Investment Review - March 2022
- Volatility and downward pressure in the equity markets continued from January into February. Uncertainty surrounding interest rate hikes coming from the Federal Reserve and the Russian/Ukraine war weighed heavily on investor’s minds. The S&P 500 Stock Index and the Dow 30 both lost 3%. The Nasdaq shed 4.5%. Foreign markets moved similarly; with Emerging Markets off 4.3% and Europe-Australasia-Far East Index (EAFE) down 3.4%.
- U.S. Treasury market yields have increased since the beginning of the year in anticipation of monetary policy action from the Federal Reserve to rein in inflation. The U.S. central bank appears set to raise interest rates for the first time since 2018. However, the ongoing Russia/Ukraine conflict has driven a flight to safety, pushing long-end UST yields lower and the curve flatter and threatening a curve inversion where short-term rates exceed those with longer tenors. Curve inversion has historically been looked upon as a harbinger of an economic downtown, however, the current situation appears to be somewhat manufactured due to geopolitical concerns in the market. This uncertainty should give the central bank a reason to be cautious, and we believe the US Federal Reserve is unlikely to raise rates by more than 0.25% at the March Federal Open Market Committee meeting, whereas before this crisis, a 0.50% increase was becoming increasingly likely.
Sources: Bloomberg LLC, FactSet, U.S. Department of Labor
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