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Stock Prices Drop as Inflation Reaches a 40-Year High

Market Data as of Week Ending: 03/11/2022 unless noted otherwise

Equities

U.S. stock prices fell, and the Nasdaq Composite reached bear market territory, down more than 20% from its prior peak, as the Russian invasion of Ukraine intensified. Following four consecutive quarters of more than 30% growth, the estimated first quarter of 2022 earnings growth rate for the S&P 500 is 4.8%, according to FactSet. Growth stocks lagged their value counterparts while smaller companies generally outperformed their large company peers. Ten of the eleven major economic sectors declined with energy as the only exception. Real estate and utilities were once again among the best performing sectors while consumer staples and technology stocks lagged. Developed foreign markets recovered and ended the week with a small gain; however, emerging markets significantly lagged most developed markets.

Bonds

U.S. Treasury yields rose as inflation reached a more than a 40-year high and the 10-year ended the week at 2.00%. Despite rising yields, higher quality government bonds fared better than the market and not surprisingly, short duration outperformed long duration bonds. Risk aversion spread to the bond market and yields accelerated for both investment grade corporate bonds and high yield corporate bonds as they finished the week at 3.5% and 6.3%, respectively.

Macroeconomic Data

Economic data releases were headlined by consumer price inflation that came in at 0.8% for the month of the February, which was up 7.9% over the past 12 months. Initial jobless claims rose 227,000 yet remain near the lowest levels on record. Job openings were better than expected and remain above 11 million. Despite a strong job market, higher prices have had a negative impact on consumer sentiment, as the monthly figure dropped to 59.7, its lowest level since 2011. Both the US and the UK announced that they would stop importing Russian oil and gas; however, countries in continental Europe that are more dependent on Russian energy will take a more measured approach.

 

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