
Market Recap
Week of Feb. 28 through Mar. 4, 2022 The S&P 500 struggled to stay positive last week as the Russian invasion of Ukraine entered its second week, sending reverberations through global financial markets. But insulated by comments from Federal Reserve Chairman Jerome Powell to Congress and a strong labor market report, the benchmark index closed at 4,328.87, 1.3% lower from last week's close of 4,384.65. Wall Street was braced for the worst last week as the Russian army marched closer to Ukraine's capital of Kyiv, shrugging off ever more restrictive economic sanctions from the West. The impact from the conflict sent commodity prices soaring, namely oil which was launched to its highest level in 10 years and gained more in one week since the 1975 oil crisis. As a result, energy was the top-performing sector of the S&P 500 with a weekly gain of 9.2%, outperforming the next best performing sector (utilities) by almost double. Nearly every stock within the sector closed in the green with the exception of Phillips 66 (PSX) and Schlumberger (SLB), both of which were undermined last week by their connection with Russian oil. Occidental Petroleum (OXY) took the lead within the energy sector with a 45% gain last week, buoyed by higher oil prices and the launch of a cash tender offer for the company's senior notes. The utilities sector advanced 4.8% last week with gains fueled by heightened demand for natural gas and disruption in alternative sources of energy in Europe. Constellation Energy (CEG), which recently split from Exelon (EXC), closed with a 16% gain, taking the top spot within the sector. Despite evidence from last week's data on pending and new home sales that the housing market is beginning to cool, the real estate sector carved out a 1.7% gain last week with SBA Communication's (SBAC) 8% rally offset by a 9% decline in shares of CBRE Group (CBRE). Industrials eked out modest gains last week, up 1.1%, as advances in the defense industry compensated for the sizeable losses across the airlines. Northrop Grumman (NOC), which makes tracking systems for hypersonic missiles, was up 14% to a record high versus shares of United Airlines (UAL) which lost 20% in value, closing out the week at its lowest level since November 2020. As geopolitical pressures mount, the flight-to-safety drove risk-averse investors to the US Treasury market, driving yields significantly lower. With banking profits closely aligned with interest rates, the near-term outlook for a US rate hike was overshadowed by the move into safe havens and a 30 basis point decline in the 10-yr yield. Accordingly, credit card issuers limped into Friday's close with shares of Capital One (COF) and Synchrony Financial (SYF) down roughly 13% from the prior week's close. Financial stocks were the top decliner for the week, down 5%. Also lower was information technology, sliding 3% over five days; and consumer staples and consumer discretionary, off 0.08% and 2.6%, respectively each for the week. The conflict in Eastern Europe remained front and center on Wall Street, but events closer to home helped mitigate risk aversion. Fed Chairman Powell's testimony to Congress allayed fears that the Fed might hike rates by 50 basis points at the March 15-16 committee meeting and stood firm in his commitment to tackle inflationary pressures. Economic data was also supportive, namely the February labor market report which showed that the economy created 678,000 new jobs last month, surpassing estimates for a 423,000 gain. Additionally, wage pressures were non-existent as average hourly earnings were flat from the month prior. Last week's other data was a mixed basket and did little to dent geopolitical risks. Data on the manufacturing and sectors showed that both continue to expand, albeit at a slower pace. Factory orders were up 1.4% in January, twice what the street anticipated, and the Dallas Fed manufacturing index surpassed expectations reaching 14.0 versus 4.3 estimates. The economic calendar is relatively quiet for the first half of next week and then picks up on Thursday with the release of February CPI. Although the inflation data's influence on Fed policy is negligible at this point, the probability of a 0.7% gain in the nominal index and 0.5% gain in the core will underscore the need for a more restrictive monetary policy. On Friday, the University of Michigan consumer sentiment index is forecast to improve to 67.5 in March from 62.8 the month prior. Provided by MT Newswires
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