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THIS WEEK'S UPDATE

| March 15, 2022
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THE WEEK ON WALL STREET

Intensifying hostilities in Ukraine continued to unsettle markets, as investors

grappled with the war’s impact on the global economies. The Dow Jones Industrial

Average lost 1.99%, while the Standard & Poor’s 500 dropped 2.88%. The Nasdaq

Composite index fell 3.53% for the week. The MSCI EAFE index, which tracks

developed overseas stock markets, gained 0.90%.


MARKETS REMAIN STRESSED

Markets gyrated last week as Russia escalated its attacks on Ukraine, the U.S.

banned imports of Russian oil, and more companies announced the suspension of

business in Russia. Eastern Europe has added complexity to the Fed’s plans for

raising interest rates to manage accelerating inflation, which has been exacerbated

by a sharp rise in energy and other commodity prices. The stock market saw brief

moments of respite. Stocks rallied Tuesday on a news report that Ukraine would

promise not to pursue NATO membership, but lost momentum before the close.

Stocks rallied on Wednesday as oil prices tumbled, but were unable to follow-

through on Thursday and then faded further into Friday’s close.


A FOUR-DECADE HIGH

Consumer prices rose 0.8% in February as energy and commodity prices pushed

higher. This latest monthly report showed a year-over-year inflation rate of 7.9%,

the highest level since January 1982. Excluding the more volatile food and energy

prices, the 12-month increase was 6.4%, a slight bump from last month’s 6.0% year-

over-year increase. Many economists hoped that inflation pressures would ease, but

February’s inflation number suggested that the impact of sanctions and supply-

chain disruptions due to the invasion of Ukraine may likely feed further price

increases for the foreseeable future.


THE WEEK AHEAD: KEY ECONOMIC DATA

Tuesday: Producer Price Index.

Wednesday: Retail Sales. Federal Open Market Committee (FOMC)

Announcement.

Thursday: Housing Starts. Jobless Claims. Industrial Production.

Friday: Existing Home Sales. Index of Leading Economic Indicators.


THE WEEK AHEAD: NOTABLE COMPANIES REPORTING EARNINGS

Monday: Coupa Software, Inc. (COUP).

Thursday: FedEx Corporation (FDX), Dollar General Corporation (DG).


FINAL THOUGHTS

The markets continue to frustrate as bad news seems to be the only news at the

moment. I’ve been at this a long time now and I still get as frustrated as you when

the market just seems to continually grind in the opposite direction that I want it

to. However, I often reflect on Sir John Templeton’s timeless mantra that bull

markets are born on pessimism, grow on skepticism, mature on optimism and die

on euphoria. I’m pretty sure no one is euphoric about the markets right now. In the

absence of earnings, which have been good, the market tends to trade on news.

I read, a lot. I’ve seen the same story a couple of different times now about how

some $300 billion dollars of forced selling could be exacerbating the downside we

have seen in the market. As you know, Russia has been cut off literally and

figuratively from the rest of the world. Since the start of the Russian invasion of

Ukraine there has been a lot of selling in stocks. There are a lot of Russians who

have invested in our markets, along with large banks like Citi, JP Morgan, Chase,

etc., as well as some very large hedge funds and private equity shops, and some

mutual funds and fund companies like Fidelity and BlackRock. These funds who

have been doing business with the Russian oligarchs’ money are asking the funds to

leave their institutions before they are required to leave. This means these

companies and funds are doing mandatory redemptions of equities and bonds and

sending the Russians’ money back to them in cash or Rubles, I guess. In other words,

forced selling. It looks like at least $300 billion of selling in our markets and the

overseas markets. $300 billion is a very large number to say the least. This could be

why every time the markets rally just a bit we see the selling start to pick back

up. They are being forced to sell. Many institutions are in a bad situation and the

easy answer for them is to redeem the Russian money and return it to them. This

could be where a lot of downward pressure is coming from.


The big news this week will be what the Fed says on Wednesday when they hike

interest rates for the first time in a long time. The impending hike isn’t news, nor

has it been for months. We’ve known it is coming. Mortgage rates have gone up

almost a full point in the last few months based on the anticipation of rate

hikes. The Fed is raising rates to try and slow inflation, which has certainly picked

up. That tends to happen when you pour $2 trillion into the economy. The stimulus

was necessary in 2020. It was political in 2021. People seem to think the

Russia/Ukraine war is the catalyst for inflation, especially high gas prices. The

Russian incursion may be “the straw that broke the camel’s back.” However, the

saying goes that it wasn’t the last straw that broke the camel’s back, it was the 10,000

placed there before. Prices, including fuel, have been rising for over a year now for

a multitude of reasons. We’ve printed more money than necessary to fight Covid,

we kept interest rates near zero for too long and we hitched our wagon to the wrong

carts when it comes to energy independence. This country was exporting oil not all

that long ago, now we do not for political reasons. Energy dependence is a policy

mistake many nations will now be scrambling to rectify. Longer term, securing the

supply chain for items like microchips, medicines and rare earth minerals will

probably also become a national security issue.


Well, my high horse is tired and would like me to get off his back now. The U.S.

markets will hang on Powell’s every word this Wednesday and begin to speculate on

how much the next hike will be. There is a lot of negativity out there currently, but

I will leave you with this. This past weekend despite the news and high gas prices,

families took their kids to Disney World, they went to soccer, softball, baseball and

volleyball games, then went out to dinner at local restaurants. Americans across the

country went to Walmart, Target, Lowes, Home Depot and here in the south,

Publix and bought things they wanted or needed. The Amazon, UPS and Fedex

trucks were busy delivering eagerly anticipated items to those who ordered

them. My neighbors had a wedding in their back yard and I’m sure there were

weddings all across America. Imagine that, a bear market can't kill love. Ha. I’m

getting soft in my advanced years. So, families are being formed and doing what

they tend to do… grow, work and spend money. The consumer drives the economy

not CNN or Fox News. Yes, higher gas prices for a long time could shift where some

of that money is spent, but you are still going to be you and you are still going to

want to go out and do things. The human spirit tends to find a way even when it

seems like there might not be one. I can’t tell you what the market is going to do

next month, but I wouldn't bet against you.


Have a great week.

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