Stableford Capital Insights

The Slide ContinuesAfter a brief bounce at the beginning of the month equities continued to decline, falling 3.1% for the month of February (Exhibit 1). In addition to the persistent market themes of the Fed and inflation we now have the unfortunate Russian invasion of Ukraine, adding yet another tragic chapter to the long history of European conflict.

Equities Drop Further in February

Exhibit 1: Equities Drop FurtherUnlike humans, markets have no capacity for empathy. Economic impacts are quickly priced in, and the market begins to look forward again. This was the case at the end of February as well as the S&P 500 rallied 3.5% in the final 3 days of the month.There may be more to this story though. Russian Premier Putin, tyrant that he is, didn’t just randomly pick February as an invasion launch date. Russia supplies ~13-14% of the world’s oil and gas, so with prices and seasonal usage high—and few alternative sources in the short term—his bet is that retaliation will be limited. We’ll see if that is the case, it certainly won’t be in the long term.In the short term, with no sign of peace talks and oil over $100/bbl, markets may begin to price in an economic downturn. This certainly seems to be the case in early March as equities continue to fall and bond yields drop further as investors worry about growth and seek safe havens.

Bond Yields Increase But Close Well Below the Highs

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Exhibit 2: Bond Yields Increase But Close Well Below the Highs[/caption]Ten-year US Treasury bond yields increased 5 basis points during February to close at 1.83%. But the month was volatile, and the close was over 20 basis points off the highest yield which exceeded 2%. Bonds are in a tug of war between inflation and growth. On one hand we have high current inflation and a Fed that has telegraphed higher rates. On the other hand, we have the potential for slowing worldwide economic growth as government stimulus recedes, which will only be exacerbated by high oil prices and the prospect of a prolonged conflict and sanctions.

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