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Gene Walden
Senior Finance Editor

MARKET UPDATES

Inflation and Ukraine crisis put markets on edge

Thrivent Asset Management Contributors to this report: Steve Lowe, CFA, Chief Investment Strategist; John Groton, Jr., CFA, Director of Administration and Materials & Energy Research; Matthew Finn, CFA, Head of Equity Mutual Funds; and Jeff Branstad, CFA, Model Portfolio Manager

03/07/2022
By Gene Walden, Senior Finance Editor | 03/07/2022

After dropping 8.23% through the first two months of 2022, the S&P 500® seemed to catch its footing in early March. But with inflation continuing to climb and Russian attacks on Ukraine intensifying, the market remains on heightened alert.

Oil and gasoline prices have led the surge in inflation, with oil prices jumping about 50% since the start of the year – including a spike of about 20% in the first week of March. Overall, inflation was up 7.5% for the last 12 months ending January 2022 and 0.6% for the month, according to the Department of Commerce (DOC).

Federal Reserve (Fed) policy has also been a factor in the markets, with one rate hike signaled for March and expectations for more to come throughout the year.

But amidst all the turmoil, there have been some bright spots in the economy. U.S. employment rose by 678,000 new hires in February, according to the Department of Labor (DOL). The unemployment rate dipped to just 3.8% – the lowest level since February 2020.

Consumer spending was also up in the latest report from the DOC issued February 25, which showed a 2.1% increase in January. In addition, retail sales were up 3.8% from the previous month and 13.0% year-over-year.

Manufacturing has also remained vibrant, with economic activity in the manufacturing sector improving for the 21st straight month in February, according to the Institute for Supply Management. In all, 16 industries reported growth for the month, with only one, Wood Products, reporting a decline. According to the report, “The U.S. manufacturing sector remains in a demand-driven, supply chain-constrained environment.”

Drilling down

U.S. stocks dip in February

The S&P 500 Index fell 3.14% in February after dropping 5.26% in January, a total decline for the year of 8.23%. The total return of the S&P 500, including dividends, was -2.99% in February and -8.01% through the first two months of 2022. For the month, the index dropped from 4,515.55 at the January close to 4,373.94 at the end of February. (The S&P 500 is a market-cap-weighted index that represents the average performance of a group of 500 large capitalization stocks.)

The NASDAQ Index also continued to decline, down 3.43% for the month, from 14,239.88 at the end of January to 13,751.40 at the February close. For the year, the NASDAQ was down 12.10%. (The NASDAQ – National Association of Securities Dealers Automated Quotations – is an electronic stock exchange with more than 3,300 company listings.)

Retail sales rebound

With businesses continuing to recover from the pandemic, retail sales were strong in January, according to the February 16 DOC retail sales report, with sales increasing 3.8% from the previous month and 13.0% since January 2021.

Building material sales were up 4.1% for the month of January and 12.2% from January 2021, while auto sales were up 5.9% for the month and 10.7% from a year earlier; department store sales were up 9.2% for the month and 11.5% from a year earlier; and non-store retailers (primarily online) were up 14.5% for the month and 8.4% from a year earlier.

But with the spread of the Omicron variant, restaurants and bars saw a temporary slowdown, with sales at food services and drinking establishments down 0.9% for the month but up 27.0% from a year earlier.

Employment picture improves

According to the Employment Situation Report issued March 4 by the DOL, the economy added 678,000 new jobs in February, while the unemployment rate edged down 0.2% to just 3.8%. However, because of a drop in the pool of available workers, total employment is still down 2.1 million jobs from the pre-pandemic level in February 2020.

Employment growth remained strong in several industries, including leisure and hospitality, professional and business services, health care, construction, and transportation and warehousing.

Average hourly earnings for all employees on private nonfarm payrolls remained virtually unchanged in February at $31.58 per hour, but earnings were up 5.1% from a year earlier.

Energy booms while most sectors suffer

The Energy sector of the S&P 500 moved up 7.13% in February, but all 10 other sectors lost ground during the month. Biggest losers for the month were Communication Services, down 6.98%, Real Estate, down 4.91%, Information Technology, down 4.90%, and Consumer Discretionary, down 3.99%.

The chart below shows the results of the 11 sectors for the past month and year-to-date:

Treasury yields edge up

Bond yields moved up in February as inflation continued to rise, while the Fed signaled its intention to raise rates in March. The yield on 10-year U.S. Treasuries rose 0.06% for the month, from 1.78% at the end of January to 1.84% at the February close.

Oil prices surge

Oil prices had already been rising in recent months due to increasing global demand, but concerns over the Russian attack on Ukraine drove prices even higher in February. The price of West Texas Intermediate jumped 8.59% for the month, from $88.15 at the end of January to $95.72 at the February close. Through the first two months of the year, the price of oil has surged 27.27%.

Gasoline prices also moved up 5.93% in February with the average price per gallon rising from $3.42 at the end of January to $3.62 at the February close. Through the first two months of the year, gasoline prices have moved up 7.38%.

International equities dip

International equities continued to decline in February as the Ukrainian crisis loomed. The MSCI EAFE Index slid 1.95% for the month, from 2,222.45 at the end of January to 2,179.10 at the February close. (The MSCI EAFE Index tracks developed-economy stocks in Europe, Asia, and Australia.)

For an in-depth analysis of the economy and the markets, see Conflict in Ukraine adds to inflation and market uncertainty, by Thrivent Chief Investment Strategist Steve Lowe.


Media contact: Callie Briese, 612-844-7340; callie.briese@thrivent.com

All information and representations herein are as of 03/07/2022, unless otherwise noted.

The views expressed are as of the date given, may change as market or other conditions change, and may differ from views expressed by other Thrivent Asset Management, LLC associates. Actual investment decisions made by Thrivent Asset Management, LLC will not necessarily reflect the views expressed. This information should not be considered investment advice or a recommendation of any particular security, strategy or product. Investment decisions should always be made based on an investor’s specific financial needs, objectives, goals, time horizon, and risk tolerance.

Any indexes shown are unmanaged and do not reflect the typical costs of investing. Investors cannot invest directly in an index.

Past performance is not necessarily indicative of future results.


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