Market Recap Week of 2/28/2022 Through 3/04/2022 – Daily Flash Briefing

The S&P 500 struggled to stay positive last week as the Russian invasion of Ukraine entered its second week, sending reverberations through the global financial markets.

Wall Street was braced for the worst last week as the Russian army marched closer to Ukraine’s capital of Kyiv, shrugging off ever more restrictive economic sanctions from the West. The impact from the conflict sent commodity prices soaring, namely oil which was launched to its highest level in 10 years and gained more in one week since the 1975 oil crisis.

As a result, energy was the top-performing sector of the S&P 500 with a weekly gain of 9.2%, outperforming the next best performing sector (utilities) by almost double.

As geopolitical pressures mount, the flight-to-safety drove risk-averse investors to the US Treasury market, driving yields significantly lower. With banking profits closely aligned with interest rates, the near-term outlook for a US rate hike was overshadowed by the move into safe havens and a 30 basis point decline in the 10-year yield.

Financial stocks were the top decliner for the week, down 5%. Also lower was information technology, sliding 3% over five days; and consumer staples and consumer discretionary, off 0.08% and 2.6%, respectively each for the week.

The conflict in Eastern Europe remained front and center on Wall Street, but events closer to home helped mitigate risk aversion. Fed Chairman Powell’s testimony to Congress allayed fears that the Fed might hike rates by 50 basis points at the March 15-16 committee meeting and stood firm in his commitment to tackle inflationary pressures.

Economic data was also supportive, namely the February labor market report which showed that the economy created 678,000 new jobs last month, surpassing estimates for a 423,000 gain. Additionally, wage pressures were non-existent as average hourly earnings were flat from the month prior.

The economic calendar is relatively quiet for the first half of this week and then picks up on Thursday with the release of February CPI. Although the inflation data’s influence on Fed policy is negligible at this point, the probability of a 0.7% gain in the nominal index and 0.5% gain in the core will underscore the need for a more restrictive monetary policy.

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