February 28, 2022
Good morning,
By the Hour: More and stiffer sanctions were levied on Russia and Putin over the weekend which brough another spike of uncertainty. Primarily around what the sanctions might mean for the global economy, particularly Europe’s economy. “Recession” led almost every overseas news headline this morning and Futures opened down 3% as trading got underway at 5pm ET last night.
By the Day: Futures have rebounded from their opening lows and recovered about half their initial losses as I type. Best guess is that as our cash markets open, and overnight losses on the major U.S. indexes will temper – the sanction hurt Europe more than the U.S.
By the Week: Markets will work through their discovery process on sanctions and effects all week while volatility likely comes off its peaks throughout the week. But that’s not all – Biden delivers his State-of-the-Union Tuesday, OPEC meets Wednesday, Costco reports Thursday and February jobs data land Friday morning. This jobs report and CPI next week are the two biggest data points ahead of the 3/16 Fed meeting and their initial move to begin the rate rise regime.
By the Month: Since the end of January and before the Russian invasion this month, there has been two likely paths for the market to take into the summer and beyond. Plan A – the market has gotten very oversold with extreme pessimism, so it rallies in March/April before further trouble. Plan B – recoveries are meager, the damage to the tape in January and February goes unrepaired by any rally and evidence rises that we are looking at a probable bear market.
Last Thursday and Friday’s rally (almost +4% on the S&P) were nice but not strong enough to generate any positive breadth thrusts needed to offset the tape damage of the last two months. At this point it does look like Plan B is unfolding but let’s let the new sanctions work their way into the market and see if the rebound rally resumes on the other side of that. Then we access as to whether or not portfolio weighting changes in taxable accounts are warranted.
Be well,
Mike