A tough week for most stock markets around the world as jitters about Russia and Ukraine added to worries about inflation and central bank policy. In our world of omnipresent social media, it feels like everyone has gone from a COVID expert to an Eastern European/Russian history guru in the last couple weeks. Such is human nature I guess. But headlines about Russia conducting strategic defense drills over the weekend are attention grabbing. Oh, and these drills will include ballistic missile test launches. Really – that’s a thing? This comes on the same weekend as the regularly schedule Munich Security Conference. Munich? Someone has a sense of humor I see (https://www.britannica.com/event/Munich-Agreement)!!
But back to the market. The S&P is closing in on correction territory, arbitrarily defined as a drawdown of -10%. But the more speculative segments of the markets are taking on much more water. Michael Cemblast at J.P. Morgan noted that the average NASDAQ stock is now down -42% from its peak. The chart below shows the pounding some of the more, shall we say, exuberant sectors, have taken.
CleanTech might be the future, but the air has come out of the stock bubble!! Conversely, large-cap value stocks are off about -5% from their high. The great rotation of 2022 rolls on.
Turning to economic matters, there were really just two major reports.
Sales grew above expectations in January indicating that consumers are still on a roll. Certainly, part of the rise in retail sales is simply due to higher prices as inflation-adjusted sales peaked last April. But real retail sales are still 15% higher than pre-covid levels and are at their highest levels since last June.
Existing Home Sales
A strong report. Sales were up +6.7% in January from the previous month.
Inventory levels dipped again, falling -2.3% month-over-month to a record low. There is now less than 2 months-worth of supply on the market nationwide, again, something we have never seen before.
Anecdotally, there is only one house for sale in our local school district. Now the start of the year is usually pretty slow, but this isn’t normal at all.
How will three-year highs in mortgage rates impact things?
It’s unclear, but without higher inventory levels this spring, buyers will still be scrambling to bid on anything that hits the market.
Charts We Found Interesting
1. It might be me, but it seems COVID has disappeared from the front pages pretty quickly. Certainly case counts are down….
2. …but it’s surprising given how little the mortality numbers have declined.
3. There’s long-term, and then there is really long-term. Interest rates going back to 1315!! Apparently mortgage rates in medieval France were a real problem.
4. A significant fall in immigration is playing a role in the job shortage.
5. Gas prices are high – but if you adjust for inflation they aren’t at their peak – yet.
6. January 2022 was the driest January on record across most of central CA & pockets of interior NorCal as well as most of Nevada, Utah, and western Colorado.
7. Paris just announced their car-free zone for 2024. Cars will be banned in much of 1st-4th arrondissements. No more motor scooters screaming by at 2am? I’m good with that!!
Have a good weekend.
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