Market Perspective for February 20, 2022

There was continued volatility on Wall Street due to the situation with Russia and Ukraine and what the Fed will eventually do with rates next month. The markets finished with the S&P 500 Index down 1.6 percent and the Dow Jones Industrial Average losing 1.9 percent. The NASDAQ lost 1.8 percent for the week.

Some traders are waiting for more of a capitulation or flush before stepping back into the markets. But for some stocks, that has already happened. A handful of stocks in the Russell 1000 dropped 15 percent or more this past week. These stocks include Roku, DraftKings, Fastly, Albemarle and Paramount Global. The tech sector continues to get hit the hardest, with the iShares Expanded Tech-Software Sector ETF dropping 5.4 on the week.

There were reports early in the week that Russia had begun to pull back troops from the Ukrainian border, which sent the markets higher for the day. But the rally didn’t last long when both the U.S. and NATO reported that Russia had not moved its troops. In fact, Russia had increased its troops along the border. On Monday, the U.S. closed its embassy in Kyiv, and on Friday, President Biden stated that a Russian attack on Ukraine was imminent.

Normally, markets tend to look past these geopolitical worries and focus mainly on the possible economic issues. Russia is one of the world’s largest oil producers and supplies almost 40 percent of the natural gas to Europe. Because of this, oil prices continue to remain high, with WTI closing at $91.66 for the week. On a positive note, if the talks between the U.S. and Iran are successful, it could lead to the U.S. lifting sanctions on Iran, which could cause oil prices to drop.

Retail sales jumped 3.8 percent for the month, beating the estimate of an increase of 2.1 percent, and much better than the 2.5 percent decline in December. Online shopping continued to do well, with non-store retailers gaining 14.5 percent. Other gains were seen in the home furnishing sector with an increase of 7.2 percent.

The omicron variant is still a concern, causing food and drinking establishment sales to drop 0.9 percent for the month. It appears the omicron variant is decreasing across the country, with lowering positivity rates and hospitalizations dropping. This should be good news for this sector in the coming spring and summer months.

This past Wednesday, the Fed released the minutes from the January FOMC meeting, which didn’t contain any surprises from what is already known. By now, everyone knows they will raise rates in March, but the question remains how significant the increase will be. The odds of a 50 basis point rate hike have dropped to 33 percent from over 90 percent. St. Louis Federal Reserve President James Bullard once again reiterated his position that the Fed needs to increase its policy rate by 1 percent by July 1.

Homebuyers are still facing increasingly higher home prices. Applications for new mortgages and refinancing dropped due to the rising mortgage rates. Those applying for a mortgage fell 1 percent compared to the previous week and 7 week lower than the same week last year. Application volume for refinancing was down 9 percent for the week and 54 percent lower than the same week last year.

Mortgage rates continued to increase and reached their highest level since before the pandemic started. The average rate on a 30-year mortgage rose to 4.03 percent from 3.85 percent a week ago.

Even though the demands for mortgages are falling, the size of the average loan application set a new record this week at $435,000 for an average loan. Higher mortgage rates might be dampening mortgage applications, but the demand for housing is still exceeding supply.

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