Concerns over the health of the US consumer spending had begun to rise as February approached, but both the flash February PMIs and the January retail sales figures brought some respite. The manufacturing PMI and the services PMI both climbed strongly. Retail sales increased 3.8 percent following a poor December announcement, indicating that US consumers postponed rather than cut down on purchasing as a consequence of Omicron.
The comeback in consumer spending resulted in yet another unexpected increase in inflation. In the United States, headline inflation in January was 7.5 percent year over year, far ahead of forecasts. Looking deeper, both core goods and core services inflation boosted their contributions to the headline figure, indicating that underlying inflationary pressures are still building. Despite fears that Omicron-related firm closures would result in low employment creation, the January jobs data was also positive. Nonfarm payrolls climbed by 467,000 jobs, while earnings jumped by 5.7 percent year on year.
With rising inflation and solid job growth in mind, the market now expects the Fed to raise interest rates by about six times by the end of the year. Rising inflation and bond rates have worried investors about the prospects for corporate profitability, but the fourth-quarter earnings season produced reassuring numbers. Earnings increase in the United States was more than 30 percent year on year, compared to projections of 20 percent at the outset of the reporting season. Despite this, fears about the situation in Ukraine and stricter monetary policy weighed on equities markets, and the S&P 500 fell 3% in February. Treasuries in the United States fell by 0.7 percent.
In February, most sectors of the market suffered. Energy was the only industry to grow, with oil and gas prices skyrocketing. All other industries fell. The areas of technology and communication services were among the poorest.
There is no doubt that uncertainty is at an all-time high right now. In times of uncertainty, it is logical to have portfolios with more modestly sized relative risk exposures. What happens to energy prices in the following weeks and months will arguably be the most crucial issue to monitor for the global economy, as will how central banks respond.
In recent months, we have been skeptical of tech and growth companies, fearing that they may suffer as interest rates increase. These industries are risky because they rely on future earnings. They often perform better at times of easy money. Tenjin strategies have stronger exposure to cyclical firms in March, and ETFs contain equities in the S&P energy, materials, and industrials sectors, which helps a lot in generating more excess return. Tenjin systematic methods will continue to avoid placing large bets on growth equities. The algorithm will increase the diversification of the strategies. Since it is still unclear what will happen with the Ukraine conflict, and we have a Fed tightening cycle that has started, and history shows that it is difficult to engineer a soft landing.
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