March closed the books on the first down quarter (Wall Street Journal, March 31) in two years with the S&P 500 off -4.9%, the Dow falling -4.6% and the Nasdaq dropping -9.1%. Inflation fears and the Federal Reserve were perhaps the main culprits, but both were overshadowed by the human tragedy unfolding in the Ukraine.
From a market perspective, the impact of the war was felt most keenly in spiking prices for oil, wheat, and natural gas. Oil topped $130/barrel (Wall Street Journal, March 31) during March (though it has since declined) while the cost of wheat (Wall Street Journal, March 31) rose more than 30%. (Russia and Ukraine together account for about 29% of global trade in wheat, according to Bank of America.).
Prices for natural gas in Europe hit new records. In the U.S., inflation readings reached 40-year highs, with the February Consumer Price Index (CPI) up 7.9% year over year (Wall Street Journal, March 10). The Fed’s favorite inflation measure, the personal consumption expenditures index (PCE), also joined the 40-year-high club, up 6.4% (Wall Street Journal, March 31) in February. Commodities continued to advance. The S&P GSCI, which tracks commodity futures, was up 29% in the quarter, the biggest jump in more than 30 years (Wall Street Journal, March 31).
Mid-month saw the Federal Reserve move forward on its pledge to raise rates. Fed Funds were bumped up 25 basis points, and the central bank suggested as many as six more raises were in the works for 2022. Traders were pricing in seven. (Bloomberg, March 14) All this contributed to what Bloomberg called “the worst drawdown on record for global fixed income (Bloomberg, March 22).”
Consistent with the Fed’s shift to tighter monetary policy, equity markets experienced significant volatility throughout the month. A March 7 story in The Wall Street Journal noted that the S&P 500 had risen or fallen at least 1% in six of the past nine trading days. That week ended with the S&P 500 down -2.9%. The three major indexes all hit correction territory. The second half of March was a different story, however, as the S&P climbed 6.2% for the week ending March 18 and 1.8% for the week ending March 25. The index closed the month’s final week (including April 1) up 0.1%.
A grim anniversary was marked during the period – it was on March 12, 2020 that the World Health Organization officially declared Covid-19 a pandemic. But there was good news, too. Covid cases were generally on the decline in the U.S. (CDC, March 2022) in March and the economy continued to open up as reflected in the February nonfarm payrolls release which saw 678,000 workers added and the unemployment rate falling to 3.8% from 4.0% the month before. Job openings remained close to a record, at 11.3 million. Jobless claims fell to the lowest level since 1969 for the week ended March 19 at 187,000 (Bloomberg, March 24).
ETFs felt the impact of all this, some more than others. Sanctions put in place by the U.S. and its allies served to further isolate Russian from the global financial system and led to some index funds dumping Russian stocks. Meanwhile, the only U.S. ETF tracking wheat ran out of shares (a result of its structuring as a commodity pool with a pre-set number of shares; Bloomberg, March 9).
It was, in short, an eventful month.
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The S&P 500® Index is widely regarded as the standard index for measuring large-cap U.S. stock market performance.
The Dow Jones Industrial Average, Dow Jones, or simply the Dow, is a stock market index that measures the stock performance of 30 large companies listed on stock exchanges in the United States.
Nasdaq is used to refer to the Nasdaq Composite, an index of more than 3,000 stocks listed on the Nasdaq exchange. The Nasdaq Composite contains all of the companies that trade on the Nasdaq.
The Consumer Price Index (CPI) is a measure of the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services.
Personal Consumption Expenditures Price Index (PCEP) is a measure of the prices that people living in the United States, or those buying on their behalf, pay for goods and services. The PCE price index is known for capturing inflation (or deflation) across a wide range of consumer expenses and reflecting changes in consumer behavior.
TThe S&P GSCI serves as a benchmark for investment in the commodity markets and as a measure of commodity performance over time.
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