Market Brief – Ukraine & U.S. Fed Policy

March 25, 2022

It has been a month since Russia invaded Ukraine, and an end to the conflict does not appear close. Global and massive efforts to sanction Russian industry, government, officials, and oligarchs have yet to assist with any progress towards peace. Meanwhile, the humanitarian tragedy continues to build with thousands of civilians likely killed and 3.7 million Ukrainians fleeing their country for safety1.

Global equity markets have already seemed to put the Ukraine war to the side – at least for now. The S&P 500 price, despite some bouts of war related induced volatility, is now up 7.1% from its February 23, 2022, close2. International developed and emerging equity markets have not performed as well as the S&P 500; however, they have rebounded sharply off their lows. While strong equity market performance is always welcomed, geo-political risk is surely not off the table.

There is more recent news for the financial markets to digest relating to U.S. Federal Reserve Policy. On March 17, the Fed increased the benchmark federal funds rate by .25%, the first rate increase since 2018; and signaled the continuation of rate hikes for the balance of the year to combat inflationary pressures. Inflation is at a 40-year high and threatens the sustainability of the current economic recovery from COVID. Unfortunately, federal funds rate increases and the resulting increase in the cost of credit across the economy can slow economic growth as well.

Indeed, consensus estimates for global and U.S. 2022 GDP growth have been trimmed, and we suspect may have to move lower. Consensus U.S. GDP growth in 2022 is now 3.6%, down from 3.8% from our last market brief (March 4) and 4.0% at the beginning of the year3. On a positive note, the U.S. labor market remains extraordinarily healthy with the unemployment rate and weekly unemployment claims near all-time lows, while job openings remain near all-time highs with more workers entering and re-entering the workforce. Even if GDP growth estimates do move lower, it is important to keep in mind that a 3.0%-3.5% U.S. GDP growth rate would rank among the highest in the past several decades.

We will update and expand upon our market views in our upcoming quarterly economic and financial market outlook newsletter which we plan to publish within the next few weeks. In the meantime, please reach out to your wealth advisor if you have any concerns.

2As of the March 24, 2022, market close; source: FactSet

3FactSet, March 24, 2022

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