Stocks closed lower for the week as escalating tensions on the Russian-Ukrainian border added to existing jitters over higher inflation and a pending tightening of monetary policy.
The Standard & Poor’s 500 declined 1.58%, while the Dow Jones Industrial Average slid 1.90%. The Nasdaq Composite index lost 1.76% for the week. The MSCI EAFE index, which tracks developed overseas stock markets, fell 1.00%.1,2,3
Markets have been skittish in recent weeks due to persistent, elevated inflation and the uncertainty over how aggressive the Federal Reserve may be with its monetary tightening. As tensions escalated between Russia and the West over a possible Russian invasion of Ukraine, investors moved away from risk assets, such as stocks, and sought the safety of U.S. Treasury bonds.
Stocks were hard hit on Thursday as reports surfaced that both sides were exchanging artillery fire. The slide continued on Friday as prospects of a diplomatic offramp appeared to dim. While geopolitical news dominated trading last week, investors were relieved by the Federal Open Market Committee meeting minutes (released on Wednesday) that suggested the Fed may not act any more aggressively than current market expectations.4
An Early Economic Snapshot
Last week three economic reports provided an update on the state of the economy. The first was the Producer Price Index, which suggested that inflationary pressures remain acute. Wholesale prices rose 1.0% last month and posted a 12-month rise of 9.7%, the latter of which was near a record high.4
The consumer showed continued strength as retail sales rose a better-than-expected 3.8%, though some of that gain may be due to higher costs. Meanwhile, industrial production gained 1.4%, nearly triple the consensus expectation. Capacity utilization increased 1.0 percent, reaching its highest level since March 2019.5
Energy Burning Bright
The lone sector to see rising stock prices this year, and last year's top performing sector, is energy.
Back in the fall I thought the sector would have cooled down by now. I was wrong really about that!
The recent surge is due to the Ukraine crisis, but the truth is that companies (and industries) at the end of their lifecycle don't decline smoothly any more than the growth of tech stocks on their way up.
One reason is a phenomenon you could call the last gasp of the dying. Growing companies in growing industries re-invest their profits in growing the business through spending on research, development, factories, hiring, and so on. Companies with large profit margins or stagnating growth re-invest their profits in share buyback programs because that boosts the stock price thereby rewarding shareholders (including the managers of the company). Dying companies don't spend on improving their infrastructure, their human capital, or doing research. When internal spending declines profits may go up in the short run.
Energy is still the worst performing sector over the last 3 years, averaging a 7.28% gain, trailing even utilities by 4.4% per year. Over the last 5 years energy has averaged a mere 2.83% per year.
This won't be the last time energy has a burst of, well, energy in its stock prices due to their dying gasps, but fossil fuel companies are dying and nothing Russia does can stop that.
But don't worry, extraction industries are not going away. The electrified economy will need all kinds of metals and rare earth minerals for the foreseeable future.
This Week: Key Economic Data
Tuesday: Purchasing Managers’ Index (PMI) Flash. Consumer Confidence.
Thursday: Gross Domestic Product (GDP). Jobless Claims. New Home Sales.
Friday: Consumer Sentiment. Durable Goods Orders.
Source: Econoday, February 18, 2022
This Week: Companies Reporting Earnings
Tuesday: The Home Depot, Inc. (HD), Palo Alto Networks, Inc. (PANW), Agilent Technologies, Inc. (A).
Wednesday: Lowe’s Companies, Inc. (LOW), The TJX Companies, Inc. (TJX), eBay, Inc. (EBAY), Booking Holdings, Inc. (BKNG).
Thursday: Block, Inc. (SQ), Dell Technologies, Inc. (DELL), VMware, Inc. (VMW), Ingersoll Rand, Inc. (IR), AnheuserBusch InBev (BUD).
Friday: Berkshire Hathaway, Inc. (BRK.B), EOG Resources, Inc. (EOG).
Source: Zacks, February 18, 2022
“Life is either a daring adventure, or nothing.“
– Helen Keller
Beware of the Fake Charity Scam
There are so many scams out there and one of the most heartless is taking advantage of people who want to give money to a legitimate charity, especially after a tragedy or disaster. Scammers can set up fake organizations to take advantage of people’s generosity.
These scams are usually over the phone and while the organization may sound legitimate, the person on the other line might be demanding a donation right away. Remember, a charity will be happy to receive a donation at any time so you shouldn’t feel pressured.
Personally, I get a lot of calls from fake police charities. Sometimes they use the name of something legitimate but are not truly affiliated. For instance, if you look up the National Police Foundation you will find that their home page states they do "NOT solicit donations from anyone via phone."
You can research charity organizations using the IRS Tax Exempt Organization Search tool. This will help you narrow down a list of legitimate charities. You may even be able to claim a deduction on your tax return.
* This information is not intended to be a substitute for specific, individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax professional.
Tip adapted from IRS.gov6
How to Understand Your Blood Pressure Readings
It’s important to understand what your blood pressure readings mean, especially if you are at a greater risk for high blood pressure. Here are the ranges you should know, according to the American Heart Association:
Tip adapted from the American Heart Association7
You go in through one hole, you come out through three holes. Once you're inside you're ready to go outside, but once you're outside you're still inside. What is it?
Last week’s riddle: What is the smallest number of cars that can be driven down the road in this formation: two cars ahead of a car, two cars behind a car, and a car between two cars? Answer: Three cars. One car in front, one in the middle, and one behind.
Ko Muk, Thailand.
Footnotes and Sources
2. The Wall Street Journal, February 18, 2022
3. The Wall Street Journal, February 18, 2022
4. CNBC, February 15, 2022
5. CNBC, February 16, 2022
6. IRS.gov, July 28, 2021
7. Heart.org, September 30, 2021
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Weekly Market Insights: Inflation and Ukraine Rattle Investors Another Week
February 22, 2022