Equity markets have lost significant steam in early 2022. Since the start of the year, the S&P 500 Index and the Dow Jones have fallen close to 5%. Comparatively, the tech-heavy NASDAQ has declined by 10.4%. Let’s see what’s in store for equity investors in the last week of March 2022.
First up, Wall Street will be closely watching the employment report which will be published in the coming week. In addition, the ongoing war between Russia and Ukraine, oil and commodity prices as well as inflation will steer market sentiment.
The S&P 500 gained momentum in March
Despite a jump in interest rates, and higher oil prices, stocks reported gains for the past week. The energy sector was once again the winner as it gained 7%. Additionally, the 10-year Treasury yield touched its highest level in the last three years, reaching 2.5%. It will be interesting to see if higher bond rates continue to weigh heavily on the S&P 500 and other indices.
According to a CNBC report, the chief market strategist of National Securities, Art Hogan, explained, “Since the war started, on the ten days that were up, the S&P 500 was up at least 1%. I don’t think next week is going to be any different. We’re going to be headline driven, whether it’s economic data, news out of Ukraine or crude oil futures.”
While the market has remained volatile, the S&P 500 has reclaimed lost ground and is up 4% in the month of March. The Founder of Fairlead Strategies, Katie Stockton claimed that while the long-term performance of equities might be uncertain, investors should take advantage of the short-term momentum as several stocks are now trading above 50-day moving averages, indicating break-out points.
Around 58% of companies part of the S&P 500 are above 50-day moving averages, which is generally a sign of more upside potential. Shares of large-cap heavyweights including Apple (NASDAQ: AAPL), Microsoft (NASDAQ: MSFT), and Tesla (NASDAQ: TSLA) are already trading above 50-day moving averages.
Stockton also stated the 10-Year Treasury Yield is all set to consolidate as it breached the 2.5% threshold. In case it surpasses 2.55%, interest rates might move higher to 3.25%.
All eyes on inflation and jobs
The economic calendar is packed in the next week as data for the March jobs report, personal consumption expenditures, consumer confidence, and home prices will all be released. The personal consumption expenditures data includes a measure of inflation which is then scrutinized by the Central Bank. Experts forecast core PCE inflation to rise by 5.5% year over year.
Additionally, the ISM manufacturing survey report and the non-farm payrolls report will be released on Friday. According to Dow Jones data, 460,000 jobs are estimated to be added in March, lowering unemployment rates to 3.7%. Comparatively, the month of February saw the addition of 678,000 non-farm payrolls and unemployment rates of 3.8%.
Last week, Jerome Powell, chairman of the Federal Reserve emphasized the central bank might aggressively look to raise interest rates and combat inflation.
Oil prices likely to remain above $100
A key driver of inflation has been rising oil prices. The West Texas Intermediate crude futures soared by almost 9% last week to $113.90 per barrel. Historically, higher oil prices have driven stock prices lower and this trend is likely to continue this year.
While valuation multiples have contracted and stocks are trading at cheaper rations, higher oil prices and inflation numbers are likely to impact top-line and profitability for companies across sectors.