Fog of War Clouds Near Term Outlook

The major market indices finished the week lower as uncertainty surrounding the situation in Ukraine outweighed a strong payroll report and clarity from the Fed on policy normalization.

March 07, 2022    |    By Michael Schwager

Performance for Week Ending 3.4.2022:

The Dow Jones Industrial Average (Dow) finished down 1.30%, the Wilshire 5000 Total Market IndexSM (Wilshire 5000SM) lost 1.64%, the Standard & Poor's 500 Index (S&P 500) dipped 1.27% and the Nasdaq Composite Index (NASDAQ) shed 2.78%. Sector breadth was mixed with 5 of the S&P sector groups closing higher and 6 closing lower. The Energy sector (+9.25%) was the best performer the Financials sector (-4.87%) was the worst.

Index* Closing Price 3/4/2022 Percentage Change for Week Ending 3/4/2022 Year-to-Date Percentage Change Through 3/4/2022
Dow 33614.80 -1.30% -7.49%
Wilshire 5000 45535.76 -1.64% -10.16%
S&P 500 4328.87 -1.27% -9.18%
NASDAQ 13313.44 -2.78% -14.90%

*See below for Index Definitions

MARKET OBSERVATIONS: 2/28/22 – 3/4/22

The major market indices finished the week lower as uncertainty surrounding the situation in Ukraine outweighed a strong payroll report and clarity from the Fed on policy normalization. The geopolitical situation remains very fluid and French President Macron, following a 90-minute phone call with Russian President Putin, said he believes the “worst is yet to come.” Late-Thursday, Russian forces deepened their advance into Ukraine and seized the country's largest nuclear reactor. While a fire broke out at the southeast Ukraine facility during Russian shelling, there were no indications of elevated radiation readings. However, investors were still fearful of the potential for an environment catastrophe. Ukrainian President Volodymyr Zelensky said Russia's attack on the plant, the largest in Europe in terms of power-generating capacity, amounted to “nuclear terror.” Fears of disruptions to the global energy market push US crude prices up over 26% on the week. The price of regular unleaded gasoline soared to the highest level in nearly a decade.

Payroll Report: On Friday, the Labor Department reported that February nonfarm payrolls rose by 678K, well ahead of the 423K expected by economists. In addition, the prior two months saw payrolls revised by an additional 92K. The strength of payrolls was widespread, with construction payrolls rising by 60K, education & health payrolls up by 112K and leisure & hospitality employment up by 178K. The only noticeable sign of weakness was the 18K drop in motor vehicle employment, suggesting that chip shortages are not easing as quickly as hoped. Wage growth on a month over month basis was flat (0.0%), but wages were still up 5.1% from a year ago. Overall the jobs report will give the Fed greater confidence to push ahead with its planned policy tightening later this month but, with wage growth now levelling off, there is arguably less pressure for officials to front-load an aggressive series of rate hikes over the coming months.

Powell Testimony: Fed Chairman Powell signaled the central bank would take a measured approach to normalize monetary policy. In testimony to the House Financial Services Committee, Powell said that he supports a traditional quarter-point increase in the Fed's benchmark short-term interest rate when the Fed meets this month, rather than a larger increase that some other Fed officials have proposed. Powell, however, did leave the door open to a bigger hike in the event that inflation, which has reached a four-decade high, doesn't noticeably decline this year. “I'm inclined to propose and support” a quarter-point rate hike to fight the acceleration of inflation that has engulfed the economy in recent months, Powell told the committee. On the Russia/Ukraine crisis, the Fed chair cautioned that the economic consequences and the resulting sanctions by the U.S. and Europe, are “highly uncertain” and said “it's too soon to say” how they might affect the Fed's policies.

Given that an increase in rates at the March meeting is widely expected, the new forecasts laid out in the quarterly Summary of Economic Projections (SEP) that the Fed will release alongside its rate decision are likely to be of great interest. Russia's invasion of Ukraine has made the path ahead more uncertain for the Fed, so the economic projections will serve as more of a rough blueprint rather than an ironclad plan. But what happens next also depends in part on just how vibrant the Fed thinks the job market, wage growth and the broader economy are likely to be this year, and how much they expect a booming labor market to lift prices.

Tale of Two Halves? While the near-term out for the markets will be clouded by the ‘fog of war,’ history tells us that geopolitical crisis tend to be short lived and rarely lead to a recession. As we move ahead, we believe that fundamental will ultimately outweigh fear. The US economy remains in good shape and it is generally isolated from any fallout in the Russian economy. Hard data reports (Payrolls, Durable Goods Orders, Retail Sales, Industrial Production) have been very strong relative to the survey and sentiment data (which are likely being impacted by inflation worries). Covid cases have plunged and many areas around the country are dropping Covid related mandates. Supply chain issues are starting to ease. The earnings environment remains solid with high single digit growth expect this year and next. The recent market weakness has pushed valuation levels lower with the S&P selling for just over 17x the 2023 estimate and just under 16x the 2024 estimates. In addition – from a contrarian POV, the closely watched Bull-Bear Ratio (BBR) compiled by Investors Intelligence fell to 0.87 during the week of March 1 from 1.04 the prior week. Readings of 1.00 or less have had a very good record of calling bottoms in the S&P 500 stock index. While these readings don't necessarily rule out further near-term declines, they do suggest that buying opportunities may makes sense for long-term investors.

The Week Ahead: The Ukraine crisis will continue to reverberate in markets in the week ahead, with uncertainty around the conflict having already driven commodity prices to multi-year highs. Thursday's Consumer Price Index (CPI) report will be the focal point of the data calendar. According to Bloomberg, consumer prices are forecast to rise 7.9% on a year over year basis, fastest in 40 years, while core inflation (which subtracts food and energy prices) is expected to rise 6.4% y/y. This is the last reading before the March 16th meeting and with the FOMC entering into their traditional 10-day blackout period tomorrow, markets will let little guidance from Fed speakers. Other data reports of interest include; January Job Openings, the January Trade Balance, Wholesale Inventories for January, Initial Jobless Claims, and the University of Michigan's Sentiment data for March.


The Dow Jones Industrial Average is a price-weighted average of 30 blue-chip stocks that are generally defined as the leaders in their industry. It has been a widely followed indicator of the stock market since October 1, 1928.

Wilshire 5000 Total Market IndexSM represents the broadest index for the U.S. equity market, measuring the performance of all U.S. equity securities with readily available price data. The index is comprised of virtually every stock that: the firm's headquarters are based in the U.S.; the stock is actively traded on a U.S. exchange; the stock has widely available pricing information (this disqualifies bulletin board, or over-the-counter stocks). The index is market cap weighted, meaning that the firms with the highest market value account for a larger portion of the index.

Standard and Poor's 500© Index is a capitalization-weighted index of 500 stocks. The index is designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.

The NASDAQ Composite Index is a broad-based capitalization-weighted index of stocks in all three NASDAQ tiers: Global Select, Global Market and Capital Market. The index was developed with a base level of 100 as of February 5, 1971.

This material contains opinions of the author, but not necessarily those of Guggenheim Partners, LLC or its subsidiaries. The opinions contained herein are subject to change without notice. Forward looking statements, estimates, and certain information contained herein are based upon proprietary and non-proprietary research and other sources. Information contained herein has been obtained from sources believed to be reliable, but are not assured as to accuracy. Past performance is not indicative of future results. There is neither representation nor warranty as to the current accuracy of, nor liability for, decisions based on such information. No part of this material may be reproduced or referred to in any form, without express written permission of Guggenheim Partners, LLC.

Read a prospectus and summary prospectus (if available) carefully before investing. It contains the investment objective, risks charges, expenses and the other information, which should be considered carefully before investing. To obtain a prospectus and summary prospectus (if available) click here or call 800.820.0888.

Investing involves risk, including the possible loss of principal.

Guggenheim Investments represents the following affiliated investment management businesses of Guggenheim Partners, LLC: Guggenheim Partners Investment Management, LLC, Security Investors, LLC, Guggenheim Funds Distributors, LLC, Guggenheim Funds Investment Advisors, LLC, Guggenheim Partners Advisors, LLC, Guggenheim Corporate Funding, LLC, Guggenheim Partners Europe Limited, Guggenheim Partners Japan Limited, GS GAMMA Advisors, LLC, and Guggenheim Partners India Management. Securities offered through Guggenheim Funds Distributors, LLC.

© Guggenheim Investments. All rights reserved.

Research our firm with FINRA Broker Check.

• Not FDIC Insured • No Bank Guarantee • May Lose Value

This website is directed to and intended for use by citizens or residents of the United States of America only. The material provided on this website is not intended as a recommendation or as investment advice of any kind, including in connection with rollovers, transfers, and distributions. Such material is not provided in a fiduciary capacity, may not be relied upon for or in connection with the making of investment decisions, and does not constitute a solicitation of an offer to buy or sell securities. All content has been provided for informational or educational purposes only and is not intended to be and should not be construed as legal or tax advice and/or a legal opinion. Always consult a financial, tax and/or legal professional regarding your specific situation. Investing involves risk, including the possible loss of principal.