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Key Points for the Week

  • Continued escalation from the Russian invasion of Ukraine has increased concerns about the risk of an expanded conflict.
  • U.S. establishment payrolls grew by an estimated 678,000 jobs last month. Unemployment slipped to 3.8% even as more workers returned to the labor force.
  • Fed Chair Jerome Powell indicated he would recommend a 0.25% increase in interest rates at the Federal Reserve meeting next week.

As the war in Ukraine intensified last week, financial markets grappled with uncertainty.

After watching financial markets gyrate from hour to hour as Russia attacked Ukraine, I was getting dizzy myself. People in Ukraine were dying. The Russian president, Vladimir V. Putin, put his nuclear forces on alert, and Western sanctions were beginning to bite. One moment stocks were up, the next they were falling. Then they were up again.

Jeff Sommer, The New York Times

Sanctions have economists revising expectations for global growth and inflation, reported Randall Forsyth of Barron’s. The chief economist at a leading financial institution anticipates that rising commodity prices (oil, gas, grains and palladium) are likely to push inflation higher than it might have been otherwise in 2022, and slow global economic growth. The Russian economy is expected to sink deep into recession, contracting by 35 percent in the second quarter of 2022, reported Karin Strohecker of Reuters.

In addition to the ongoing war in Europe, investors were concerned about China.

China’s deflating property bubble is a concern for investors. The property sector accounts for about 25 percent of China’s economy. Since last July, when Beijing limited Chinese property developers’ access to credit, a dozen developers have defaulted on bonds, reported The Economist. A bond default occurs when the bond issuer fails to make an interest or principal payment.

“The implications go far beyond the offshore bond market. Construction has stalled in places. Some developers are now selling assets to patch up their cash flows. Many have stopped buying land, causing the value of parcels sold by local governments to crater by 72% in January year on year. Home prices are falling in many cities…”

In the United States, economic data confirmed the resilience of the American economy as it recovers from the pandemic. February’s employment report, which was released last Friday, showed jobs growth accelerated as the number of new COVID-19 cases slowed. Unemployment fell to 3.8 percent with 678,000 new jobs created. It was notable that about two-thirds of the jobs created were in service sectors (leisure and hospitality, retail, and professional and business services).

Major U.S. stock indices finished the week lower, reported Ben Levisohn of Barron’s. Bond yields bounced around a bit last week as investors tried to make sense of war, sanctions and pending Federal Reserve rate hikes. The Treasury yield curve ended the week flatter, reported Karen Brettell of Reuters.

This Week in the Markets

Concerns the Russian invasion of Ukraine will draw more countries into the conflict raised risk and pushed global markets lower. Statements about nuclear forces going on alert and world leaders discussing a no-fly zone concerned investors.

Numerous countries and corporations have responded to the invasion by restricting the business they do in Russia or with Russian companies. Many retailers are no longer stocking Russian-made goods, and payment processing systems are stepping back from activity in Russia. Numerous sports leagues have cancelled matches in Russia as the world moves to punish the country for its attack on Ukraine.

The U.S. economy provided a bright spot for investors, creating 678,000 jobs, according to the establishment report. The household survey indicated unemployment dropped to 3.8% even though 300,000 people joined the labor force. Prior to the employment report, Fed Chair Jerome Powell stated he would recommend the Federal Reserve raise interest rates 0.25% at its meeting next week.

The S&P 500 slid last week, and the MSCI ACWI dropped as international markets have been more affected by the increased risk created by the Russian invasion of Ukraine than U.S. markets. European stocks were a big reason for the decline. The Bloomberg U.S. Aggregate Bond Index rallied as long-term rates fell sharply in response to the war potentially slowing economic growth and investors looking for more safety. We will continue to watch the ongoing conflict in Ukraine for market risk. The U.S. Consumer Price Index will provide an update on inflation this week.

Risk and Recovery

Normally the jobs report would have been very exciting for the market based on continued strength in the U.S. labor market. Instead, markets were dragged lower by the ongoing uncertainty in Ukraine.

The U.S. establishment survey estimated the economy added 678,000 jobs versus the expectation of a 400,000 gain, and the previous two months were revised higher by a combined 92,000 jobs. The U.S. added 1.15 million jobs in the first two months of the year, which is even more impressive considering the Omicron variant peaked in January. With these additions, the economy has regained about 90% of the jobs lost in March and April 2020, which is encouraging but shows that we are close to bringing employment back to pre-pandemic levels.

CTN 03-07-22 Image 1

The household survey gave us more good news as the unemployment rate fell to 3.8%, down from 4% in January. What’s significant is that the unemployment rate fell while 300,000 more workers joined the labor force, meaning the economy was able to absorb them all. This puts the labor force only 300,000 participants below where it was pre-COVID-19 crisis. Average hourly earnings were flat last month, which may sound surprising given recent inflation trends. Looking deeper into the data, many of the jobs added were lower-paying positions in leisure and hospitality. That trend pushed the average down but doesn’t signify wage pressures are lessening.

So, the economy added a lot of jobs, the labor market grew, and it’s been more successful in filling the hard-to-fill jobs. What does this mean for the Fed? This is almost certainly giving the Fed the all-clear to raise rates this month. Based on Powell’s testimony to Congress last week, the Fed has signaled its intention to raise rates 0.25% at this meeting and then see how quickly rates must rise to curb inflation.

Charting the right path on interest rates will be challenging, but not nearly as much as analyzing the risks from Ukraine. Last week we introduced a three-part framework for evaluating how markets would likely be affected.

  • Adverse economic consequences of sanctions
  • Risks of escalation
  • Long-term consequences

Each part of the framework experienced some important shifts last week. The consequences of sanctions are increasing. U.S. Secretary of State Antony Blinken announced the U.S. and its allies are considering banning Russian oil and gas imports to further pressure Russia economically. In response, oil prices have shot higher and gasoline prices will likely follow. Replacing Russia’s production will be difficult and take time, pushing oil prices higher and threatening Europe’s economy. Other commodities have also increased in price.

Many global corporations have implemented sanctions of their own. Payment processors are stepping back from the Russian market. Firms are choosing not to supply parts to existing customers, and technology companies are also cutting ties. Retailers are responding by removing Russian products from their shelves.

Russian President Vladimir Putin’s order to place the country’s nuclear forces on higher alert and talk of a no-fly zone enforced by NATO contributed to an increased risk of escalation. The degree of sanctions and the large number of corporate entities that have withdrawn from Russia are expected to force the Russian economy into a massive decline. How Russia responds to the sanctions carries its own risks. The 9.6% decline in the MSCI Europe Index reflects concerns about how sanctions will affect Europe as well as the risk of escalation.

The long-term consequences of the attack seem to point to a more dangerous world and the possibility of a protracted conflict. One immediate consequence is Russian stocks will be removed from the three major global indexes this week, a shift that is unlikely to be reversed anytime soon. This means most investors will have no exposure to Russian stocks by the end of this week.

In uncertain times it is key to keep perspective while being realistic that risks have increased. Sometimes investors focus on getting the risk level right for their overall portfolio, which can be very effective. Another method is to think about how soon you might need money from your portfolio. Having adequate short-term investments set aside for withdrawals may give you confidence about the short term while allowing the higher-risk portions of your portfolio time to recover if the decline worsens. If you have questions during uncertain times, please reach out to us.

What Gives Life Meaning?

Last spring, Pew Research asked people in several countries: What aspects of your life do you currently find meaningful, fulfilling or satisfying?

The No. 1 answer (out of the 17 options) in most countries was “family and children.” The exceptions were Spain (health), South Korea (material well-being), and Taiwan (society).

  • In the United States friends ranked second in the hierarchy of things that give life meaning, followed by material well-being.
  • In the United Kingdom, friends ranked second, followed by hobbies.
  • In Australia, New Zealand and Sweden occupation ranked second, followed by friends.
  • In Greece, France and Germany occupation ranked second, followed by health.
  • In Italy, Netherlands and Japan, material well-being ranked second, followed by health.
  • In Canada, occupation ranked second, followed by material well-being.
  • In Belgium and Spain, material well-being ranked second, followed by occupation.
  • In Singapore, occupation ranked second, followed by society.
  • In Taiwan, material well-being ranked second, followed by family and children.
  • In South Korea, health ranked second, followed by family and children.

It’s interesting to note that freedom appears to be widely taken for granted. It was most highly valued in Netherlands where it was mentioned by 20 percent of survey participants. Belgium and New Zealand also ranked it more highly than other nations (15 percent each). Freedom was mentioned least often in the U.K. (5 percent), Singapore (5 percent), and Japan (6 percent).

In the United States, just 9 percent of Americans – fewer than one in 10 – said freedom gives their lives meaning.

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.

E-mail 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

March 9, 1959: The Barbie Doll Makes its Debut

On March 9, 1959, the first Barbie doll went on display at the American Toy Fair in New York City.

Standing eleven inches tall, with a waterfall of blond hair, Barbie was the first mass-produced toy doll in the United States with adult features. The woman behind Barbie was Ruth Handler, who co-founded Mattel, Inc. with her husband in 1945. After seeing her young daughter ignore her baby dolls to play make-believe with paper dolls of adult women, Handler realized there was an important niche in the market for a toy that allowed little girls to imagine the future.

Barbie’s appearance was modeled on a doll named Lilli, based on a German comic strip character. Mattel bought the rights to Lilli and made its own version, which Handler named after her daughter, Barbara. With its sponsorship of the “Mickey Mouse Club” TV program in 1955, Mattel became one of the first toy companies to broadcast commercials to children. They used this medium to promote their new toy, and by 1961, the enormous consumer demand for the doll led Mattel to release a boyfriend for Barbie. Handler named him Ken, after her son. Barbie’s best friend, Midge, came out in 1963; her little sister, Skipper, debuted the following year.

Since 1959, over one billion dolls in the Barbie family have been sold around the world and Barbie is now a bona fide global icon. She has had a series of different jobs, from airline stewardess, doctor, pilot and astronaut to Olympic athlete and even U.S. presidential candidate.

Weekly Focus

Without optimism, we’ve already failed.

George Takei, American Actor

You don’t luck into integrity. You work at it.

Betty White, American Actress