a whole. The Index focuses on the large-cap segment of the U.S. equities market. The Hang Seng Index (HSI) is a market-capitalization-weighted stock market Index in Hong Kong. It is used to record and monitor daily changes of the largest companies of the Hong Kong stock market and is the main indicator of the overall market performance in Hong Kong.
Indices are unmanaged, and one cannot invest directly in an index. Past performance is not a guarantee of future results. All investments contain risk and may lose value. Investing in the bond market is subject to certain risks including market, interest rate, issuer, credit, and inflation risk. Equities may decline in value due to both real and perceived general market, economic, and industry conditions.
Statistics sources from Central Bank Rates and Bloomberg.