Last Week in Review – February 18, 2022

February 22, 2022

Last Week In Review

Last week large-cap indexes suffered their second consecutive week of declines as worries over a Russian invasion of Ukraine and high inflation weighed on sentiment. A steep decrease in Meta Platforms (Facebook) weighed heavily on the communication services sector. The typically defensive consumer staples sector outperformed within the S&P 500 Index, helped by gains in Walmart and Procter & Gamble. However, traders noted that trading volumes were relatively light in the face of the volatility, as investors awaited the upcoming long weekend. Markets are scheduled to be closed today, February 21, observant of Presidents Day.

Conflicting signals on whether Russian troops were preparing to cross the border with Ukraine appeared to whipsaw markets throughout the week. Stocks fell on Monday afternoon following a CNN report that the president of Ukraine, Volodymyr Zelensky, said the government had been informed that the coming Wednesday would “be the day of the attack.” The indexes then rallied on Tuesday after Russian President Vladimir Putin said he hoped for a diplomatic solution to tensions with the U.S. and its allies and announced a partial pullback of troops near the Ukrainian border. Stocks then reversed course and headed lower again on Thursday and Friday, after U.S. officials stated that there was no evidence of a pullback and that an invasion was “imminent.”

Last week’s weakness in the market directly correlated to U.S. officials jawboning of an imminent invasion.

US – Markets & Economy

Contradictory signs from the Federal Reserve also seemed to foster volatility. On Monday, St. Louis Fed President James Bullard told a CNBC interviewer that policymakers “surprised to the upside on inflation” and that the Fed’s “credibility was on the line.” On Thursday, Bullard said in another interview that he expected a whole percentage point of federal funds rate increases by July. However, Bullard made it clear that his views were the consensus among fellow policymakers, and traders reported that the minutes from the Fed’s latest meeting, released Wednesday, were also generally perceived as dovish. According to CME Group data, futures markets were pricing in an almost 80% probability of only a quarter-point hike in March by Friday afternoon.

Last week, some mixed economic data may have also lowered expectations for an aggressive rate hike at the upcoming meeting. Weekly jobless claims rose for the first time in a month, and two regional manufacturing indexes were surprised on the downside. Conversely, retail sales rebounded by 3.8% in January, more than expected and the most since last spring. However, the sales data are not adjusted for inflation, and rising prices seemed to be behind much of the increase. Indeed, the Labor Department reported on Tuesday that producer prices rose 1.0% in January, the most in eight months and well above forecasts. Housing numbers were ambiguous, with starts rising less than expected but permits well ahead of consensus.

US – Equity Market Performance

Index Friday’s Close Week Ending 2/18/2022 Weekly (+/-) Point Change 2/18/2022 % Change YTD Week Ending 2/18/2022
DJIA 34,079.18  -658.88 -6.22%
S&P 500 4,348.87  -69.77 -8.76%
Nasdaq Composite 13,548.07 -243.08  -13.40%
S&P Midcap 400 2,632.50  -14.96 -7.37%
Russell 2000  2,009.33  -20.82 -10.51%


US Yields & Bonds

The unclear signals from Russia, the Fed, and the economic reports kept Treasury yields fluctuating over the week. (Bond prices and yields move in opposite directions.) Traders reported that the interest rate volatility, along with outflows from municipal bond funds, continued to weigh on the tax-exempt bond market. However, one trader I spoke with reported that light supply levels provided technical support to the market.

Investment-grade corporate bond spreads moved wider during the week as headlines regarding Russia/Ukraine tensions and an acceleration in U.S. producer price inflation weakened sentiment. The primary calendar was active periodically as sentiment stabilized, and the new deals were generally met with adequate demand.

Traders noted that the high yield market suffered from concerns about supply issues from possible sanctions against Russia or disruptions that would not only impact the energy industry but would likely have broader implications for other inputs across sectors. The primary market remained quiet, with no new deals announced. Meanwhile, bank loans experienced weakness as financial markets assessed the latest Fed commentary. MBS traders noted that buyers in the loan market largely remained on the sidelines late in the week, while sellers seemed to be waiting for prices to recover.

US Treasury Markets – Current Rate and Weekly Change

3 Mth: -0.02 bps to 0.32%
2-yr: -0.03 bps to 1.47%
5-yr: -0.03 bps to 1.82%
10-yr: -0.01 bps to 1.93%
30-yr: 0.00 bps to 2.24%


Interesting News Overseas

Shares in Europe, like the U.S., fell amid continuing geopolitical tensions over Ukraine and uncertainty about monetary policy. The pan-European STOXX Europe 600 Index ended the week 1.86% lower in local currency terms. Germany’s DAX Index tumbled 2.48%, Italy’s FTSE MIB Index gave up 1.70%, and France’s CAC 40 Index slipped 1.17%. The UK’s FTSE 100 Index pulled back 1.92%.

Core Eurozone bond yields fluctuated but ended lower overall, as fears of a Russian invasion of Ukraine intensified. Peripheral eurozone and UK government bond yields broadly tracked core markets.

European Central Bank (ECB) President Christine Lagarde and Governing Council members Francois Villeroy de Galhau and Pablo Hernandez de Cos emphasized that any adjustment to monetary policy would be gradual and guided by critical economic data.

However, ECB Chief Economist Philip Lane changed his position on inflation, suggesting there may be a growing consensus for stimulus to be withdrawn faster than planned. Lane said in a webinar that inflation was unlikely to drop below the ECB’s 2% target in the next two years because investors, analysts, and consumers now had higher inflation expectations and structural shifts had occurred in the economy.

On the other side of the planet, Japan’s stock markets generated a negative return for the week, with sentiment weighed down by geopolitical tensions in Ukraine (surprise) and concerns about the Fed’s more aggressive monetary policy tightening. The Nikkei 225 Index fell 2.07%, and the broader TOPIX index was down 1.95%. The Bank of Japan’s fixed-rate Japanese government bond (JGB) purchase operation, which saw no offers with market yields remaining lower, successfully capped long-term interest rates, with the yield on the 10-year JGB unchanged at 0.22%. On safe-haven demand amid geopolitical tensions, the yen strengthened to around JPY 115.18 against the U.S. dollar, from the previous week’s JPY 115.45.

Buoyed by robust private consumption amid falling coronavirus cases, the Japanese economy grew by an annualized 5.4% quarter on quarter over the final three months of 2021, having contracted by 2.7% in the third quarter of the year. Growth came slightly short of consensus expectations, as public investment was a drag. Separate data showed that customs exports rose a weaker-than-anticipated 9.6% year on year in January—notably, car exports declined, and shipments to China fell. Imports were up 39.6%, with the value of inbound shipments boosted mainly by higher energy costs.

This Week Ahead

Investors should brace for another rollercoaster week as the Ukrainian crisis will remain in the spotlight, with the situation on the ground becoming more unstable and politicians continuing to declare a war imminent. A Moscow-backed separatist in Donbas said a total military mobilization on Saturday, after ordering the evacuation of civilians to Russia the day before. Meanwhile, U.S. Secretary of State Antony Blinken is expected to meet Russian Foreign Minister Sergei Lavrov next week for further diplomatic efforts to solve the conflict.

In the U.S., flash Markit PMIs will update the economic activity in February, and the PCE report due Friday is likely to show a rebound in spending in the first month of the year. On the price front, core PCE inflation is expected to accelerate to 5.2% from 4.9% in December, raising the odds again the Fed will deliver a 50bps increase in the fed funds rate in March. Also, the second GDP estimate is expected to show an upward revision in Q4 growth to 7% from an initial 6.9%. Other housing indicators, including the Case-Shiller home prices, FHFA housing index, pending and new home sales; durable goods orders; the final Michigan consumer sentiment estimate; and the CB consumer confidence will also be in the spotlight. On the earnings front, Berkshire Hathaway, Home Depot, Macy’s, Lowe’s, Footlocker, and Moderna are responsible for reporting quarterly results next week. US markets will be closed today.

Have a great week.

Stephen Colavito

Stephen Colavito, Jr.
Chief Investment Officer
Perigon Wealth Management, LLC

D,M: 404.313.1382

This message is provided for informational purposes and should not be construed as a solicitation or offer to buy or sell securities or other financial instruments. Past performance is not a guarantee of future results. Perigon Wealth Management is a registered investment adviser. More information about the firm can be found in its Form ADV Part 2, which is available upon request by calling 415-430-4140 or sending an email request to

Written by Perigon Wealth

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