Choppy Markets Continue With Rates And Geopolitical At Center Stage
Choppy Markets Continue
Despite rising by mid-week, markets were negative across the board by the end of the week. We saw global markets (represented by the MSCI All Country World Index) down -1.7% and domestic stocks (represented by the S&P 500 Index) down -1.5%.
It’s no surprise that geopolitical concerns continue to weigh on market sentiment. For the second week in a row, the conflict between Russia and Ukraine dominated headlines and led to choppy markets.
With over 80% of S&P 500 companies reporting Q4 earnings, its fair to say we have a good idea of where growth rates should land. Coming into 2022, the expectation was for a 21.2% earnings growth rate for the fourth quarter. Through Friday, that expectation has increased to 30.9% for the quarter, indicating a very good earnings season for U.S. companies.
After a disappointing retail sales report in December, January showed a good bounce back. It was reported last week that the retail sales growth in January was 3.8%, which is the highest in almost a year.
Federal Reserve Meeting
The meeting minutes from the January Federal Reserve meeting were released last week. The market responded favorably, as nothing overly notable was discussed. The market already expects an interest rate increase in March and the minutes did nothing to change that expectation. The members made it clear that they also intend on aggressively reducing their balance sheet this year.
We’ve been receiving questions on the Ukraine/Russia situation quite a bit, which is understandable given the ripple effects that it can have on markets and sentiment. While the dynamics of a complex global market are more than we will discuss in this commentary, I think there are a few key areas to focus on.
First, investors should keep a long-term perspective. This conflict can go a lot of different ways and while the implications are high for certain industries and actual people living in eastern Europe, nothing has fundamentally changed for why we invest in equities for the long term. If the conflict continues to intensify, we expect markets to get a little rattled in the short term based purely on how emotional investors can react. The biggest industry affected would naturally be energy, as Russia is one of the world’s largest oil producers.
Below is a figure from Edward Jones and FactSet, showing the trajectory of oil prices over the last year. Two years ago, we went through a very emotional market pullback in the face of an uncertain pandemic, and I would urge investors to approach any major geopolitical events in the same fashion and to keep a long-term outlook on investing. If you have any detailed questions, don’t hesitate to reach out to us.
I’d like to leave you with the final line we’ve used since we started these commentaries back at the very height of market volatility in March 2020. Always remember that we create financial/investment plans not for the easy times, but to prepare for the tough ones.