Geopolitical Anxiety Hampers Conviction…..

U.S. equities finished lower ahead of the long holiday weekend, posting losses for a second-straight week, as geopolitical concerns remained the main negative catalyst on the heels of conflicting claims regarding a potential imminent attack by Russia on Ukraine. The moves came despite news that Secretary of State Antony Blinken is expected to meet with Russian Foreign Minister Sergey Lavrov next week. Elevated expectations that global monetary policies will tighten this year added to the negative sentiment, with the Fed set to begin its rate hike campaign next month. Earnings season continued to roll on, with Deere & Company delivering upbeat results and guidance, while Roku and DraftKings fell on their reports, and GE warned about supply chain, labor and inflation pressures. The economic calendar offered some mixed data, with leading indicators snapping a long positive streak, while existing home sales surprisingly jumped. Treasuries were higher to apply some downside pressure on yields, while the U.S. dollar rose, and gold dipped after a recent rally. Crude oil prices ticked higher despite the geopolitical concerns, as a potential Iran deal that is expected to be discussed this weekend pushed oil to post its first weekly decline in two months. Markets in Europe and Asia were lower amid the Russia/Ukraine uncertainty.

The Dow Jones Industrial Average declined 233 points (0.7%) to 34,079, the S&P 500 Index shed 31 points (0.7%) to 4,349, and the Nasdaq Composite decreased 169 points (1.2%) to 13,548. In heavy volume, 4.6 billion shares of NYSE-listed stocks were traded, and 4.4 billion shares changed hands on the Nasdaq. WTI crude oil nudged $0.17 higher to $90.21 per barrel. Elsewhere, the gold spot price traded $4.20 lower to $1,897.80 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was up 0.3% at 96.08. Markets were lower for a second week in a row, as the DJIA was down 1.9%, the S&P 500 lost 1.6%, and the Nasdaq Composite fell 1.8%.

The Conference Board’s Leading Economic Index (LEI) for January declined 0.3% month-over-month (m/m), compared to the Bloomberg consensus estimate calling for a 0.2% gain, and following December’s negatively-revised 0.7% increase. The LEI was negative m/m for the first time since February 2021, due largely to the negative net contributions from jobless claims, consumer expectations, stock prices, and average workweek, which more than offset positive reads for the interest rate spread and ISM new orders.

Existing home sales jumped unexpectedly by 6.7% m/m in January to an annual rate of 6.5 million units, versus expectations of 6.1 million units, which would have matched December’s downwardly-revised rate. Existing home sales were higher in each of the major U.S. regions, while y/y sales were mixed as the Northeast and West saw declines, the South saw a modest increase, and the Midwest was flat. Sales of single-family homes jumped m/m but were down y/y, while purchases of condominiums and co-ops also rose m/m and declined from the prior year. The median existing home price was up 15.4% from a year ago to $350,300, marking the 119th straight month of y/y gains as prices rose in each region. Unsold inventory was at a 1.6-months pace at the current sales rate, down from the from the 1.9-months pace a year earlier. Existing home sales account for a large majority of the home sales market and reflect contract closings instead of signings so this report may not reflect the recent jump in interest rates.

National Association of Realtors Chief Economist Lawrence Yun said, “Buyers were likely anticipating further rate increases and locking-in at the low rates, and investors added to overall demand with all-cash offers …. Consequently, housing prices continue to move solidly higher.”

Treasuries were higher as choppiness remained, as the yield on the 2-year note was down 1 basis point (bp) at 1.47%, the yield on the 10-year note declined 4 bps to 1.93%, and the 30-year bond rate decreased 7 bps to 2.25%.

U.S. stocks continued the bearish theme that has accompanied the calendar turn to 2022, with the S&P 500 falling for a fifth week out of the seven we have seen this year. Grappling with how aggressive the Fed may be, beginning next month, with its monetary policy tightening campaign remained a major contributor to the volatility. However, the Fed uncertainty shared the spotlight with ramped-up geopolitical tensions as Russian troops remained near the border of Ukraine and the U.S. warned that an invasion could be imminent despite Russia’s claims that has taken efforts to de-escalate the situation. The geopolitical front appeared to agitate worries about the potential impact on the ongoing global supply-chain challenges and the continued surge in inflation—as shown in this month’s stronger-than-expected January consumer and producer price inflation reports—as Russia has a large impact on energy in the world, notably in Europe. These two sources of market skittishness overshadowed some upbeat economic reports in the form of larger-than-anticipated January retail sales and industrial production releases, as well as Q4 earnings season that is on pace to post the fourth-straight quarter of above 25.0% y/y growth.

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