The S&P 500's 2022 Descent Continues

Although the U.S. economy got a positive boost as crude oil prices dropped, the S&P 500 (SPX) continues its downward descent as economic reports confirmed President Biden's inflation reached a new high in February 2022.

The index received a brief pop from the unexpected relief in crude oil prices, which backed down from the $130 level they hit after Russia's invasion of Ukraine, but that geopolitical event is only contributing noise to the outlook for U.S. businesses. The highest inflation in 40 years, which will compel the Federal Reserve to hike short term interest rates, had a more negative effect for the S&P 500, as stock prices continued their downward descent on that news. The latest update to the alternative futures chart shows the actual trajectory of the index is still consistent with the redzone forecast range's projection, though the noise from the Ukraine invasion's geopolitics is pulling the level of the S&P 500 to the lower end of the forecast range.

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Since it occurred so late in the month, the February 2022 Consumer Price Index report showed only minimal impact from Russia's 24 February 2022 invasion of Ukraine. The index is based on the prices of some 80,000 items the Bureau of Labor Statistics surveys throughout the entire month, so it predominantly reflects price increases that had not yet been affected by the Ukraine crisis. We anticipate the upcoming report for March 2022 will show more of the invasion's impact on oil, food, and commodity prices, which will come on top of the now well-established inflationary forces enabled by the Biden administration's policies.

Here's our summary of the past week's market moving news headlines:

Monday, 7 March 2022

• Signs and portents for the U.S. economy:
  • Oil price spikes to $139 on talks about Russia oil ban, Iran deal delay
    • Palladium hits all-time high, gold tests $2,000/oz on Ukraine
    • Oil, wheat, nickel storm higher on fears of supply chaos
  • No inflation relief in sight for U.S. as impact of Ukraine war intensifies
• Bigger trouble developing in China:
  • China ag minister says winter wheat condition could be worst in history
  • China's export growth slows, Ukraine crisis poses risk
• ECB minions plan to sit on hands until at least 2022-Q4:
  • ECB to wait until Q4 to raise rates despite rampant inflation: Reuters poll
• Wall St slides as oil prices surge, Dow confirms correction

Tuesday, 8 March 2022

• Signs and portents for the U.S. economy:
  • New index shows U.S. inflation expectations shifting higher
    • Retail gasoline prices hit all-time record - AAA
    • LME forced to halt nickel trading, cancel deals, after prices top $100,000
    • Palladium firms near record, gold accelerates as Ukraine worries mount
  • Record U.S. trade deficit, slowing wholesale inventory gains seen curbing economic growth
  • Biden bans Russia oil imports to U.S., warns gasoline to rise further
• Bigger trouble developing in the Eurozone:
  • War-fuelled inflation adds to Europe's cost of living crisis
  • Europe's six-month diesel spread hits a record high above $500/T
  • Column-Western economies on brink of recession as Russia sanctions escalate: Kemp
• Wall St ends down in rocky session as U.S. bans Russian oil imports

Wednesday, 9 March 2022

• Signs and portents for the U.S. economy:
  • Oil prices fall most in 2 years as UAE supports output hike
  • U.S. Energy Secretary urges companies to boost oil, gas output
  • U.S. labor market very tight, job openings near record high in January
  • High risk of half-percentage-point Fed rate hike in 2022, economists say
• Tech, financials lead resurgent Wall St as oil plunges

Thursday, 10 March 2022

• Signs and portents for the U.S. economy:
  • Oil bounces as tight supply gives high floor to prices
    • Analysis-An oil shock is coming, but the U.S. may have already paid for it
    • As oil prices soar, U.S. shale, OPEC in no rush to resume price war
  • U.S. consumer prices accelerate in February; weekly jobless claims rise
    • Instant view: Feb US CPI jump comes as no surprise
    • Households squeezed as U.S. consumer prices accelerate; more pain coming
• Investors start betting Fed minions will back out of rate hikes in 2023:
  • 2023 U.S. rate cut bets appear before hiking even starts: McGeever
• Bigger trouble developing in Russia:
  • Russian economy in 'shock' from unprecedented economic war - Kremlin
• ECB minions signal they may do something about Eurozone inflation, see gloomier future:
  • ECB pushes on with stimulus exit at Ukraine "watershed" moment
    • Inflation over Russia risks: ECB to end bond-buying in Q3
    • ECB Hawkish Surprise Sends EU Bond Yields Soaring
    • Central banks rush to stimulus exit as inflation jumps, wary of Ukraine fallout
  • ECB won't raise rates until some time after net bond buying ends -Lagarde
  • ECB raises inflation forecasts, cuts growth outlook amid Ukraine conflict
• Wall Street closes lower as inflation hits 40-year high, inviting aggressive Fed tightening

Friday, 11 March 2022

• Signs and portents for the U.S. economy:
  • U.S. push to export LNG amid Ukraine crisis slowed by climate concerns, sources say
  • Oil settles up but posts biggest weekly decline since Nov
  • U.S. consumer sentiment near 11-year low; near-term inflation worries mount
• Bigger trouble developing in Japan, Eurozone, world:
  • Japan business mood sinks, eclipses household spending boost as Ukraine risks grow
  • War in Ukraine could more than halve German GDP growth - study
    • EU wants less dependence on imported chips, food, raw materials, as Ukraine war rages
  • Ukraine’s farmers stalled, fueling fears of global food shortages
• Positive growth signs in Canada:
  • Canada posts massive job gain, jobless rate nears 3-year low
• BOE minions act to address inflation:
  • Bank of England heads for third rate rise in a row as prices surge
• Wall Street slumps in broad swoon to end bumpy week

The CME Group's FedWatch Tool projects quarter point rate hikes in March (2022-Q1) and May (2022-Q2), to be followed by a half-point rate hike in June (2022-Q2). The FedWatch tool then anticipates quarter point rate hikes resuming in July (2022-Q3), November (2022-Q4) and December (2022-Q4) to round out 2022.

The Atlanta Fed's GDPNow tool's latest estimate of real GDP growth in 2022-Q1 is 0.5%, boosted from last week's projection of zero growth with higher than previously expected estimates of personal consumption expenditures, particularly for durable goods, as American consumers may be trying to get ahead of anticipated price hikes.