U.S. stocks fell on Friday, 11th February 2022, as mounting fears of a potential Russian invasion of Ukraine added to the continued expectation of an aggressive Fed.
The market was already on a weak footing from comments made by Federal Reserve Bank of St. Louis President James Bullard that we could see a 1% hike by July. Bullard spoke after the January consumer price index report showed a 7.5% annual increase, the biggest since 1982.
Then on Friday, the U.S. advised citizens to leave Ukraine as tensions with Russia rise, adding that Russia could take offensive military action against Ukraine as early as next week.
Flight to quality saw the Bond market rally bringing the 10Year yield back down to 1.94%, after breaking above 2%.
Consumer sentiment declined further in February. Data released on Friday showed that the University of Michigan’s sentiment index dropped to 61.7, the lowest since October 2011, from 67.2 in January. The figure trailed the median estimate of 67 in a Bloomberg survey of economists.
For the week, the Dow Jones average fell by 1%, the S&P 500 lost by 1.8%, and the Nasdaq Composite slumped by 2.2%.
Here are the closing levels on Friday, 11th February 2022: –
| Last | Change | %Change | |
| Dow Jones | 34,738.06. | -503.53. | -1.43% |
| S&P 500 | 4,418.64 | -85.44. | -1.90% |
| Nasdaq Comp | 13,791.15 | -394.49. | -2.78% |
| U.S. 10Y | 1.94% | ||
| VIX | 27.36 | +3.45 | 14.43% |
At the beginning of the year, I mentioned that Russia invading Ukraine would be bad for markets. While Russia may not take action next week, tensions are rising and markets are reacting to it.
We still have inflation worries with supply chain issues blamed from the rise in many products including food staples.
Markets will continue to price in the possibility of as many as 7 hikes this year. (Goldman is now calling for 7 hikes in 2022 from 5 earlier.)
While many states in the U.S. are removing mask mandates, which is a positive sign for the economy as it tries to revert to pre-pandemic life. However, one cannot rule out the potential of another variant emerging from this move.
It was a bad closing on Friday, with the S&P going back below its 200 Day moving average. Nasdaq, after having a good run on solid corporate earnings, is now looking at testing January lows.
Ultimately, the market needs the buyers on dips to come back in again if we are to avoid another down week.
Source: CBOE, Bloomberg
This commentary is written by James Gomes
James has been in the finance industry for over 30 years and most recently worked for a large U.S. bank for more than 20 years.
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