Quarterly Market Review: January-March 2022
Quarterly Market Review: Q1 2022
The Markets (first quarter through March 31, 2022)
Wall Street dealt with several major issues in the first quarter of 2022. Investors had to evaluate the impact
of rising inflation, higher interest rates, ongoing coronavirus concerns, and the Russia-Ukraine war. Each of
the benchmark indexes listed here lost value by the end of the quarter. However, Treasury yields, the
dollar, gold, and crude oil prices ended the first quarter higher. Among the market sectors, energy
increased nearly 40.0%, while utilities climbed about 5.0%. The remaining sectors ended the quarter in the
red, with consumer services (-12.0%) and information technology (-8.0%) losing the most.
The yield on 10-year Treasuries rose nearly 80 basis points. Crude oil prices increased nearly $28.00 per
barrel, or 38.0%, in the first quarter. The dollar gained nearly 2.8%, while gold prices advanced more than
6.0%. The national average price for regular gasoline was $4.231 per gallon on March 28, $0.950 higher
than the January 3 price of $3.281 and $1.379 higher than a year ago.
January began the quarter with stocks reaching new all-time highs. Unfortunately, that was the high point of
the month for Wall Street. The first month of the year turned out to be a pretty rough one for investors. The
Russell 2000 lost 9.7%, the Nasdaq slid 9.0%, the S&P 500 dipped 5.3%, the Dow fell 3.3%, and the
Global Dow slipped 0.6%. In all, January produced the worst first-month performance since 2009, and that
includes a notable rally over the last two days of the month. Investors dealt with concerns over rising
inflation, the prospects of higher interest rates, and the pace of global economic recovery, despite the
fourth-quarter U.S. GDP advancing at an annualized rate of 6.9%, while nearly 200,000 new jobs were
added. On the other hand, industrial production slowed and new orders for durable goods declined. Prices
at the pump increased, closing the month at about $3.323 per gallon for regular gasoline. Ten-year
Treasury yields, the dollar, and crude oil prices climbed higher, while gold prices fell.
February also opened the month on a high note, but stocks tumbled into the red by the end of the month.
The S&P 500 fell to its lowest level since June 2021. Not only were investors still coping with rising inflation
and interest-rate hikes, but a new crisis emerged in February — Russia's invasion of Ukraine. The United
States and several other nations imposed sanctions against Russia, some of which were aimed at curtailing
Russian oil and natural gas exports, which resulted in a surge in energy prices. Initially, the conflict in
Ukraine shook global financial markets as stocks fell, and concerns grew that heating bills and food prices
would skyrocket. By the close of the month, the Dow, the S&P 500, and the Nasdaq fell more than 3.0%.
Ten-year Treasury prices initially fell on inflation worries, although yields later advanced as bond prices
receded. The dollar and gold prices rose. Crude oil prices jumped more than 8.0% from the previous
month, reaching $95.62 per barrel on the last day of February.
Despite attempts at peace talks, the war in Ukraine intensified in March, prompting the imposition of more
economic sanctions against Russia. Inflationary pressures continued to mount, which led the Federal
Reserve to raise interest rates 25 basis points with additional rate hikes anticipated. Nevertheless, stocks
showed resilience. Each of the benchmark indexes posted gains from February. The S&P 500 rose 5.0%,
the Nasdaq gained 4.7%, the Dow added 3.6%, the Russell 2000 climbed 2.1%, and the Global Dow
increased 1.9%. Although crude oil prices were trending lower by the end of March, they were still $8.00
per barrel higher than where they began the month. The yield on 10-year Treasuries advanced nearly 50
basis points. The dollar gained 1.5%, and gold prices climbed 1.9% to $1,945.70 per ounce.
Chart reflects price changes, not total return. Because it does not include dividends or splits, it should not be used to benchmark performance of specific investments.
Latest Economic Reports
- Employment: Employment rose by 678,000 in February, notably higher than the January revised total
of 481,000. Despite the increase, employment is down by 2.1 million, or 1.4%, from its pre-pandemic
level in February 2020. The unemployment rate inched down by 0.2 percentage point to 3.8%. The
number of unemployed persons decreased 243,000 in February to 6.3 million. By comparison, in
February 2020 prior to the coronavirus (COVID-19) pandemic, the unemployment rate was 3.5%, and
the number of unemployed persons was 5.7 million. Among the unemployed, the number of workers
who permanently lost their jobs declined by 100,000 to 1.5 million in February. Also in February, the
number of persons who were unable to work because their employer closed or lost business due to the
pandemic fell to 4.2 million. The labor force participation rate increased 0.1 percentage point to 62.3% in
February. The employment-population ratio increased by 0.2 percentage point to 59.9%. In February,
average hourly earnings were relatively unchanged at $31.58. Over the last 12 months, average hourly
earnings rose by 5.1%. The average work week rose by 0.1 hour to 34.7 hours in February.
- There were 202,000 initial claims for unemployment insurance for the week ended March 26. Over the
first three months of 2022, initial weekly claims and total claims for unemployment insurance benefits
steadily decreased. As of March 19, there were 1,307,000 total claims for unemployment benefits. This
is the lowest level for insured unemployment since December 27, 1969, when it was 1,304,000. A year
ago, there were 3,753,000 total claims for unemployment insurance benefits.
- FOMC/interest rates: Following its meeting in March, the Federal Open Market Committee increased
the federal funds target rate range by 25 basis points to 0.25%-0.50%. In support of its decision, the
Committee noted that inflation remains elevated due to imbalances related to the pandemic, higher
energy prices, the Russia-Ukraine conflict, and broader price pressures. In addition, the FOMC
anticipates six more rate hikes, some could be by as much as 50 basis points.
- GDP/budget: Gross domestic product rose 6.9% in the fourth quarter of 2021 compared with a 2.3%
advance in the third quarter. The increase in GDP primarily reflected increases in private inventory
investment, exports, personal consumption expenditures, and nonresidential fixed investment that were
partly offset by decreases in both federal and state and local government spending. Imports, which are a
subtraction in the calculation of GDP, increased. Consumer spending, as measured by personal
consumption expenditures, was 2.5% in the fourth quarter (2.0% in the third quarter). Spending on
goods rose by 1.1%, while spending on services climbed 3.3%. The PCE price index, a measure of
inflation, increased 6.4% in the fourth quarter after advancing 5.3% in the third quarter. Gross private
domestic investment, which includes nonresidential and residential fixed investment, vaulted 36.7% in
the fourth quarter after gaining 12.4% in the third quarter. Nonresidential (business) fixed investment
increased 2.9% (1.7% in the third quarter), while residential fixed investment increased 2.2% (-7.7% in
the third quarter). Exports jumped 22.4% in the fourth quarter after falling 5.3% in the prior quarter.
Imports climbed 17.9% following a 4.7% rise in the third quarter.
- The Treasury budget deficit came in at $216.6 billion in February, a notable jump from the surplus of
$118.7 billion in January. By comparison, the deficit in February 2021 was $310.9 billion. Through the
first five months of fiscal year 2022, the deficit sits at $475.6 billion, 55.0% lower than the deficit over the
same period in fiscal year 2021. So far in this fiscal year, individual income tax receipts have risen
38.0% and corporate income tax receipts have increased 31.0%. Compared to the same period last
fiscal year, government expenditures fell 9.0% to $506.5 billion, while receipts rose 17.0% to $289.9
billion.
- Inflation/consumer spending: According to the latest Personal Income and Outlays report for
February, personal income rose 0.5%, while disposable personal income increased 0.4% after each
increased 0.1% in January. Consumer spending increased 2.0% following a 2.7% jump in January.
Consumer prices climbed 0.6% in February after advancing 0.5% in January. Consumer prices have
risen 6.4% since February 2021. Year over year, energy prices vaulted 25.7%, while food prices
increased 0.8%.
- The Consumer Price Index climbed 0.8% in February after climbing 0.6% in the previous month.
Increases in the indexes for gasoline, shelter, and food were the largest contributors to the CPI increase.
The gasoline index rose 6.6% in February and accounted for almost a third of the overall February
increase. Since February 2021, the CPI has risen 7.9% — the largest increase since the period ending
January 1982.
- Prices that producers receive for goods and services jumped 0.8% in February following a 1.2%
increase in January. Producer prices have increased 10.0% since February 2021. Prices less foods,
energy, and trade services increased 0.9% in January, the largest increase since rising 1.0% in January
2021. For the year, prices less foods, energy, and trade services moved up 6.6%. In February, prices for
goods jumped 2.4%, while prices for services were unchanged. A major factor in the February increase
in the prices for goods was an 8.2% increase in energy prices, within which gasoline prices spiked
14.8%.
- Housing: Sales of existing homes reversed course, falling 7.2% in February after advancing 6.7% in
January. Year over year, existing home sales were 2.4% under the February 2021 estimate. According
to the latest survey from the National Association of Realtors®, housing affordability continues to be a
major challenge, as buyers are getting a double whammy: rising mortgage rates and sustained price
increases. The median existing-home price was $357,300 in February, up from $350,300 in January and
15.0% more than February 2021 ($310,600). Unsold inventory of existing homes represents a 1.7-month
supply at the current sales pace. Sales of existing single-family homes also fell, down 7.0% in February
after rising 6.5% the previous month. Since February 2021, sales of existing single-family homes have
fallen 2.2%. The median existing single-family home price was $363,800 in February, up from $357,100
in January.
- Sales of new single-family homes fell 2.0% in February after decreasing 8.4% (revised) in January. The
median sales price of new single-family houses sold in February was $400,600 ($427,400 in January).
The February average sales price was $511,000 ($494,000 in January). The inventory of new
single-family homes for sale in February represented a supply of 6.3 months at the current sales pace,
up from January's 6.1-month supply. Sales of new single-family homes in February were 6.2% below the
February 2021 estimate.
- Manufacturing: Industrial production increased 0.5% in February following a 1.4% increase in January.
In February, manufacturing rose 1.2% and mining increased 0.1%, while utilities fell 2.7%. Total
industrial production in February was 7.5% higher than it was a year earlier. Since February 2021,
manufacturing has risen 7.4%, mining has jumped 17.3%, while utilities decreased 1.2%.
- February saw new orders for durable goods decrease 2.2%. This decrease, down after four consecutive
monthly increases, followed a 1.6% January increase. Excluding transportation, new orders fell 0.6% in
February. Excluding defense, new orders dropped 2.7%. Transportation equipment, down following
three consecutive monthly increases, led the decrease, declining 5.6%.
- Imports and exports: Import prices rose 1.4% in February after advancing 1.9% in January, according
to the U.S. Bureau of Labor Statistics. Higher fuel and nonfuel prices drove the increases in both
months. Contributing to the increase in February import prices was a 6.9% jump in fuel prices. Prices for
nonfuel imports rose 0.8% in February. For the 12 months ended in February, prices for imports have
advanced 10.9%. Over the same period, prices for fuel have increased 53.0%. Prices for U.S. exports
advanced 3.0% in February following a 2.8% rise the previous month. The February advance in export
prices was the largest since January 1989. Higher prices for both agricultural and nonagricultural
exports in January contributed to the overall increase in U.S. export prices. Export prices have risen
16.6% since February 2021.
- The international trade in goods deficit was $106.6 billion in February, down $1.0 billion, or 0.9%, from
January. Exports of goods were $157.2 billion in February, $1.9 billion more than in January. Imports of
goods were $263.7 billion, $0.9 billion more than January imports.
- The latest information on international trade in goods and services, released March 8, is for January and
shows that the goods and services trade deficit rose by $7.7 billion to $82.0 billion from the December
2021 deficit. January exports were $224.4 billion, $3.9 billion less than December exports. January
imports were $314.1 billion, $3.8 billion more than December imports. Year over year, the goods and
services deficit increased $24.6 billion, or 37.7%, from the same period in 2021. Exports increased
$29.9 billion, or 15.4%. Imports increased $54.4 billion, or 21.0%.
- International markets: While business activity in the United States picked up, despite the turmoil in
Ukraine, Europe hasn't been quite as fortunate. Most of Europe has seen the war exacerbate already
strained supply chains, which has sent prices for raw materials and energy soaring — despite the lifting of
most pandemic-related restrictions. The European Central Bank lowered its forecast for economic
growth in the eurozone from 4.2% to 3.7%, while acknowledging that the impact of the Russian invasion
could be larger. In Japan, the government proposed more measures to boost the economy. China saw a
drop in stock prices after reports of a worsening coronavirus outbreak across the mainland. Overall, for
the markets in March, the STOXX Europe 600 Index rose 3.1%. The United Kingdom's FTSE gained
2.0%. Japan's Nikkei 225 Index climbed 6.2%, while China's Shanghai Composite Index fell 6.3%.
- Consumer confidence: The Conference Board Consumer Confidence Index® rose slightly in March
following a decline in February. The index stands at 107.2, up from 105.7 in February. The Present
Situation Index, based on consumers' assessment of current business and labor market conditions,
improved to 153.0 in March, up from 143.0 in February. The Expectations Index, based on consumers'
short-term outlook for income, business, and labor market conditions, declined to 76.6 in March, down
from 80.8 in February.
Eye on the Month Ahead
Despite accelerating inflation, the war in Ukraine, and rising interest rates, most economic indicators are
still demonstrating varying degrees of strength. However, March data may begin to show some economic
slowing. Gross domestic product, which ran at an annualized rate of nearly 7.0% in February, is likely to
recede, while the pace of job growth may decelerate. While the Federal Open Market Committee does not
meet in April, it is expected to push interest rates up by 50 basis points in May. Hopefully, a resolution to
the Russia-Ukraine conflict is near.
Data sources: Economic: Based on data from U.S. Bureau of Labor Statistics (unemployment, inflation);
U.S. Department of Commerce (GDP, corporate profits, retail sales, housing); S&P/Case-Shiller 20-City
Composite Index (home prices); Institute for Supply Management (manufacturing/services). Performance:
Based on data reported in WSJ Market Data Center (indexes); U.S. Treasury (Treasury yields); U.S.
Energy Information Administration/Bloomberg.com Market Data (oil spot price, WTI Cushing, OK);
www.goldprice.org (spot gold/silver); Oanda/FX Street (currency exchange rates). News items are based
on reports from multiple commonly available international news sources (i.e., wire services) and are
independently verified when necessary with secondary sources such as government agencies, corporate
press releases, or trade organizations. All information is based on sources deemed reliable, but no
warranty or guarantee is made as to its accuracy or completeness. Neither the information nor any opinion
expressed herein constitutes a solicitation for the purchase or sale of any securities, and should not be
relied on as financial advice. Forecasts are based on current conditions, subject to change, and may not
come to pass. U.S. Treasury securities are guaranteed by the federal government as to the timely payment
of principal and interest. The principal value of Treasury securities and other bonds fluctuates with market
conditions. Bonds are subject to inflation, interest-rate, and credit risks. As interest rates rise, bond prices
typically fall. A bond sold or redeemed prior to maturity may be subject to loss. Past performance is no
guarantee of future results. All investing involves risk, including the potential loss of principal, and there can
be no guarantee that any investing strategy will be successful.
The Dow Jones Industrial Average (DJIA) is a price-weighted index composed of 30 widely traded
blue-chip U.S. common stocks. The S&P 500 is a market-cap weighted index composed of the common
stocks of 500 largest, publicly traded companies in leading industries of the U.S. economy. The NASDAQ
Composite Index is a market-value weighted index of all common stocks listed on the NASDAQ stock
exchange. The Russell 2000 is a market-cap weighted index composed of 2,000 U.S. small-cap common
stocks. The Global Dow is an equally weighted index of 150 widely traded blue-chip common stocks
worldwide. The U.S. Dollar Index is a geometrically weighted index of the value of the U.S. dollar relative to
six foreign currencies. Market indexes listed are unmanaged and are not available for direct investment.
Important Disclosures
This information has been designed for general informational and educational purposes only and does not constitute an offer to sell or a solicitation of an offer to buy any security. Such offers can only be made where lawful under applicable law. These materials have been obtained and derived based on information from public and private sources that Zhang Financial LLC believes to be reliable. However, no representation, warranty or undertaking, stated or implied, is given as to the accuracy or completeness of the information contained herein, and Zhang Financial LLC expressly disclaims any liability for the accuracy and completeness of this information. Zhang Financial LLC does not intend to provide investment advice through these materials and does not represent that any market position, economic forecast, securities or services are suitable for any investor. Investors are advised not to rely on these materials in the process of making a fully informed investment decision and they do not render business, tax or legal advice. Each client or prospective client should consult his/her own attorney, business advisor and tax advisor as to legal, business, tax and related matters concerning the information contained herein. The information, opinions and views contained herein have not been tailored to the investment objectives of any one individual, are current only as of the date noted and may be subject to change at any time without prior notice. Past performance does not guarantee future results. All investing involves risk of loss including the possible loss of principal.
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