Global equity markets were mixed last week. We saw global markets (represented by the MSCI All Country World Index) down -0.4% and domestic stocks (represented by the S&P 500 Index) down -1.8%. It was both developed international (represented by the MSCI EAFE Index) and emerging markets (represented by the MSCI Emerging Markets Index) leading the way as both were up over 1.4% for the week.
Markets Remain Choppy on Geopolitical Concerns
While stocks got off to a strong start early in the week, sentiment changed on Thursday and Friday which put pressure on stock prices. It was a combination of inflation and geopolitical concerns driving that sentiment.
As expected, all eyes were on the inflation report last week. The Labor Department reported that the headline CPI (consumer price index) was 7.5% in January while core prices (which exclude energy and food) rose 6.0%. Those figures were above expectations.
Recent inflationary pressures are a global issue, not only domestic. In the most recent reports, the U.K. reported price increases of 5.4% and the eurozone reported 5.1%.
Markets are pricing in a very high likelihood that the Federal Reserve raises rates at their March meeting. The question is now how much they raise them. Given recent news, the expectation has shifted to the Fed being more aggressive and raising short-term rates by 0.50% instead of a 0.25% increase.
With inflation at uncomfortable levels, the natural concern is the length of time that we’ll continue to see these levels. The Federal Reserve will likely provide relief throughout 2022 via interest rate increases. We’re also hearing and seeing improvements in supply chain issues, which have clearly impacted a variety of industries globally. Below is an interesting graphic from Edward Jones and FactSet, illustrating that shipping costs and shipping bottlenecks have peaked and are easing.
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.