Medicare Agent News: The Retreat in Stocks

Wednesday, February 23, 2022

The Retreat in Stocks

By Jeffrey Cane | Wednesday, February 23

History Lesson. History shows that investors should not be too concerned that a showdown between the West and Russia is now rattling U.S. stocks.

Yes, the S&P 500 has gone further into correction territory, but as Jacob Sonenshine noted on Barron's, that is often just the precursor to gains. "The average S&P 500 gain for the 12 months following a close into correction territory is 9.3% dating back to 1998, according to Dow Jones Market data," he wrote.

And even global conflict has not been bad for stocks. Jeff Sommer of the New York Times wrote:

Riding out a storm in the stock market has been a good strategy over the long term. One year after the 1941 bombing of Pearl Harbor, the S&P 500 gained 15 percent. A year after the U.S. invasion of Iraq in 2003, it was up 35 percent. History shows that just one year after most stock-market-shattering crises, the S&P 500 stock index has risen.

Yet the critical issue for stock prices has not really been Vladimir Putin, but inflation and the Federal Reserve's response to it.

The conflict with Russia is just exacerbating that problem for the market, as it drives up the prices of energy and other commodities and threatens problems with supply chains.

"The No. 1 issue really is inflation and the Fed, that’s what everybody’s worried about,” Matt Maley, chief market strategist at Miller Tabak + Co., told Bloomberg. “The situation in Ukraine is making it worse because it makes inflation worse -- if oil prices and natural gas prices are going to remain elevated -- that only makes the inflation concerns grow.”

Nicholas Farr, assistant economist at Capital Economics, says that while sharp drops in the U.S. market have often been a good predictor of the Fed turning more dovish, that's unlikely to happen this time.

"Even if the stock market were to fall further this year, the Fed might not dial back on its plans to tighten, which could keep U.S. equities under pressure," he wrote.

For that reason, Friday's report on the personal consumption expenditures price index for January — the Fed's favorite gauge of inflation — might be as market-moving as any headline from Europe.

Today, stocks could not hold on to morning gains and slid sharply in the afternoon. The S&P 500 fell for its fourth-consecutive session, closing down 1.8% and off 11.9% from its record close on Jan. 3. The selloff was broad. The only sector that ended with a gain was energy, as crude oil futures rose 0.21%, to $92.10 a barrel.

The Dow Jones Industrial Average just missed entering into a correction, closing down 1.4% and off 9.97% from its record close of Jan. 4. The Nasdaq Composite ended down 2.6%, and the Russell 2000 slumped 1.8%.

Treasury yields rose. The yield on the two-year Treasury settled at 1.598%, a new 52-week high. The yield on the 10-year was 1.976%.

Markets are sure to remain jittery for some time given the situation in Ukraine. Wall Street's so-called fear gauge, the Cboe Volatility Index, or Vix, has nearly doubled this year, settling today at 31.02.

History, as a character in Alan Bennett's play "The History Boys" reminds us, is "just one [expletive] thing after another."