What is the state of the stock market with the world in chaos? Biden’s State of the Union, Powell’s testimony may hold answers

What is the state of the market? That’s what many on Wall Street want to know, amid an ongoing war in Eastern Europe, stubbornly high inflation, jaw-dropping volatility in stocks and other assets, and of a Federal Reserve slowly emptying Wall Street’s bowl of easy money.

“We call the state of the markets today fragile,” Greg Bassuk, CEO of AXS Investments, an asset management firm for alternative investments, told MarketWatch in an interview Friday.

There are likely a number of investors who would agree with Bassuk, as President Joe Biden prepares to deliver Tuesday what some are calling one of the most important such addresses to the nation in recent memory. , with 40-year high inflation and the COVID-19 pandemic persisting.

Biden must make it clear that he is “doing everything he can to protect the world order”.


—Thomas Martin

On top of that, shades of Cold War-era tensions are emerging with Russia’s dreaded siege of Ukraine stretching into the weekend and putting major cities at risk.

“This State of the Union could be one of the most important in recent memory,” said Thomas Martin, senior portfolio manager at GLOBALT Investments in Atlanta. Biden must make it clear that he is “doing everything he can to protect the world order,” he said.

The problem is that the world order seems to be in flux, shifting under the feet of investors, lately.

Read: New Biden Sanctions on Russia: Block More Banks and Cut Tech Imports, But No SWIFT Movement

And it’s not just Biden on the bill next week, Federal Reserve Chairman Jerome Powell will deliver scheduled testimony to Congress on Wednesday and Thursday on monetary policy.

The predicted events come after the S&P 500 SPX,
+2.24%
recorded its strongest intra-week rally, up 0.8% after falling 5.4% to a weekly low since 2008, when Russian President Putin announced a “special operation” in Ukraine that the most of the rest of the world calls for an invasion.

Read: Russia’s credit rating trashed by S&P as other agencies consider or take downgrades

The Nasdaq COMP composite index,
+1.64%,
down 7.1% at the week’s low, ended up 1.1% for its biggest weekly rally since August 2015, according to data compiled by Dow Jones Market Data. The Dow Jones Industrial Average DJIA,
+2.51%
also staged a rebound, trimming its weekly loss to around 0.1% from a 5% decline.

But the market seems barely out of the woods.

Chris Zaccarelli, chief investment officer for Independent Advisor Alliance, said investors are likely to be obsessed with the battle against inflation as they watch remarks from Biden and Powell.

“Going forward, markets are going to find that the Fed’s battle with inflation – in terms of raising interest rates and shrinking the size of their balance sheet – is going to be a much bigger threat to investors. investors than the war between Russia and Ukraine,” he said. noted.

Zaccarelli said the more it looks like the Fed’s “hands are tied and forced to tighten monetary policy to fight inflation, the more volatility we are likely to see.” [markets] during this year. »

It should be noted that Biden’s speech comes as his approval rating is around its low of 40% and its disapproval rating is near its peak as average Americans feel the sting of higher prices for goods and services.

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Biden said last week that he would do “everything in my power to limit the pain the American people are feeling at the gas pump. It is essential for me.

“Biden has a tough line to hoe,” said GLOBALT’s Martin.

Likewise, Powell also has a difficult task ahead of him, with many expecting the Fed to begin a series of benchmark interest rate hikes as early as next month to fight inflation. These rates are currently in a range between 0% and 0.25%.

The concern on Wall Street is that the Federal Reserve could end up tightening financial conditions at the same time that inflation remains high and the US economy slips into recession.

It is unclear what impact the crisis in Europe will have on policy decisions, but it is inserting another layer of uncertainty into financial markets.

“Going forward, markets are going to find that the Fed’s battle with inflation – in terms of raising interest rates and shrinking the size of their balance sheet – is going to be a much bigger threat to investors. investors than the war between Russia and Ukraine.”


—Chris Zaccarelli

There are, however, signs that supply chain bottlenecks, which had been one of the factors contributing to higher prices, are starting to ease.

“We’re starting to see inventory going up,” which companies had been saying in anticipation of shortages, and that’s a good sign, Martin said. The consumer is returning and to pre-COVID levels, he said.

And he added that inflation itself becomes an inflation remedy, in the form of buyers’ strikes.

But can Biden or Powell instill more confidence in the market?

AXS’ Bassuk hopes the president and Powell can.

“Because consumers need more confidence to get back to work, start spending again,” he said. “Investors need the likelihood that there is more stability in the market and a light at the end of the table on this roller coaster,” he added.

Employment data and the week ahead

And if the next calendar wasn’t already packed, the February jobs report is due on Friday, and Wednesday’s meeting of the Organization of the Petroleum Exporting Countries (OPEC) will prove a key event as US benchmark oil CL.1,
+0.38%
touched $100 a barrel last week and natural gas prices NG00,
+0.31%
leaps.

The average estimate for job creation this month is 415,000, according to a survey of economists polled by The Wall Street Journal. The unemployment rate should fall to 3.9% and the average hourly wage should increase by 0.5% over the month.

Monday

  • Commodity trade, preliminary report for January, 8:30 a.m. ET

  • Chicago PMI for February at 9:45 a.m.

  • Atlanta Fed President Raphael Bostic speaks at 10:30 a.m.

Tuesday

  • IHS Markit manufacturing PMI final reading for February at 9:45 a.m.

  • ISM manufacturing index expected at 10 a.m.

  • Construction expenses 10 a.m.

  • Atlanta’s Bostic speaks again at 2 p.m.

  • Biden’s SOTU is scheduled for the night

Wednesday

  • OPEC+ holds a meeting

  • ADP Private Sector Employment Report for February at 8:15 a.m.

  • Chicago Fed President Charles Evans speaks at 9 a.m.

  • St. Louis Fed President James Bullard speaks at 9:30 a.m.

  • Powell’s House testimony begins at 10 a.m.

  • Beige Book at 2 p.m.

Thursday

  • Initial jobless claims at 8:30 a.m. for the week ended February 26

  • Q4 productivity and labor costs at 8:30 a.m.

  • IHS Markit services PMI February final at 9:45 a.m.

  • ISM Services report and factory orders due at 10am

  • Powell addresses the Senate at 10 a.m.

  • New York Fed President John Williams speaks at 6 p.m.

Friday

  • Non-farm payroll report due 8:30 a.m.

  • Chicago Fed President Charles Evans speaks at 8:45 a.m.

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