Weekly Market Update with Brian Ransom, 4 March 2022
Welcome to the weekly market update from Signature Wealth Management. I’m Brian Ransom, Research Director from Signature Wealth and here’s what happened in the market this week.
Volatility continues on Wall Street this week. As the world awaits news from Ukraine, the market continues to make a series of lower highs and lower lows, signaling that we are in a clear short term down trend.
Eastern Europe remains the dominant news item of the week. Russian forces continue to push into Ukraine but the Ukrainians are bravely fighting off the Russian advance on Kyev. Currently, over one million refugees have fled the country. In light of the war in Eastern Europe, Federal Reserve Chairman, Jerome Powell announced the Federal Reserve would likely increase the Fed Funds rate by 25 basis points in March, lower than the 50 basis points predicted by the market. The market responded positively to the news.
With the rising risks in Eastern Europe, it’s time to review a few markers of economic and financial health. This is the performance of S&P 500 consumer staples relative to consumer discretionary stocks. When this graph is moving down and to the right, investors are risk on, choosing to invest in riskier discretionary stocks like vehicle manufacturers and movie theaters in lieu of safer stocks in the staples industry. When this graph is moving up and to the right, staples are out performing and investors are risk-off, choosing to invest in the safer cash flows from grocery stores and food suppliers. Currently, staples are outperforming, unsurprisingly. So, investors are currently risk-off.
The Semiconductor index is a great measure of health within the 21st century economy. Typically, when there is economic weakness, the semiconductor index falls relative to the S&P 500 like we saw at the end of 2018. During this last bit of volatility, the index did fall initially, but it has recovered somewhat since the war initially started. This indicates the economy may be healthier than the headlines are reading.
Lastly, the small cap index demonstrates performance of smaller firms relative to the mega-cap firms. A healthy economy and market typically shows high levels of performance from the smaller publicly traded firms. Since the beginning of 2021, market returns have been dominated by the mega-cap firms, signaling a gradually weaker market. However, it appears that trend has reversed over the last few weeks once again signaling the market and economy may be healthier than the headlines are indicating.
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Sources:
1.FactSet Research Systems. (n.d.). S&P 500 (Interactive Charts). Retrieved March 4, 2022, from FactSet Database.
2.FactSet Research Systems. (n.d.). Equal Weight Consumer Staples relative to Equal Weight Consumer Discretionary (Interactive Charts). Retrieved March 3, 2022, from FactSet Database.
3.FactSet Research Systems. (n.d.). SOXX Semiconductor Index relative to S&P 500 (Interactive Charts). Retrieved March 3, 2022, from FactSet Database
4.FactSet Research Systems. (n.d.). S&P 600 relative to S&P 500 (Interactive Charts). Retrieved March 3, 2022, from FactSet Database
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