February opened with Russian troops sitting menacingly on the border of Ukraine but with the international order more or less intact. It ended with an all-out invasion by Russia, the shelling of the largest nuclear power plant in Europe (WSJ, March 4), and hundreds of thousands of refugees seeking shelter in the West. Our hearts go out to the people of Ukraine.

While the humanitarian disaster is, and should be, the world’s first order of business, markets have not been immune to the tragedy unfolding there. The primary transmission vehicle has been commodity prices, more specifically, oil and, to a lesser extent, wheat. The price for West Texas Intermediate crude rose to more than $116/barrel during the month’s last week, and is now over $120/barrel (WSJ, March 7). The price for wheat climbed 5.35% on March 1 alone and is up more than 50% since the invasion began (AP, March 6). Ukraine and Russia produce around 14% of global wheat – and 29% of all wheat exports (CNN, March 1).

Equity markets began and ended the month on the back foot. On February 3 the Nasdaq fell 3.7%, or 538 points, ending a four-day winning streak with the biggest one-day decline since September 2020 (Wall Street Journal, February 3). Meta, the company formerly known as Facebook, shed 26% of its value on the day following a drop in profits and a disappointing outlook. The S&P 500 fell 111.94, or 2.4%, to 4477.44 (Wall Street Journal, February 3). For the month, the S&P 500 was off -3.1%, the Dow declined -3.5% and the Nasdaq gave back -3.4% (Zacks Equity Research, March 1).

 

Inflation surges

TheFor its part, inflation hardly needed any encouragement from higher commodity prices. The Bureau of Labor Statistics reported that U.S. consumer prices rose 0.6% in January and 7.5% on an annual basis, the biggest 12-month jump since February 1982 (BLS news release). The personal consumption expenditures index (PCE), closely watched by the Fed, was up 5.2% on an annualized basis in January, the biggest increase since April 1983 (CNBC, February 25).

Jobs were a bright spot. January payrolls jumped by 467,000, seasonally adjusted, with job growth for November and December marked up by 700,000 (Bloomberg, February 4). February’s number, reported the first week of March, was an eye-popping 678,000 new jobs (Bureau of Labor Statistics, March 4). The unemployment rate fell to 3.8%.

Consumers continued to spend with retail sales up 3.8% in January. Estimates had been for a rise of 2.0% (Bloomberg, February 16).  Stocks managed a rally mid-month on the heels of a three-day losing streak as Russia suggested it was pulling some troops back from the Ukraine border (Wall Street Journal, February 15). In the event, Russia did not pull back and the S&P 500 continued downward, reaching correction territory as tensions mounted. On February 22, the S&P fell 44 points, or around 1.0%, to 4304. The Dow dropped -1.4% and the Nasdaq -1.2% (Wall Street Journal, February 22).

There was some discussion late in the month as to whether or not the Federal Reserve would continue on the path to higher interest rates. At a minimum, the possibility of a 50 basis point rise in March appeared to be off the table as Fed Chair Powell endorsed a 25 basis point raise in his March 2 testimony before Congress (Reuters, March 2).

All the while sanctions continued to pile up, further isolating Russia from the global economy.  So far oil has been exempted in a nod to the country’s position as a major exporter, especially to Europe, but that remains subject to change. For now, uncertainty is the only sure thing, a circumstance that seems likely to continue for some time yet.

 

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