Back to All Posts

9 minutes

Key Points for the Week

  • Consumer prices jumped 0.65% in January raising the year over year rate to 7.5%.
  • S&P 500 earnings are expected to have grown by more than 30% in the fourth quarter. Future earnings growth is expected to slow as year to year comparisons become more challenging.
  • Investors continue wrestling with concerns over higher interest rates and a potential Russian invasion of Ukraine.

Why did stock markets in the United States finish the week lower?

  • Rising inflation. Major U.S. stock indices were trending higher until the Consumer Price Index (CPI) Summary showed inflation at a 40-year high. Consumer prices overall were up 0.6 percent in January with seasonal adjustment, and 7.5 percent over the last 12 months without seasonal adjustment, according to the U.S. Bureau of Labor Statistics. U.S. stocks sold off sharply on the news.
  • Changing Federal Reserve rate-hike expectations. After the inflation report was released, St. Louis Fed President James Bullard indicated that he would like to see the Fed funds rate rise rapidly to fight inflation, reported Lisa Beilfuss of Barron’s. Investors recalibrated their expectations and by the end of the week the probability of a 0.50 rate increase in March was at 94 percent, according to the CME FedWatch Tool.
  • Flattening of the U.S. Treasury yield curve. Expectations for more aggressive Fed actions rolled through bond markets last week. The yield on benchmark 10-year U.S. Treasuries rose above 2.0 percent, before finishing the week at 2.0 percent. The yield curve flattened as 2-year Treasury yields rose more sharply, finishing the week at 1.5 percent.
  • Escalating geopolitical tensions. An additional factor behind U.S. stock market performance last week was expectations that Russia will invade Ukraine and start a war.

    Investors can’t blame rising prices for Friday’s plunge. Markets were poised to end the week higher, despite a hotter-than-hoped-for inflation reading on Thursday…Escalating geopolitical tension was the first problem Friday. Both the United Kingdom and the U.S. suggested that Russia could soon invade Ukraine and advised their citizens to leave the country… the news injected a rush of uncertainty into the market. And investors really hate uncertainty.

    Al Root, Barron’s

  • Declining consumer sentiment, especially among the wealthy. Consumer sentiment dropped 8.2 percent from January to February, reaching the lowest level in a decade. Notably, “The entire February decline was among households with incomes of $100,000 or more; their Sentiment Index fell by 16.1% from last month, and 27.5% from last year. The impact of higher inflation on personal finances was spontaneously cited by one-third of all consumers,” reported Surveys of Consumers Chief Economist Richard Curtain. It’s possible that consumer pessimism will slow demand for goods and that, in turn, could help lower inflation.

The reality is that there often is no single answer to explain why stock markets move up or down. Each of the above may have contributed to last week’s downturn. There is currently tremendous uncertainty about the potential impact of Fed policy changes, war in Europe, and other issues. As a result, it’s possible markets will remain volatile in the weeks ahead.

This Week in the Markets

Inflation continues to move sharply higher. The Consumer Price Index (CPI) rose 0.6% last month and is up 7.5% in the last 12 months. The annual gain is the highest since February 1982. Big gains in energy and food helped fuel the price hikes. Core CPI, which excludes food and energy, increased 0.6%.

High inflation prompted James Bullard, president of the St. Louis Federal Reserve Bank, to call for interest rates to be increased 1% by mid-year. The comments and strong inflation data helped ratchet up the Fed’s plans to raise rates. News that Russia seems ever closer to attacking Ukraine also increased market concerns.

Fourth quarter earnings continued the strong quarterly trend. S&P 500 earnings are expected to increase just more than 30%. If final earnings growth is above 30%, it will be the fourth straight quarter that earnings growth surpassed 30%. Some companies are experiencing tougher comparisons to previous quarters and the rapid growth they experienced during the pandemic.

The concerns about interest rates and Ukraine pressured markets, as the S&P 500 declined last week. The MSCI ACWI and Bloomberg U.S. Aggregate Bond Index both edged down as well. Russia’s intentions toward Ukraine will be watched closely. U.S. retail sales and a host of international inflation releases lead key news events this week.

CTN 02-14-22 Image 1

Moving On Up

Diving into the inflation data shows some familiar themes. Energy prices continue to jump higher. Food prices have accelerated in recent months and matched energy’s 0.9% increase. The broad climb in prices across the economy caused core CPI to increase 0.6% as well. Continued rapid price increases in used cars are contributing to inflation. Used car prices rose 1.5% last month and have now jumped more than 40% in the last year.

Earnings have been strong for a while and seem to be leveling off. At this point, 72% of S&P 500 companies have reported earnings, and once again analysts have underestimated earnings and revenue growth for companies they cover. So far, 77% of companies have reported earnings above analysts’ estimates, which is slightly above the average of 76%, and the average earnings beat is right at the average of 8.6%. At this point, the estimated full quarter earnings growth rate is 30.3%, which would be the fourth consecutive quarter of earnings growth at about 30%. If the trends hold up, the full year 2021 earnings growth rate will be 47.4%.

Inflation isn’t just affecting consumers. Seventy-three percent of companies’ Q4 earnings calls have mentioned the word “inflation.” The average number of companies mentioning inflation over the past five years is 29%, so it’s obviously on the minds of corporate executives. What will be interesting to see is the degree to which companies are able to pass the higher costs they’re experiencing to customers.

A potential Russian invasion of Ukraine is a rapidly increasing risk factor. Russia’s 2014 incursion into Ukraine did not move markets much in the U.S., although European markets did experience a larger decline. The reaction to an attack is likely to be greater given the large scope and higher potential for human casualties. Russian stocks would also likely decline. If Russia invades, the severity and enforceability of any sanctions will be an important part of the market reaction. Based on the statements from the U.S. and European countries, NATO appears very unlikely to commit troops to the region.

The Nature Cure

When you were a kid, your parents probably told you to go outside and play. Your mom and dad may have just wanted to get you out from underfoot but, as it turns out, going outside is good for your mental and physical health.

In 2019, Mathew White of the European Centre for Environment and Human Health and his colleagues published an article in Nature. Their research found that people who spend more than two hours a week in nature “had consistently higher levels of both health and well-being” than those who spent less time in nature. The benefits of nature appear to max out at four hours.

Jason Goldman of Scientific American reported:

The two-hour benchmark applied to men and women, to older and younger folks, to people from different ethnic backgrounds, occupational groups, socioeconomic levels and so on. Even people with long-term illnesses or disabilities benefited from time spent in nature—as long as it was at least 120 minutes per week.

Jason Goldman, Scientific American

A non-profit organization, called Park Rx America – Nature Prescribed, encourages doctors “to decrease the burden of chronic disease, increase health and happiness, and foster environmental stewardship” by prescribing nature during healthcare exams. The organization helps doctors identify parks in their patients’ neighborhoods and provides educational materials.

Canada is taking things a step further. Physicians can prescribe an “Adult Parks Canada Discovery Pass,” which gives their patients free access to 80 national parks, historic sites, and marine conservation areas, reported Andy Corbley of the Good News Network.

IRS Issues Identity Theft Warning

The IRS is reminding taxpayers to be vigilant and watch out for IRS impersonation scams intended to trick them into providing their personal and financial information. Some of the schemes included text message, e-mail, and phone scams. The IRS also warns people to be aware of potential unemployment fraud.

Text Message Scams

If you receive an unsolicited text message claiming to be from the IRS or a program linked to the IRS, take a screenshot of the message and email it to with the below information:

  • Date/time/time zone the text message was received.
  • Phone number that received the text message.
  • Do not click on links or attachments from suspicious or unexpected messages.

Email Phishing Scams

Please be aware that the IRS does not contact taxpayers by email to request personal or financial information. Most of the time, the IRS will contact taxpayers through regular mail delivered by the United States Postal Service. Similar to a potential text message scam, report the email to by sending the suspicious email as an attachment.

Phone Scams

The IRS (and its authorized private collection agencies) will never:

  • Call requesting immediate payment using prepaid debit cards, gift cards, or wire transfer.
  • Threaten to arrest a taxpayer by bringing in law-enforcement or local police.
  • Demand taxes be paid without the opportunity to question or appeal the amount owed.
  • Ask for credit or debit card numbers over the phone

Unemployment Fraud

Organized crime rings have started using stolen identities to claim unemployment or other benefits for which the taxpayer never applied. Victims of unemployment identity theft may receive:

  • Mail from a government agency about an unemployment claim or payment they did not file.
  • An IRS Form 1099-G reflecting benefits that were not expected or received. The form itself may also be from a state for which the taxpayer did not file for benefits.

For information on necessary steps to take for suspected unemployment fraud, taxpayers can visit the U.S. Department of Labor’s fraud page here.

The IRS focuses on tax-related identity theft and suggested taxpayers take the below steps if they feel their Social Security number has been compromised:

  • Respond immediately to any IRS notice and call the number provided.
  • Complete IRS Form 14039 (Identity Theft affidavit).
  • Continue to pay their taxes and file their tax return, even if it must be done by paper.
  • For specialized assistance, call 1-800-908-4490.

If you have any questions about this information, please contact us.

Did you Know? This Week in History

February 16, 1923: Archaeologist Opens Tomb of King Tut

On February 16, 1923, in Thebes, Egypt, English archaeologist Howard Carter entered the sealed burial chamber of the ancient Egyptian ruler King Tutankhamen.

The ancient Egyptians carefully preserved their pharaoh’s bodies after death, burying them in elaborate tombs containing rich treasures to accompany the rulers into the afterlife. In the 19th century, archeologists from all over the world flocked to Egypt, where they uncovered a number of these tombs. Many had long ago been broken into by robbers and stripped of their riches.

When Carter arrived in Egypt in 1891, he became convinced there was at least one undiscovered tomb, that of the little-known Tutankhamen, or King Tut, who lived around 1400 B.C. and died when he was still a teenager.

After years of searching, the wait finally paid off, when Carter’s team found steps hidden in the debris near the entrance of another tomb in November 1922. The steps led to an ancient sealed doorway bearing the name Tutankhamen. When Carter entered the tomb’s interior chambers on November 26, he was thrilled to find it virtually intact, with its treasures untouched after more than 3,000 years. The exploration began on the four rooms of the tomb, and on February 16, 1923, under the watchful eyes of a number of important officials, Carter opened the door to the last chamber.

Inside lay a sarcophagus with three coffins nested inside one another. The last coffin, made of solid gold, contained the mummified body of King Tut. Among the riches found in the tomb–golden shrines, jewelry, statues, a chariot, weapons, clothing–the perfectly preserved mummy was the most valuable, as it was the first one ever to be discovered. Despite rumors that a curse would befall anyone who disturbed the tomb, its treasures were carefully catalogued, removed and included in a famous traveling exhibition called the “Treasures of Tutankhamen.” The exhibition’s permanent home is the Egyptian Museum in Cairo.

Weekly Focus

You cannot find peace by avoiding life.

Michael Cunningham, American Novelist

A teacher affects eternity; he can never tell where his influence stops.

Henry Adams, American Historian