First, Happy Valentine's Day! We hope you spend some time today with those you love.
THE WEEK ON WALL STREET
A hot inflation print and the growing concern of a Russian invasion of Ukraine sent
stocks tumbling late in the week, leaving major indices lower for the five-trading
days. The Dow Jones Industrial Average skidded 1.00%, while the Standard &
Poor’s 500 retreated 1.82%. The Nasdaq Composite index slumped 2.18%. The
MSCI EAFE index, which tracks developed overseas stock markets, advanced 2.26%.
A DOUBLE WHAMMY
Mid-week, a fresh batch of positive corporate earnings surprises lifted investor
sentiment, helping stocks claw back losses with technology stocks posting some of
the sharpest gains. But January’s inflation report, set for release on Thursday
morning, remained investors’ biggest concern. When the report hit, it showed
accelerating inflation, and stocks dropped and bond yields bounded higher. Stocks
managed to recover from the initial reaction to the unexpectedly high inflation
number. But when the President of the Federal Reserve Bank of St. Louis
commented that the Fed may consider a more aggressive move against inflation,
stocks resumed their slide lower. The stock skid accelerated into Friday on White
House reports that an invasion of Ukraine by Russian forces may be imminent.
INFLATION SIZZLES
Prices of consumer goods accelerated in January, rising 0.6% from the previous
month and 7.5% year-over-year. This annual inflation rate was the highest since
1982. Core inflation, which excludes the more volatile food and energy prices, was
6.0% higher from last January. Many economists and market analysts had expected
inflation to moderate, but driven by a surge in prices of used cars, gasoline, and
energy, inflation remained at elevated levels. The persistence of inflation at these
heights has fueled investor concerns that the Fed might consider a more aggressive
50-basis points increase in short term interest rate.
THE WEEK AHEAD: KEY ECONOMIC DATA
Tuesday: Producer Price Index (PPI).
Wednesday: Retail Sales. Industrial Production. FOMC Minutes.
Thursday: Housing Starts. Jobless Claims.
Friday: Existing Home Sales. Index of Leading Economic Indicators.
THE WEEK AHEAD: NOTABLE COMPANIES REPORTING EARNINGS
Tuesday: Zoetis, Inc.(ZTS), Devon Energy Corporation (DVN), Marriott
International, Inc. (MAR), ViacomCBS, Inc. (VIAC).
Wednesday: Nvidia Corporation (NVDA), Cisco Systems, Inc. (CSCO), Applied
Materials, Inc. (AMAT), Shopify, Inc. (SHOP), DoorDash (DASH).
Thursday: Roku, Inc. (ROKU), Walmart, Inc. (WMT), The Southern Company (SO).
Friday: Deere & Company (DE).
FINAL THOUGHTS
Markets were down heavily on Friday but recovered some from their deepest point
of losses going into the close. This selling was mostly prompted by the White House
announcing the potential imminent invasion of Ukraine with what seemed like a
deep sense of urgency. We’re not sure what’s going on in Vladimir Putin’s head by
any means and we’re not discounting the possibility of an invasion, we will only
remind you that most of the time geopolitical risks have a limited effect on the
course of markets. Effects can be abrupt but are usually short-lived.
We’ll also remind you that during times when headline risks seem to be swirling
around and markets are sensitive, it can be very hard to not put your finger on the
sell button. Please remember that stocks ultimately are about earnings, and
earnings are largely about economic strength. Is the market facing a significant
amount of headwinds? Yes, it is. But let’s also remember that the US Consumer and
Corporates are both much stronger than pre-COVID in terms of liquidity. As of
today, of the 350 companies of the S&P 500 that have reported so far (70% of the
S&P 500), overall results are beating estimates by a median of 7%. And 81% of those
reporting are beating earnings estimates. That doesn’t sound like a dying economy
to me.
Have a great week!
