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U.S. Stock Prices Higher Despite Crisis in Ukraine

Market Data as of Week Ending: 02/25/2022 unless noted otherwise

Equities

U.S. stock market volatility surged as Russia’s invasion of Ukraine has unsettled global financial markets. The S&P 500 ended the week 0.84% higher, despite the geopolitical crisis and economic sanctions that caused the Russian ruble to decline 20% on Friday. The blended fourth quarter earnings growth rate for the S&P 500 is 30.7%, which will mark the fourth straight quarter of earnings growth above 30%, according to FactSet. Growth stocks outpaced their value counterparts while small-cap companies outperformed large-caps for the third week in a row. Traditionally defensive sectors such as healthcare, real estate, and utilities were the best performing sectors while consumer discretionary stocks significantly lagged. Both developed foreign and emerging markets significantly lagged U.S. stocks for the week.

Bonds

U.S. Treasury yields remained choppy through heightened geopolitical tensions and economic data. Typically, high quality government bond yields drop in these environments, as investors seek the safety and liquidity offered by these securities. However, rising inflation and higher expected short-term interest rates have supported yields and the 10-year ended the week slightly higher at 1.96%. Most segments of the bond market declined; however, high yield corporate bonds outperformed and ended the week with small gains. Yields rose for investment grade corporate bonds whereas high yield corporate bonds narrowly declined and finished the week at 3.2% and 5.9%, respectively.

Macroeconomic Data

Economic data releases were mixed and mostly overshadowed by the situation in Ukraine. The personal consumption expenditures (PCE) core price index, the Fed’s preferred measure of inflation, rose 5.2% in January, which is the highest increase since April 1983. The job market continues to remain attractive as initial jobless claims fell to 232,000 and continuing claims ended the week at 1.5 million, the lowest level since 1970. Despite higher prices, U.S. consumer spending increased 2.1% in the month of January; however, pending home sales declined because of low inventory and higher borrowing costs. IHS Markit’s European Composite PMI, a measure of business activity, rose to a five-month high of 55.8 for the month of February. However, the European Union and the UK began imposing sanctions on Russia that will likely have a negative impact on growth and could exacerbate supply constraints and inflation.

 

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Markets Experience Choppy Week as Concerns Grow

Market Data as of Week Ending: 02/18/2022 unless noted otherwise

Equities

U.S. stock markets experienced their second consecutive week of declines as worries of a Russian invasion of Ukraine and high inflation weighed on sentiment. The S&P 500 ended the week -1.52% lower as investors sought safe haven assets amid growing concerns. With 84% of S&P 500 companies having reported fourth quarter earnings as of Friday, the blended earnings growth rate for the S&P 500 is 30.9%, which will mark the fourth straight quarter of earnings growth above 30%, according to FactSet. Value stocks outpaced their growthy peers while small-cap companies outperformed large caps for the second week in a row. Ten of the eleven sectors posted negative returns, while the typically defensive consumer staples sector was the sole positive. Both developed foreign and emerging market stocks increased for the week and outperformed U.S. stocks.

Bonds

U.S. Treasury yields had a bumpy week on the back of heightened geopolitical tensions and economic data. The 10-year climbed as high as 2.06% mid-week before finishing the week at 1.93%. Most segments of the bond market declined; however, government fared better while short duration outperformed longer duration bonds. As investors continue to show risk aversion, yields rose for both investment grade corporate bonds and high yield corporate bonds and finished the week above 3.1% and 5.9%, respectively.

Macroeconomic Data

Economic data releases were mostly mixed and may have lowered expectations for an aggressive rate hike in March. The U.S. producer price index rose to 1.0% in January and was the largest gain in a year. U.S. retail sales grew by 3.8% in January, marking the largest increase since March as Americans bought more cars, furniture, and electronics. Industrial production surged 1.4% in January, after a slight decline last month, as the gain was well above estimates. The Philadelphia Fed’s manufacturing index fell 7.2 points to 16 in January, as new orders and shipments weighed on the reading. Inflation reached a 30-year high in the UK in January while the labor market tightened further, leading to increased expectations for the Bank of England to announce a third consecutive interest rate hike in March.

 

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Markets Decline on Inflationary Concerns

Market Data as of Week Ending: 02/11/2022 unless noted otherwise

Equities

U.S. stock markets experienced another choppy week, as market sentiment appears to be in conflict between healthy earnings growth and fears over monetary tightening. The S&P 500 ended the week -1.79% lower as renewed concerns about inflation and geopolitical tensions in Ukraine rise. With earnings season coming to an end, the percent of S&P 500 companies which had beaten analysts’ net income expectations as of Friday stood at 77%, according to FactSet, slightly above the 76% five-year average. Growth stocks slumped towards the end of last week and underperformed value while smaller sized companies outpaced their larger counterparts. Energy once again was the top-performing sector as rising oil prices have been a key reason. Communication services, information technology and consumer discretionary weighed on the broader market. Both developed foreign and emerging market stocks increased for the week and outperformed U.S. stocks.

Bonds

U.S. Treasury yields ended the week slightly higher due to higher-than-expected inflation numbers. The 10-year eclipsed 2% for the first time since 2019 before finishing the week at 1.94%. The 2s10s spread narrowed to 0.43% after the 2-year saw its biggest daily gain since 2009. All segments of the bond market declined; however, corporate and government fared slightly better while short duration outperformed longer duration bonds. As investors continue to show risk aversion, yields rose for both investment grade corporate bonds and high yield corporate bonds and finished the week above 3.0% and 5.9%, respectively.

Macroeconomic Data

Economic data releases mostly missed the mark as the week was headlined by the January CPI report which showed the U.S. inflation rate rose to a 40-year high. The consumer price index rose 0.6% in January, bringing the year-over-year increase to 7.5% as big advances in rent, food and energy led. The NFIB’s small business optimism index slipped to 97.1 in January, an 11-month low as the number of small businesses that raised prices in January rose to a 48-year high. The University of Michigan’s initial February consumer sentiment reading fell to a decade low of 61.7 as inflation expectations hit a 13-year high. The BoJ announced it would buy an unlimited amount of 10-year JGBs at a yield of 0.25% to curb rising yields after the JGB yield rose to its highest level since 2016.

 

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Strong Jobs Report Leads Market Higher

Market Data as of Week Ending: 02/04/2022 unless noted otherwise

Equities

U.S. stock prices remained volatile but ended the week with overall gains for the second consecutive week. Quarterly earnings results continued to improve as earnings season reached its midpoint. Profits are expected to increase by more than 29%, based on reported and forecasted earnings according to FactSet, up from a 24% rise that had been projected prior to the beginning of the week. Growth stocks outperformed value while smaller sized companies outpaced their larger counterparts. Energy continued its strong performance as U.S. oil prices rose above $90 a barrel and major exporters agreed to only slightly increase production amid high demand. Real estate, communication services, and materials posted negative returns and were among the worst performing sectors. Both developed foreign and emerging market stocks increased for the week and outperformed U.S. stocks, regaining last week’s losses.

Bonds

U.S. Treasury yields ended the week higher due to Friday’s strong jobs report, but continued to be choppy after last week’s yield curve flattening. The 10-year finished the week at 1.91%, its highest level since December of 2019. All segments of the bond market declined; however, high yield bonds were the best performing asset class and short duration outperformed longer duration bonds. As investors continue to show risk aversion, yields rose for both investment grade corporate bonds and high yield corporate bonds and finished the week above 2.9% and 5.6%, respectively.

Macroeconomic Data

Economic data releases were mixed, headlined by the January jobs report which showed payrolls increase by 467,000. This was well above estimates and signaled that hiring was much stronger at the end of 2021 than originally reported. The unemployment rate ticked up to 4.0% from 3.9%, but this seemed to reflect the increase in labor force participation, which rose solidly to 62.2% from December’s 61.9%. The ISM manufacturing index fell to a 14-month low of 57.6% in January as omicron and labor shortages weighed on factories. In Europe, the BoE raised its key interest rate for the second month in a row to try and curb inflation. The Monetary Policy Committee also voted to stop reinvesting the proceeds from their maturing government bonds.

 

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2021 Locked in a Third Straight Year of Gains for 401(k) Participants

The headlines throughout 2021 were dominated by concerning news for employees — COVID-19 variants, supply-chain challenges, inflation and labor shortages. The past two years have certainly been a period that most would choose to soon forget; however, a bright spot amidst all of the turmoil is the typical 401(k) participant’s account performance. 2021 marked the third consecutive year of gains for the typical 401(k) participant, with a 14.92% gain over the 12 months as measured by the Mid Atlantic Trust Company 401(k) Composite Benchmark.

Mid Atlantic 401(k) Benchmark vs. Major Indices

401(k) participants enjoyed a steady return throughout 2021, with the exception of the third quarter. The year started with a 3.69% gain over the first quarter of 2021, followed by a 5.73% gain in the 2nd quarter. The third quarter was the only month with a step backward when the Benchmark had a -0.61% return, in line with the Dow Jones Industrial Average and the NASDAQ Composite Index. Those indexes also ended up in negative territory for the third quarter. As did the rest of the market, the Mid Atlantic Trust Company 401(k) Composite Benchmark bounced back in the fourth quarter with a 5.47% return.

Over the past five years, it’s been a strong run for 401(k) participants. Four out of the past five years, the Mid Atlantic Trust Company 401(k) Composite Benchmark has posted solid annual returns greater than 14%, with only 2018 providing a 6% negative return. For the hypothetical 401(k) investor, that rate of return combined with an annual salary increase and a steady contribution rate means they would have more than doubled their account balance during those five years.*

 

Hypothetical Participant Balance

Mid Atlantic Trust Company 401(K) Benchmark Hypothetical Participant Balance

 

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