Somewhat surprisingly, most of the major indexes closed higher after a holiday-shortened week of historic volatility sparked by Russia’s invasion of Ukraine. It appears clear that the days heading into the Federal Reserve’s March interest rate decision will be anything but tranquil. On Thursday, the Nasdaq Composite Index swung by 6.8%, the largest intraday range since the World Health Organization declared the start of the Coronavirus pandemic in March 2020. As one example of the volatility, Tesla added $100 billion to its market capitalization over the course of the day on Thursday (although it still declined roughly 5.5% over the week as a whole).
The consumer discretionary sector generally underperformed within the S&P 500 Index, as the turmoil in Europe weighed on travel-related shares. Conversely, resilience in Internet giants Alphabet (the parent company of Google) and Meta Platforms (the parent company of Facebook) supported communication services stocks. Healthcare shares were also strong.
Although a Russian incursion into Ukraine had been widely anticipated, investors appeared surprised by Russian President Vladimir Putin’s decision to launch a broad-scale invasion beyond the breakaway Donbass region. Over the previous weekend, Putin recognized the independence of the so-called Luhansk and Donetsk People’s Republics in eastern Ukraine and announced their occupation by Russian “peacekeeping” troops.
News of attacks on the capital, Kyiv, and other major cities, later in the week, sent stocks sharply lower and firmly in “correction” territory. The conflict also sent shock waves through fixed income markets. For much of the week, investors rushed into perceived safe havens, driving longer-term U.S. Treasury yields lower and the U.S. dollar higher, particularly against the Russian ruble and other emerging markets’ currencies.
That currency disparity continues to widen, as banks across the globe (even Switzerland) begin to freeze Russian bank assets. Stocks recovered, somewhat, by the end of the week, with investors feeling reassured that Western sanctions against Russia were not as severe as some feared, particularly regarding its energy sector.
Outside of the events overseas, several favorable corporate earnings reports and upside surprises in data related to January durable goods orders and personal spending also fostered the rebound. Additionally, the Federal Reserve’s preferred inflation gauge, the core personal consumption expenditures price index, rose 5.2% over the year ended in January, up from the prior month’s pace but in line with estimates. Pending home sales tumbled to a nine-month low in January, amid historically low inventory and eroding affordability in the housing market due to rising mortgage rates. IHS Markit’s flash purchasing managers’ indices (PMIs) for February revealed that the U.S. manufacturing and service sectors were growing at a faster pace following an Omicron-related lull in January.
Of course, well beyond discernment during the short-lived machinations of the markets, our prayers for peace and tranquility remain focused on the people of Ukraine. We hope that you’ll join us and focus on the promises of goodness and power presented by God in Psalm 91:3-6 “…and I will say to the Lord, ‘My refuge and my fortress, my God, in whom I trust.’ For he will deliver you from the snare of the fowler and from the deadly pestilence. He will cover you with his pinions, and under his wings you will find refuge; his faithfulness is a shield and buckler. You will not fear the terror of the night, nor the arrow that flies by day, nor the pestilence that stalks in darkness, nor the destruction that wastes at noonday.”
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