Equity markets finished the week mixed as investors responded to the conflict in Ukraine. The TSX lost 20 basis points on weaker oil prices, falling 12.70% in the week. Dow Jones lost 12 basis points, the S&P 500 gained six basis points, the Nasdaq rose 0.65%, the S&P 400 Midcap lost eight basis points, and the small-cap Russell 2000 gained 0.63%. The expectation of slowing growth and more persistent inflation caused the more rate-sensitive stocks to underperform, with the financials and industrials lagging the most. The high growth technology sector lost ground impacted by anticipation of higher rates in the coming months as the Fed attempts to bring inflationary pressures under control. Utilities and consumer staples, considered more defensive, showed strength in the week.
In Europe, investors ignored the macro-outlook, the back and forth of the negotiations between Russia and Ukraine, and the Russian threat to cut off gas supplies on April 1 unless paid for in rubles, which the EU rejected by insisting on continuing to pay in Euros. The European STOXX Europe Index added 1.06%, Italy’s FTSE MIB Index jumped 2.46%, France’s CAC 40 Index gained 1.99%, and Germany’s DAX advanced .98%. The UK’s FTSE 100 rose 0.73%.
On Monday, the US Census Bureau released the latest trade deficit showing a slight decrease in February ($106.6 billion) from January’s reading ($107.6 billion) but still near all-time highs. The latest trade deficit indicates the relative strength of the recovery in the US and consumer spending patterns. As companies struggle to meet domestic and offshore demand, the trend is likely to extend into the second half of the year. 1, 2
On Tuesday, the S&P Corelogic Case-Shiller Index Reports released the latest index of US housing prices. The data for the nine US census divisions reported an annual gain of 19.2%, with Phoenix, Tampa and Miami reporting the highest year-over-year gains of 32.6%, 30.8%, and 28.1%, respectively. The 20-City Composite Index posted a 19.2% year-over-year gain, with 16 of the 20 cities showing price acceleration from the December reading. Washington, Minneapolis, and Chicago gained the least, reporting gains of 11.2%, 11.8%, and 12.5%. Increasing mortgage rates and affordability is expected to slow demand later in the year and into 2023.3
Consumer confidence surveyed in March (107.2 versus 105.7 in February) showed an improvement for the first time in 2022, with inflation and the Ukrainian situation remaining at the forefront of consumers’ minds.4 Also, on Tuesday, the latest Job Openings and Labor Turnover for February showed little change with 11.3 million openings. Separations showed little change at 6.1 million, the quits rates at 2.9%, and layoffs unchanged at 0.9%. In terms of numbers, the quit rate, which topped 4 million for the first time in June last year, remains elevated at 4.35 million, indicating a tight labor market with employees having an advantage over employers.5, 6
Last Wednesday, the ADP Employment Report indicated payrolls increased by 455,000 in March, with the service sector adding 377,000, led by leisure and hospitality with 161,000, followed by education and health (72,000), professional services (61,000) and manufacturing (54,000).7 Real gross domestic product (GDP) increased at an annual rate of 6.9% in the fourth quarter. Except for the federal government, utilities and construction, all sectors contributed to the real GDP growth in the fourth quarter, with information, professional services, and technical services leading.8
On Thursday, for the week ending March 26, claims rose 14,000 from the previous week to 202,000, and claims from all benefits decreased by 81,975 to 1,775,826.9 The Bureau of Economic Analysis reported that consumer spending rose 0.2% in February while inflation rose by 0.6%. The PCE price index in the month rose by 0.6, with the PCE excluding food and energy rising 0.5%. The PCE jumped 6.1% yearly, and the PCE excluding food and energy rose 5.2%.10
On Friday, the US Bureau of Labor Statistics reported nonfarm payrolls rose by 431,000 in March, the unemployment rate dropped to 3.6% from 3.8%, and the participation rate showed little change at 62.4%.11 The Supply Management’s Manufacturing PMI realized on Friday reported manufacturing slipped in March to 57.1% versus 58.6% in February. The March level is the lowest level since September 2020. The new order index fell 7.9 to 53.8%, and the production index fell 4 to 54.5%. Any reading above 50 indicates growth. Supply and labor issues still plague manufacturing, with customer inventories remaining low. The latest reading may be a temporary slowing.12
The data suggest that the general economy seems to be on sound footing despite geopolitical events with Russia and recent talks of a “new” economic relationship with China. As we transition to the new economic world order, whatever that may look like, investors will have to remain vigilant and cautious.
Sources:
1 https://www.census.gov/econ/indicators/advance_report.pdf
4 https://www.marketwatch.com/story/coming-up-consumer-confidence-11648561639?mod=economic-report
5 https://www.bls.gov/news.release/pdf/jolts.pdf
7 https://adpemploymentreport.com/2022/March/NER/NER-March-2022.aspx
8 https://adpemploymentreport.com/2022/March/NER/NER-March-2022.aspx
9 https://www.dol.gov/ui/data.pdf
10 https://www.bea.gov/news/2022/personal-income-and-outlays-january-2022
11 https://www.bls.gov/news.release/empsit.nr0.htm
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Warren Gerow is an independent investment wealth consultant to Sightline Wealth Management.
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