February 2022 Market Review and Outlook

Published Mar. 09, 2022
February 2022 Monthly Market Outlook

Monthly market Recap for February 2022

The deepening of the Ukraine conflict impacted stock markets hard in February. Global stocks dropped 2.6 percent (in USD terms), while global investment grade bonds lost 2.1 percent (in USD). Among the key topics were:

  • Russia’s invasion of Ukraine raised the prospect of a larger battle.
  • Rising commodity prices and Western sanctions impair the economy’s prospects.

Russia’s invasion of Ukraine raised the prospect of a larger battle.

The assault on Ukraine, which raised the prospect of future escalation between the West and Russia, shook investor confidence. While the EU and the US avoided direct military engagement and continued to purchase Russian oil, they slapped broad sanctions on Russia that would have a negative impact on Western economy. Global markets sank for the second month in a row in February, but there was a slight comeback towards the end of the month. Stocks having a large exposure to Eastern Europe declined, while corporations in the oil, mining, and armaments sectors prospered. Brent oil exceeded $100 USD per barrel, the highest level in eight years, contributing to current inflation and reducing consumer purchasing power and confidence. Government bonds and precious metals were in high demand as safe haven investments, with gold surging beyond $1,900 USD. The Swiss franc outperformed other currencies as a safe haven currency.

The US economy is doing well, and the Fed is still on track to increase interest rates.

Retail sales (+3.8 percent MoM), industrial output (+1.4 percent MoM), durable goods orders (+1.6 percent MoM), and existing house sales (6.5 million) were all high in January, although the labor market remained tight and inflation rose to 7.5 percent YoY. The FOMC minutes indicated the Fed’s desire to raise interest rates, but by the end of the month, the Ukraine crisis had surpassed interest rates as investors’ primary worry. So far, figures for February suggest that momentum is continuing – for example, the ISM Manufacturing PMI increased to 58.6 (from 57.6), and the ADP Employment Change increased by 475k. In politics, Biden increased pressure on Russia by increasing European sanctions, delivering budgetary aid to Ukraine, and deploying soldiers to eastern NATO nations.

Tenjin’s Outlook

 

As things stand, Russia’s invasion of Ukraine remains a key risk factor for markets, but the attention will now shift to how powerful the spring “reopening” will be. Most investors are concerned that sky-high gas and electricity costs would trigger a reaction, reducing demand and resulting in decreased profitability. However, there are some possible good effects.

First, resolving the Ukraine conflict would eliminate a significant “known unknown.”
Second, if the spring “reopening” continues throughout the summer, investors may strive to increase the market multiple and stock prices once again. Because the market may reduce expectations for the Federal Reserve’s rate rises.

Because the Tenjin crash signal is still operational, we shall maintain our defensive approach in the present scenario. In fact, Powell significantly reduced the market’s fear that he would overshoot and kill the growth outlook. The market will become less sensitive to the Russia-Ukraine dispute. Based on our market confidence level projection, our strategies will return to growth mode.

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Investment advisory services offered through Tenjin AI Capital Advisory LLC, an SEC Registered Investment adviser. The author’s commentary which may include information and statistical data obtained from and/or prepared by third party sources TenjinAI deems reliable but in no way does TenjinAI guarantee the accuracy or completeness. All such third party data information and statistical data contained here is subject to change without notice. Nothing herein constitutes as a legal advice or any recommendation that any security,investment portfolio or investment strategy is suitable for any specific person. All investments involve risks and past performance is no guarantee of future results. The content on the website is for informational purpose only and does not constitute a comprehensive description of TenjinAI’s investment advisory. For complete disclosures, please visit tenjin-ai.com/legal

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