Stocks Post Another Weekly Loss as Earlier Gains Wane
U.S. equities finished lower, posting another week of losses in the process, as early gains that followed positive comments from Russian President Putin noting certain positive shifts in Ukraine talks, were curbed by reports that Russia has intensified its invasion in the country. Some news out of Washington was digested, as the Senate passed a $1.5 trillion omnibus bill yesterday that will avert a partial government shutdown and will provide $13.6 billion in aid for Ukraine, among other provisions. On the equity front, Oracle Corporation missed earnings forecasts, but revenue grew in line with expectations. In economic news, the preliminary University of Michigan Consumer Sentiment Index for March showed that sentiment cooled more than expected, and the 1-year inflation expectation was the highest since 1981. Treasuries were mixed, and the U.S. dollar moved higher, while gold was lower, and crude oil prices rebounded from a two-day drawdown. Europe finished broadly higher amid hopes of possible progress on the geopolitical front, while markets in Asia were mixed.
The Dow Jones Industrial Average declined 230 points (0.7%) to 32,944, the S&P 500 Index lost 55 points (1.3%) to 4,204, and the Nasdaq Composite decreased 286 points (2.2%) to 12,844. In heavy volume, 4.9 billion shares of NYSE-listed stocks were traded, and 5.2 billion shares changed hands on the Nasdaq. WTI crude oil advanced $3.31 to $109.33 per barrel. Elsewhere, the gold spot price traded $11.00 lower to $1,989.40 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was up 0.6% at 99.13. Markets were lower on the week, as the DJIA was down 2.0%, the S&P 500 lost 2.9%, and the Nasdaq Composite sank 3.5%.
Stocks posted another weekly loss, despite an early rally that came following comments from Russian President Putin suggesting there may be positive shifts in Ukraine talks. Volatility, however, persisted as investors continued to assess the geopolitical tensions, increasing commodity prices, inflation, and monetary policy moves. The positive comments from Putin were unexpected, as another round of talks between Russia and Ukraine yesterday ended without any progress on a ceasefire, and reports of Russia intensifying its invasion dominated the news afterwards. As a result of Russia's invasion of Ukraine, the U.S. and other global allies have levied crippling financial sanctions, including an unprecedented move to handcuff the country's central bank, and the U.S. and U.K. moving to ban imports of Russian energy.
The bond market has been just as volatile, with Treasury prices falling sharply from last week's rally to boost yields. Meanwhile, the U.S. dollar continued a recent run, along with gold, with both hitting mid-2020 levels, and crude oil prices resumed their march upward following a two-day reprieve.
Schwab's Chief Investment Strategist Liz Ann Sonders discusses in her latest article, War: What is it Good For? Absolutely Nothing, how the Russian invasion of Ukraine has roiled markets and caused energy and food prices to spike at a time when inflation was already running hot. That along with the unlikeliness that the Fed and other central banks are going to pause rate hikes, provides the possibility that some countries may fall into recession this year.
In the midst of the Russian invasion of Ukraine and highly uncertain economic and market landscape, check out Director and Senior Investment Strategist with the Schwab Center for Financial Research, David Kastner's, CFA, latest Schwab Sector Views: War Clouds Our Outlook.
Amid the volatility in the markets, you can find all our market commentary on our Market Insights page, and you can follow us on Twitter at @SchwabResearch.
In equity news, Oracle Corporation (ORCL $78) reported adjusted Q3 earnings-per-share (EPS) of $1.13, missing the $1.18 FactSet estimate, as quarterly revenues grew 4.2% year-over-year (y/y) to $10.5 billion, in line with the Street's forecast. The computer technology and software company cited a decline in two investments—a tumble in the share price of Oxford Nanopore PLC(ONTTF $5), as well as an operating loss at Ampere Computing, a privately-held Arm server chip maker. However, ORCL said that "growth is being driven by both our rapidly growing Cloud Infrastructure and Cloud Applications businesses." Additionally, the company declared a quarterly cash dividend of $0.32 per share. ORCL traded higher.
Consumer sentiment hits decade low
The March preliminary University of Michigan Consumer Sentiment Index (chart) declined more than expected to 59.7, versus the Bloomberg estimate calling for a dip to 61.0 from February's 62.8 reading. The index hit the lowest since September 2011 as both the current conditions and expectations portions of the survey fell to the weakest levels in more than a decade, with the latter continuing to outpace the former by a wide a margin. The 1-year inflation forecast rose to 5.4%—the highest since 1981—from 4.9%, and the 5-10 year inflation forecast remained at February's 3.0% rate.
Treasuries were mixed, as the yield on the 2-year note gained 3 basis points (bp) to 1.74%, while the yield on the 10-year note was down 1 bp at 2.00%, and the 30-year bond rate was 2 bps lower at 2.36%.
The bond markets remain choppy as investors grapple with the impact of the war in eastern Europe, as well as expectations that next week the Fed will begin to tighten monetary policy. Schwab's Chief Fixed Income Strategist Kathy Jones notes in her latest article, The Fed's Next Move: Ukraine Changes the Picture, how today, the picture is far more complicated after months of the Fed laying the groundwork for a steady and substantial tightening in monetary policy over the next year. She adds that the outbreak of war in Ukraine and subsequent economic sanctions on Russia have caused a surge in commodity prices, due to the prospects of reduced supplies flowing to the markets, resulting in inflation rising to its highest levels in over 40 years. Kathy discusses how these supply-side shocks are exacerbating already high inflation, and also can slow growth down the road. Moreover, she notes how this crisis is global in scale, and involves intense efforts to cut Russia's access to the global financial system, which could put stress on Europe's financial system. Kathy points out how the unknown consequences of these factors make the actions of the U.S. central bank important to the international economy as well as the U.S. economy.
Europe posts solid gains amid upbeat Russia/Ukraine war headlines, Asia mixed
European equities finished broadly higher following comments from Russian President Putin, who said there were certain positive shifts in talks with Ukraine, after another round of talks between the two countries yesterday seemed to yield no material progress. The markets also continued to digest yesterday's European Central Bank (ECB) monetary policy decision in which it held its benchmark interest rate unchanged but announced an accelerated end of its asset purchase program, citing a "watershed" moment in Europe due to Russia's invasion of Ukraine. The ECB also said it would provide liquidity and whatever is needed to help the region, while also removing language suggesting rates could go "lower" than the present level and signaled that any changes to its rate policy will take place sometime after the end of its asset purchases and will be "gradual." ECB President Christine Lagarde also warned that the war will have a material impact on economic activity and inflation.
Schwab's Chief Global Investment Strategist Jeffrey Kleintop discusses the latest financial sanctions on Russia in his article Russia-Ukraine: Hit to Russia’s Financial Systems, and what the potential implications could be in his commentary Schwab's Quick Take: Russia Invades Ukraine. Jeff suggests a wider war involving NATO or the U.S. is highly unlikely, cyberattacks are more likely than a nuclear response by Russia, there are offsets to limit the impact of rising energy prices, and that Russia's action does not equate to China invading Taiwan. He also cautions that investors should seek to avoid getting caught up in dramatic events as they unfold, as it rarely leads to wise decisions. In economic news in the region, Germany reported final CPI figures for February, showing consumer prices were unrevised and in line with expectations of a 0.9% m/m rise and a 5.1% y/y increase. Final CPI numbers from Spain showed inflation ticked unexpectedly higher in February, gaining 0.8% m/m and 7.6% y/y. Industrial production in the U.K. accelerated in January, gaining 2.3% y/y, above the 1.9% advance expected, while January GDP increased 0.8% m/m, well ahead of the 0.2% forecasted. The euro and the British pound traded lower versus the U.S. dollar, while bond yields in the Eurozone were mixed and yields in the U.K. were lower.
The U.K. FTSE 100 Index was up 0.8%, Germany's DAX Index gained 1.4%, France's CAC-40 Index, Spain's IBEX 35 Index and Switzerland's Swiss Market Index all increased 0.9%, and Italy's FTSE MIB Index was 0.7% higher.
Stocks in Asia finished mixed after rallying broadly yesterday, as geopolitical tensions remain elevated amid the Russian invasion of Ukraine, and as increasing commodity prices are causing the volatility to persist. Schwab's Jeffrey Kleintop, Liz Ann Sonders, and Kathy Jones offer their commentary, Russia-Ukraine: Navigating Markets on Edge, where they recognize the immense human toll, while offering what we expect to see in coming days and weeks.
Chinese indexes experienced a volatile session amid persisting uncertainty, however mainland shares ended the day higher, while Hong Kong was lower, but off the worst levels. At a press conference today, Chinese Premier Li Keqiang defended the GDP goal and said that achieving the 5.5% growth target will not be easy and will require additional macro policy measures. In other economic news out of the region, new yuan loans showed that new loans extended in domestic currency surprisingly slowed, showing banks lent 1.23 trillion yuan in February versus the 1.45 trillion yuan expectation and compared to 3.98 trillion lent in January. Industrial production figures out of India showed a y/y increase of 1.3% in January, versus a 1.4% expected by analysts.
Japan's Nikkei 225 Index was down 2.1%, with the yen continuing to add to a pullback from a recent flight-to-safety rally as the war in eastern Europe began. China's Shanghai Composite Index rose 0.4%, and the Hong Kong Hang Seng Index decreased 1.6%. Australia's S&P/ASX 200 Index declined 0.9%, India's S&P BSE Sensex 30 Index rose for the fourth day, gaining 0.2%, while South Korea's Kospi Index moved 0.7% lower.
Stocks see another volatile ride
Volatility in the equity markets remained palpable this week as the markets continued to be at the mercy of the headlines surrounding the ongoing and intensified Russian attack on Ukraine. The number of down days for stocks outnumbered positive ones as the war in eastern Europe and the robustly-severe response from the U.S., European Union and other allies toward Russia continued to exacerbate the scorching hot inflation environment. Inflations concerns were amplified by this week's consumer price inflation report that showed although in line with expectations, pricing pressures consumers face accelerated to a new 40-year high and likely had not reflected the impact of the Russia/Ukraine crisis. Even though stocks staged a sharp rally midweek on a pullback in surging oil and commodity prices and what turned out to be a head fake regarding optimism of a diplomatic resolution to the war, bearish sentiment continued to dominate. Sentiment also remained tarnished by resurfacing stagflation concerns as next week's all-but certain commencement of monetary policy tightening by the Fed to combat the inflation pressures loomed as growth in earnings and the economy show signs of slowing.
As such, most sectors finished with solid drops, led by Consumer Staples, Information Technology, and Communications Services, while Energy remained by far the outperformer as crude oil prices continued to spike early in the week to multi-year highs before retreating in the second half of the week. The action in the bond market was just as volatile, with Treasury prices falling sharply from last week's rally to boost yields. Meanwhile, the U.S. dollar continued a recent run, along with gold, with both hitting mid-2020 levels.
Next week's U.S. economic calendar will be fully-loaded but could face less scrutiny as the markets continue to focus on the ongoing war in eastern Europe. The February inflation picture will develop fully, with the releases of the Producer Price Index (PPI) and the Import Price Index. Key reports on retail sales and the Leading Index for last month may also grab some attention, along with some housing activity data, courtesy of February reads on building permits and housing starts, and existing home sales. The Fed's February industrial production and capacity utilization report may also command some attention. Although February data will likely be discounted somewhat due the Russian/Ukraine conflict, we will get some timely reports in the form of March reads on regional manufacturing activity out of New York and Philadelphia, and a March homebuilder sentiment report, along with initial jobless claims for the week ended March 12.
However, the headlining economic event for the week will likely be Wednesday's highly-anticipated monetary policy decision from the Federal Open Market Committee (FOMC). The FOMC is expected to begin its rate-hike cycle by raising its target for the fed funds rate by 25 bps to 0.50% amid the backdrop of surging inflation pressures. The accompanying statement will be scrutinized, but the FOMC's updated economic projections, including the "dots plot"—forward-looking fed funds rate expectations of policymakers—could garner the heaviest attention, along with the customary press conference by Fed Chairman Jerome Powell shortly after the decision. The markets will likely be looking for any clues on how the war in Ukraine may impact its policy tightening aggressiveness, with any hints on its plans for balance sheet reduction, or "quantitative tightening," being highly sought after. Schwab's Kathy Jones notes in the aforementioned "Fed's Next Move" article, how we believe there is a good chance that this will be a slower and shallower rate-hike cycle than previously anticipated, due to the potential for slower economic growth, easing inflation later in the year, and tightening financial conditions.
Next week's international economic calendar will also be in focus with monetary policy decisions from the Bank of England and the Bank of Japan headlining the docket, with the former expected to hike rates for a third time since December and the latter facing some pressure from the surging inflation backdrop. Other reports due out that could draw market reactions include: China—1-year medium term rate decision, retail sales, and industrial production. India—PPI and CPI, and trade balance. Japan—core machine orders and CPI. Eurozone—industrial production, CPI, and trade balance, along with German investor confidence. U.K.—employment change.
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