In Markets "In a Nutshell"

Markets “In a Nutshell” for February 14, 2022

Investment Week at a Glance

Stocks finished lower for the week.  The Dow Jones Industrial Average fell 1.00%, the S&P 500 was down 1.80%, and the NASDAQ fell 2.20%. Foreign stocks (MSCI EAFE) were up, rising 2.30%.  Bond prices were flat for the week, with the 10-year U.S. Treasury ending the week at 1.92%.  (Data source: Wall Street Journal)

Inflation Continues

The most recent inflation reading came out last week and CPI 7.5% year over year, exceeding estimates of 7.3%. This is the largest gain year over year since February of 1982. The market was expecting a high number and only dipped slightly on this most recent reading. As we move further into the year, inflation is expected to cool off a little as many believe we will see peak CPI growth in the next 2 to 3 months. Although inflation will start to come down, it is unexpected that prices will ever return to what they once were. When the year-over-year CPI number comes down, it is important to remember that it is being compared to just 1 year ago. This is why many believe the peak will be in March because April of 2021 was the first month we saw a spike in the CPI data.

Fed Rate Hikes

With the CPI data coming in hotter than expected, bond markets started to price in more rate hikes. There are now 7 rate hikes priced in and a greater than 50% chance that we see a 0.50% rate hike in March. This would be the first 0.50% rate hike since 2000 as opposed to the typical 0.25% hike. As the Fed sets up to raise rates for the first time since the Pandemic, other nations are already getting started raising rates. The 10-year rates in Europe moved about 0% for the first time in three years. In Japan, rates are the highest they have been since 2016 and are approaching the 0.25% cap they have set. As rates continue to rise around the World, the value of negative-yielding bonds has gone from $18 trillion to $4 trillion in the past 18 months. This will shrink even more as it is expected rates continue to rise around the World going forward.

Quiz:

When was the last time the United States had deflation also known as negative inflation? (Scroll Down for Answer)

  1.    2020
  2.    2009
  3.    2001
  4.    1989

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Answer below.

 

 

Have a Great Week!

 

 

 

 

 

 

 

 

 

Answer:

2)   2009.  In 2009 CPI for the year was -0.4%, this was the first time since 1955 the United States had seen deflation.