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Jason Colodne of Colbeck Capital's March 20 Market Rewind

Although Russia's invasion of Ukraine continued to impact the economy during the third week in March, the Federal Reserve's interest rate increase announcement - its first since 2018 - buoyed investors later in the week, says Jason Colodne, co-founder of Colbeck Capital Management, an NYC-based private equity asset management organisation focused on strategic lending.
Jason Colodne of Colbeck Capital's March 20 Market Rewind

The following roundup features several notable public- and private-sector updates from the week.

Economic snapshot

Arguably the biggest news of the week involved the Fed’s Wednesday announcement that it plans to raise the target range for the federal funds rate by a quarter percentage point – while stating the Federal Open Markets Committee anticipates ongoing increases “will be appropriate".

Although the committee said it expects inflation to return to its 2% objective and the labor market to remain strong, members noted Russia’s recent invasion of Ukraine has caused economic difficulties, and the situation is likely to place additional pressure on inflation in the short term and affect economic activity. The Fed projected the federal funds rate would be 1.9% by the end of the year.

The rate-increase news, indicating consumers may soon pay more for borrowing and credit, came the day after separate news about an increase in the cost of goods and services was released.

A U.S. Bureau of Labor Statistics report on Tuesday revealed the producer pricendex, which measures the average change in prices for domestically produced goods, services, and construction, was 0.8% higher in February.

The increase was attributed to final demand goods prices, which rose 2.4% — the largest increase since December 2009, according to BLS. Gas was a major contributing factor, with nearly 40% of the increase in final demand goods prices due to the gasoline index’s 14.8% jump last month.

In January, the producer price index increased 1.2%, and in December had risen 0.4%. On an unadjusted basis, final demand prices increased 10% percent for the 12-month period that ended in February.

Another key economic indicator, home building activity, was up last month, according to the latest release of the National Association of Home Builders/Wells Fargo Housing Market Index.

Total housing starts showed a 6.8% rise in February, reaching a seasonally adjusted rate of 1.77 million units, which represents the number of units builders would begin constructing if development were to remain at the current pace for the next 12 months. The latest total represents a 22% increase from the February 2021 rate.

Although rising construction costs and material supply chain issues remain a challenge, NAHB chairman Jerry Konter said the demand for new construction “remains solid in a market lacking inventory of previously owned homes".

The amount of overall construction permits fell 1.9% in February. Single-family permits remained generally flat, decreasing 0.5%, and multifamily permits declined 4.4%.

Recent Market Activity

The week started on a sluggish note for the stock market, but that pace didn't last for long. By Wednesday, the day the Fed released significant news about its economic outlook for the year, the markets were rebounding, and ultimately experienced a strong week.

The S&P 500 started the week with a 0.7% decline on Monday; however, following the Fed’s announcement midweek, the index rose 2.14% on Tuesday, 2.2% on Wednesday, and 1.2% on Thursday. On Friday, the S&P 500 increased for the fourth day in a row, showing a 1.2% gain for the day.

On Monday, the Nasdaq Composite Index shed 2.04% on Monday, but rose on Tuesday and Wednesday, climbing 2.9% and 3.7%, respectively. The Nasdaq continued its ascent on Thursday with a 1.3% increase, followed by a 2% rise on the last day of the week.

The Dow Jones Industrial Average didn’t decline at the start of the week; it remained essentially flat on Monday but was on the rise by Tuesday, increasing 1.8% and escalating 1.5% Wednesday. On Thursday, the Dow gained 1.2%, and was up 0.8% on Friday, according to preliminary post-market numbers.

Following the Fed’s interest rate increase news on Wednesday, the yield on the 30-year treasury bond closed higher than the day before at 2.46%; and the benchmark 10-year treasury note yield reached its highest level in three years, 2.24%, during the day at one point.

Additional analysis continues to emerge, though, that indicates the Russia-Ukraine conflict and other recent events have influenced investor interest as of late.

Data from the previous week in March, for instance, indicates new high-yield market issuances weren’t particularly robust during the first full week of the month, with several expected deals falling through due to the desire to reduce risk, according to a T. Rowe Price update – which also noted the leveraged loan market experienced lessened activity during the same time period.

 
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