Russia’s aggressive moves on Ukraine have added to fresh lows in the market. So far, for 2022, the Dow closed in February at its lowest level while the S&P 500 dropped further into correction territory.
Given the widespread upheaval caused by the pandemic and the Russia-Ukraine war, recent performance is the ultimate indicator of how difficult it is to predict where markets flow. Financial advisors are highly sought out in volatile times like this. Reach out to discuss economic recovery and wealth management as soon as possible.
As inflation grows steadily, the Fed is still trying to tame it. While COVID cases are on the decline, the news is now amped on focused coverage of tactical moves in Kyiv, Ukraine’s capital. Here’s a snapshot of the market as we wrap up February 2022 and head into March.
FEBRUARY 2022 STOCK MARKET PERFORMANCE
As you may have guessed or seen for the February stock market performance, all three major stock indices dropped more than 3% each. As market participants observed the geopolitical conflict and developments between Ukraine and Russia, the stock market closed mixed on the last trading day of February 28. The Dow and the S&P 500 finalized in negative territory, with the Nasdaq Composite finishing in the green.
Bond yields dropped while oil and Bitcoin jumped as Russia pushed forward on Kyiv. Target shares soared at 12% as forecasted. The price of wheat and oil surged as Russia increased aggression. In the U.S. and Europe, inflation fears increased along with commodity prices.
The tech-laden index fell 12% in the first two months of this year, reflecting the most significant dual-month percentage decline since March of 2020.
MARCH 2022 STOCK MARKET PREVIEW
Not good news for investors: March is looking much like January and February on Wall Street. As some anticipate interest rates hiking mid-March by the Fed, it’s reported that:
“Traders are even pricing in a 2% chance that the Federal Reserve will keep rates at zero at its next meeting on March 16,” and “the Fed is still widely expected to raise rates, but now by just a quarter-point. A week ago, the market was split between whether the Fed would hike rates by a quarter-point or a half-point.”
If you are a business owner, the rest of the year looks hopeful. The supportive environment is forecasted to possibly work in your favor. From the COVID rescue efforts, the Paycheck Protection Program was designed and offered to help keep small business employees employed. However, it’s not for every small business.
Due to the pandemic, volatile market, inflation—and now war—many small businesses do not meet the requirements of traditional funding sources. Their balance sheets have taken a blow. Alternative sources of funding are being sought out to fund many entrepreneurs, including (but not limited to):
- Venture capital
- Angel investors
- Peer-to-peer lending
Speak to your market-savvy financial advisor for guidance on these matters.
While consumers do not appreciate it, reports show more evidence that inflation is not affecting their behavior as much as predicted. After all, behavior is what drives the economy – not consumer attitudes.
Remember, investing provides ZERO guarantees, but past inflationary period performance does provide clues. So what assets might do well during inflation?
- 60/40 Stock/Bond portfolio
- Precious metals
- The S&P 500: Mid-cap and small-cap stocks
- Equity REITs (real estate investment trusts)
- Treasury Inflation-Protected Securities (TIPS)
INTEREST RATE HIKES
Although the Russia-Ukraine situation has caused extreme equity market volatility, interest rates have been relatively calm. However, the next regularly-scheduled Federal Reserve meeting is on March 16, so interest rate hikes will be determined then.
When interest rates rise and borrowing costs go up while business investments go down, economic growth slows. Bond yields rise (as seen), making bonds safer investments. Equities might struggle. If you monitor and rotate money out of stocks and into bonds, prices will fall. Stocks tend to be more volatile when inflation is elevated.
As the government gradually increases interest rates, corporate profits might start to flatten, and valuations reduce – especially for tech and other high-growth stocks. However, changes are right around the corner.
Consumers, the economy, and stocks can be hit hard by rising inflation. Growth stocks are known to perform better when inflation is low. Companies are expected to grow sales/earnings more rapidly than the market avg. are considered growth stock – often looking expensive, trading at a high P/E ratio.
Such valuations are cheap when the company continues to quickly grow – driving the share price up. Examples:
- Amazon (NASDAQ: AMZN)
- Meta Platforms (NASDAQ: FB)
- Salesforce.com (NYSE: CRM)
- Alphabet (NASDAQ:GOOG), (NASDAQ:GOOGL)
Value stocks perform better during times of high inflation. In relation to basic measures of corporate performance: earnings, book value, sales, and cash flow, a value stock is one of the cheapest. Examples:
- Citicorp ©
- ExxonMobil (XOM)
- JPMorgan Chase (JPM)
ADVICE FOR SMALL BUSINESS OWNERS
The 2022 Stock Market Outlook is pretty spot on thus far. Stay tuned for more monthly updates, articles, and reference guides for these trying times. Above all else, reach out for an honest connection about your financial situation as a fellow business owner (link to pillar when published) or independent investor.