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Market Commentary – February 2022

Wall Street opened the month on a high note, with each of the benchmark indexes advancing. A stronger-than-expected jobs report and solid fourth-quarter corporate earnings data helped support equities. Nevertheless, concerns about the Russia-Ukraine situation began to worry investors. Natural gas and crude oil prices climbed higher. Throughout much of February, the impending crisis in Eastern Europe seemed to displace thoughts about a likely interest-rate hike from the Federal Reserve in March.

Then on Thursday, February 24 th, Russia launched attacks against multiple strategic targets in Ukraine. The United States, European Union, United Kingdom, Germany, Canada, Australia, and Japan responded to the Russian incursion by imposing sanctions mostly targeting Russian banks, oligarchs, and high-tech sectors, along with travel restrictions. The conflict shook global financial markets as stocks plunged. Oil and gas prices surged globally amid concerns that heating bills and food prices would skyrocket. Brent crude oil prices reached $100 per barrel. The invasion heightened the pressure on a global economy already reeling from snarled supply chains and the highest inflation in years.

As fighting continued throughout the last days of February, Western countries announced additional sanctions against Russia. Even Switzerland broke from its customary neutral stance to join the European Union in its actions. The United States, United Kingdom, Canada, and European Union blocked several major Russian banks from participating in the SWIFT payment system.

As the ruble fell, Russia's central bank raised interest rates to 20.0%. Russian President Vladimir Putin put the country's nuclear arms facilities on high alert. Several global companies cut ties with Russia. Canada banned Russian crude oil imports as U.S energy shares climbed higher. A meeting of delegates from Ukraine and Russia on the last day of February produced no immediate resolutions, particularly toward a cease-fire, as the conflict waged on.

Global stocks took the brunt of the turmoil. Domestically, the benchmark indexes seemed to respond more to a rise in inflationary pressures than the conflict in Eastern Europe. Nevertheless, for the second consecutive month, each of the benchmark indexes listed here fell, led by the Dow, followed by the Nasdaq, the S&P 500, and the Global Dow. The small caps of the Russell 2000 were able to post a gain.

Ten-year Treasury yields bounced up and down throughout the month, finally settling at 1.83%.  Domestically, crude oil prices advanced, but not at the pace of Brent crude, which rose to $100.99 per barrel. Prices at the pump rose in February as the national average retail price for regular gasoline was $3.530 per gallon on February 21 st, up from the January 24 th price of $3.323 per gallon.

Market/Index* 2021 Close

Prior Month

As of February

28  th

Monthly Change YTD Change
DIJA 36,338.30 35,131.86 33,892.60 -3.53% -6.73%
NASDAQ 15,644.97 14,239.88 13,571.40 -3.43% -12.10%
S & P 500 4,766.18 4,515.55 4,373.94 -3.14% -8.23%
Russell 2000 2,245.31 2,028.45 2,048.09 0.97% -8.78%
Global Dow 4,137.63 4,161.11 4,050.61 -2.66% -2.10%
Federal Funds 0.00% – 0.25% 0.00% – 0.25% 0.00% – 0.25% 0 bps 0 bps
10-yr Treasury 1.51% 1.78% 1.83% 5 bps 32 bps

*Chart reflects price changes, not total return

Last Month's Economic News

  • Employment: Employment rose by 467,000 in January, marginally below the December 2021 revised total of 510,000. Employment has increased by 19.1 million since April 2020 but is down by 2.9 million, or 1.9%, from its pre-pandemic level in February 2020. The unemployment rate inched up by 0.1 percentage point to 4.0%. The number of unemployed persons increased 184,000 in January to 6.5 million. Since January 2021, the unemployment rate fell 2.4 percentage points and the number of unemployed persons dropped 3.7 million. While both measures are down considerably from their highs at the end of the February-April 2020 recession, they remain above their levels prior to the coronavirus pandemic (3.5% and 5.7 million, respectively, in February 2020). The labor force participation rate increased 0.3 percentage point to 62.2% in January. The employment-population ratio increased by 0.2 percentage point to 59.7%. In January, average hourly earnings increased by $0.23 to $31.63. Over the last 12 months, average hourly earnings rose by 5.7%. The average work week fell by 0.2 hour to 34.5 hours in January.
  • FOMC/interest rates: The Federal Open Market Committee did not meet in February. However, it is expected the federal funds target rate range will be adjusted higher following the March meeting.
  • GDP/budget: Gross domestic product rose 7.0% in the fourth quarter of 2021 compared with a 2.3% advance in the third quarter. Consumer spending, as measured by personal consumption expenditures, climbed 3.1% in the fourth quarter (2.0% in the third quarter). The PCE price index, a measure of inflation, increased 6.3% in the fourth quarter after advancing 5.3% in the third quarter. Gross private domestic investment, which includes nonresidential and residential fixed investment, vaulted 33.5% in the fourth quarter after gaining 12.4% in the third quarter. Nonresidential (business) fixed investment increased 3.1% (1.7% in the third quarter), while residential fixed investment increased 1.0% (-7.7% in the third quarter). Exports jumped 23.6% in the fourth quarter after falling 5.3% in the prior quarter. Imports climbed 17.6% following a 4.7% rise in the third quarter.
  • Inflation:  The Consumer Price Index climbed 0.6% in January, the same increase as in the previous month. Since January 2021, the CPI has risen 7.5% — the largest 12-month gain since February 1982. Price growth was broad based, with most major categories showing an increase, led by fuel oil (9.5%) and electricity (4.2%). Prices for food rose 0.9% in January. Energy prices increased 0.9%, although gasoline prices dipped 0.8%. Prices for new cars were flat, but used-car prices rose 1.5%. Over the last 12 months, energy prices have risen 27.0%, driven higher by gasoline prices (40.0%) and fuel oil (46.5%). Food prices have increased 7.0%, while prices for used cars and trucks have climbed 40.5%.
  • Prices that producers receive for goods and services jumped 1.0% in January following a 0.4% increase in December 2021. Producer prices have increased 9.7% since January 2021. Prices less foods, energy, and trade services increased 0.9% in January, the largest increase since rising 1.0% in January 2021. For the year, prices less foods, energy, and trade services moved up 6.9%. Prices for services increased 0.7%. A major factor in the January increase in the prices for services was hospital outpatient care prices, which rose 1.6%. Prices for goods rose 1.3%, as prices for motor vehicles and equipment rose 0.7%.
  • Housing:  Sales of existing homes rose 6.7% in January, rebounding from a 3.8% decrease the previous month. Despite the January increase, existing home sales were still 2.3% under the January 2021 estimate. The median existing-home price was $350,300 in January, down from $358,000 in December 2021 but 15.4% higher than January 2021 ($303,600). Unsold inventory of existing homes represents a 1.6-month supply at the current sales pace, down from 1.7 months in December.
  • Sales of new single-family homes fell 4.5% in January after advancing 11.9% in December 2021. The median sales price of new single-family houses sold in January was $423,300 ($395,500 in December). The January average sales price was $496,900 ($482,300 in December). The inventory of new single-family homes for sale in January represented a supply of 6.1 months at the current sales pace, up from December's 5.6-month supply. Sales of new single-family homes in January, 2022 were 19.3% below the January 2021 estimate.
  • Manufacturing: Industrial production increased 1.4% in January following a 0.1% decline in December 2021. In January, manufacturing rose 0.2% and mining increased 1.0%, while utilities jumped 9.9% after a surge in demand for heating. Total industrial production in January was 4.1% higher than it was a year earlier and 2.1% above its pre-pandemic (February 2020) reading. Since January 2021, manufacturing has risen 2.5%, mining has jumped 8.2%, and utilities have increased 9.3%.
  • January saw new orders for durable goods increase 1.6% after increasing 1.2% (revised) in December. Excluding transportation, new orders increased 0.7% in January. Excluding defense, new orders increased 1.6%. Transportation equipment contributed to the increase in new orders, climbing 3.4% in January. Over the last 12 months, new orders for durable goods increased 16.5%
  • International Markets: The Russia-Ukraine crisis shook the globe since the Russian military operation against Ukraine began on Thursday, February 24. Several countries, including Great Britain and Japan, along with the European Union, imposed sanctions against Russia and its leadership. Benchmark indexes in Europe and Asia fell and oil prices surged in the immediate aftermath of Russia's advance into the Ukraine. The FTSE 100 in London fell 2.5%, the German DAX dropped 4.0%, the Nikkei 225 in Japan dipped 1.8%, and the CAC in Paris lost 3.6%. Overall, for the markets in February, the STOXX Europe 600 Index dropped 2.6%; the United Kingdom's FTSE gained 0.3%; Japan's Nikkei 225 Index dipped 1.0%; and China's Shanghai Composite Index climbed 2.7%.
  • Consumer Confidence: The Conference Board Consumer Confidence Index® fell slightly in February following a decline in January. The index stands at 110.5, down from 111.1 in January. The Present Situation Index, based on consumers' assessment of current business and labor market conditions, improved to 145.1 in February, up from 144.5 in January. The Expectations Index, based on consumers' short-term outlook for income, business, and labor market conditions, declined to 87.5 in February,  down from 88.8 in January.

Eye on the Year Ahead

The Federal Open Market Committee meets in March for the first time since January. It is expected that the Committee will raise the federal funds target rate by at least 25 basis points — the first such increase since December 2018. A bump in interest rates, coupled with the Russia-Ukraine conflict, is likely to impact economic and market growth, but to what extent and for how long is difficult to project.

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