Market Strategy 3/28/2022
Another Day, Another Dollar
Geopolitical news and the non-farm payrolls figures due Friday should set the tone in the week ahead
Key Takeaways
- A brace of economic data scheduled for release this week culminating with the nonfarm payroll report on Friday should offer a key view of US economic health in March.
- Developments on the geopolitical level will continue to present potential for volatility as the war in Ukraine affects commodity, equity and fixed income markets.
- In the past two weeks equities have shown resilience on the back of lower valuations and an uptick in M&A activity.
- A recent rise in volatility has presented both risks and opportunities for investor to consider.
With a number of major US equity indices having posted gains last week and in the week prior traders and investors will keep eyes on any catalysts that could justify further upside or lack thereof this week as the month of March and the first quarter of 2022 draw to close over the first four days of this week.
In the past two weeks the NASDAQ Composite and the S&P 500 have moved 10.32% and 8.1% higher, respectively, to regain earlier lost ground. As of Friday’s market close the benchmarks stood 5.3% and 10.5% respectively below their highest levels for the year posted early in January.
On a year to date basis the Dow Jones Industrials, the S&P 500, the S&P 400 (midcaps), the S&P 600 (small caps), the Russell 2000 (small caps) and the NASDAQ Composite (some 40% weighted in tech and tech related companies) stood at last Friday’s close respectively lower 4.06%, 4.68%, 4.56%, 5.04%, 7.45% and 9.43% from the start of the year.
Considering the raised levels of concerns among traders and investors tied to inflation, interest rates, changes in monetary policy, the price of oil and the gap that stubbornly exists between current supply and demand, stocks have shown significant resilience of late. Lower valuations, and a feeling that a set of projected worst outcomes has been pretty much priced into the markets have in our view contributed to a more positive tone in the equity markets over the course of the past two weeks, even as some investors have sought shelter from recent volatility
M&A News Suggests that Some See Opportunity
News that legendary value investor Warren Buffet was bidding for an insurance company and also adding to shares he holds of an energy company he’s shown interest in for some time helped improve market tone along with other mergers and acquisition activity by other investors in software and in logistics.
We recall a pick-up of M&A activity in the recovery process from the financial crisis that took place around the third quarter of 2009 when Kraft Foods announced its plans to acquire Cadbury. In our view the size and headline grabbing capacity of that announced acquisition served at the time like a “rainbow across the pond” at a juncture when many market participants were still looking for “the next shoe to fall.” We’ll keep our fingers crossed that the emergence of the Oracle of Omaha in last week’s deal announcement will on a parallel level serve similarly as a harbinger of good things to come this cycle.
Fed Signals it’s Willing to Do What it Takes
Markets initially soured last week after Fed Chair Jerome Powell said that the Fed might very well consider raising its benchmark rate several times by as much as 50 bps in the FOMC meetings that lie ahead this year. The market appeared to reflect positively on what he said after pondering his statement for a spell with stocks regaining some ground lost from an initial knee jerk reaction
Check the Tossed-Out Bath Water for Babies
With significant transitions in progress (including economic re-openings from the pandemic, changes in monetary policy to address 40-year high inflation and potentially colossal changes on the geopolitical front taking place) market history suggests that investors who choose to seek out worthy stocks that have been unjustifiably sold off in periods of volatility are likely to benefit from “staying in the game,” adding to positions, and giving the efforts of monetary policy makers (and diplomats this time around) time to “work things out.”
As we have noted in previous editions of this weekly tome, our view is that there never has been nor is there ever likely to be an “all clear signal” sounded over the markets suggesting that a perfect time for investing has arrived. Instead we have often found that where there is trouble often lies opportunity. The challenge lies in determining if the risk is manageable and if it matches an investor’s tolerance for risk and their goals and objectives.
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