In Case You Missed It
Telemus Weekly Market Review February 21st - February 25th, 2022
This past week turned out to be a volatile one for stocks and bonds. Yet, if you hadn’t turned on the news, one would have thought it was a slow week in mid-summer. The S&P 500 concluded with a gain of +0.8%, which we feel is a a stellar outcome given heightened geopolitical concerns following Russia’s invasion of Ukraine. The outcome was not as favorable for international stocks, particularly emerging market equities, which include Russia. Both markets finished lower, with emerging markets declining nearly -5%. Among bonds, prices fell as interest rose moderately. Lastly commodities rallied on the back of higher crude oil prices.
What transpired in equity markets was surprising to many as stocks gapped down on Thursday following the news of the Russian invasion. The uncertainty associated with the conflict drove an initial flight toward safe haven assets. In fact, the yield on the one-month Treasury briefly turned negative. By the close on Thursday, stocks had rallied back with the S&P 500 finishing +1.5% higher. Stocks continue to climb on Friday leading to a gain on the week. A key factor driving the surprise rally was short covering among institutional investors that had been hedging risk in advance of the conflict by buying puts and shorting broad market indexes. The buying pressure associated with covering these positions helped to provide some support to the market and calm investor nerves.
In the bond market, interest rates finished the week higher, leading to a -0.3% return for the bond market barometer, the Bloomberg Barclays U.S. Aggregate index. Yields rose as a result of many investors expecting that the conflict is likely to lead to higher commodity prices, which in the near-term will add inflationary pressure. This will only further push central banks toward tighter policies. In fact, St. Louis Fed President James Bullard stated on Friday that he still believes hiking rates one percentage point by July remains appropriate as he sees limited impact to the U.S. economic outlook from Russia’s invasion of Ukraine.
While the positive finish to the week may have been surprising, the prospect of an invasion had begun to be priced in during prior weeks as the conflict began to heat up. As we look ahead, the combination of additional news flow out of Ukraine and tighter policies out of the Fed will likely lead to a period of elevated volatility. In fact, this past week the options market began to incorporate a sustained shift toward a higher volatility environment in their pricing assumptions. In periods of heightened volatility, it is best to look past day-to-day noise, whether markets are up or down, and remain focused on long-term objectives. Geopolitical conflicts have historically started out with market downturns as uncertainty spooks investors. Each time the circumstances are different, however, often stocks are higher 6 or 12 months following a conflict.
All opinions expressed in this article are for general informational purposes and constitute the judgment of the author(s) as of the date of the report. These opinions are subject to change without notice and are not intended to provide specific advice or recommendations for any individual or on any specific security. The material has been gathered from sources believed to be reliable, however Telemus Capital cannot guarantee the accuracy or completeness of such information, and certain information presented here may have been condensed or summarized from its original source. PAST PERFORMANCE IS NOT A GUARANTEE OF FUTURE RESULTS. Investment decisions should always be made based on the client's specific financial needs, goals and objectives, time horizon and risk tolerance. Current and future portfolio holdings are subject to risk. Risks may include interest-rate risk, market risk, inflation risk, deflation risk, currency risk, reinvestment risk, business risk, liquidity risk, financial risk, and cybersecurity risk. These risks are more fully described in Telemus Capital's Firm Brochure (Part 2A of Form ADV), which is available upon request. Telemus Capital does not guarantee the results of any investments. Investment, insurance and annuity products are not FDIC insured, are not bank guaranteed, and may lose value.
The S&P 500® is widely regarded as the best single gauge of large-cap U.S. equities. There is over USD 11.2 trillion indexed or benchmarked to the index, with indexed assets comprising approximately USD 4.6 trillion of this total. The index includes 500 leading companies and covers approximately 80% of available market capitalization. The Bloomberg Barclays US Aggregate Bond Index is a broad-based flagship benchmark that measures the investment grade, US dollar-denominated, fixed-rate taxable bond market. The MSCI Emerging Markets Value Index captures large- and mid-cap securities exhibiting overall value style characteristics across 27 Emerging Markets (EM) countries. An index is not a security in which an investment can be made, as they are unmanaged vehicles that serve as market indicators only and do not account for the deduction of management fees and/or transaction costs generally associated with investable products. Advisory services are only offered to clients or prospective clients where Telemus and its representatives are properly licensed or exempt from licensure. No advice may be rendered by Telemus unless a client service agreement is in place. All composite data and corresponding calculations are available upon request.
Matt joined the Telemus team in 2018. As Chief Investment Officer, he leads the firms the investment process and research effort. Matt has experience as an equity analyst and portfolio manager and has advised corporate pension plans on their manager selection. He’s been quoted in Money Magazine and Barron’s.