Market Watch: March 18, 2022

As expected, the Fed on Wednesday raised interest rates by 25 basis points, its first rate increase since 2018. While Fed officials predicted six more quarter-point increases for the year, these increases will depend on future inflation readings and the trajectory of the Ukraine conflict. While North American indexes pared earlier gains after the Fed statement, the indexes steadied as Fed Chair Powell spoke at a press conference later. By Wednesday’s close, the Dow rose 519 points, the S&P 500 gained 95, and the Nasdaq added 488. In Canada, the TSX jumped 281, its biggest gain since late February. Meanwhile, the yield on 10-year U.S. Treasurys also rose after Powell’s announcement, hitting 2.185%. In inflation news, Statistics Canada reported that the annual inflation rate in February climbed to 5.7%.

U.S. stock indexes registered solid gains Thursday, all climbing a bit more than 1%, while the TSX gained 1.4%. Oil prices were volatile again Thursday, with Brent crude settling at $106 per barrel. Finally, the average rate for a 30-year fixed mortgage in the U.S. topped 4% for the first time since May 2019, Freddie Mac reported Thursday

Markets Gain Ground, Despite Ukraine Conflict

For the four trading days covered in this report, the Dow surged 1,537 points to close at 34,481, the S&P 500 rose 239 points to settle at 4,411, while the tech-heavy Nasdaq added 1,034 points to close at 13,615. In Canada, the TSX climbed 590 points to end at 21,771.

Strategy

The number of new claims for U.S. unemployment benefits fell last week, while production at factories is on the rise

The number of new claims for U.S. unemployment benefits fell last week as demand for labour remained strong, positioning the economy for another month of solid job gains. New claims fell by 15,000 to 214,000 in the week ended March 12th, the lowest in 10 weeks, from a revised 229,000 in the previous period and compared with market expectations of 220,000. Claims have dropped from a record high of 6.149 million in early April 2020. On the other hand, the advance number for continuing jobless claims during the week ending March 5 was 1,419,000, a decrease of 71,000 from the previous week’s revised level. This is the lowest level for insured unemployment since February 1970. Meanwhile, there were 11.3 million job openings at the end of January, with a record 1.8 open positions per unemployed person. This misalignment between demand for labor and supply is boosting wage growth, contributing to high inflation. Further, the economy created 678,000 jobs in February. Employment growth has been aided by the return of some workers to the labor force amid a significant decline in COVID-19 infections.

In addition, production at U.S. factories rose in February by the most in four months, indicating firmer momentum in a manufacturing sector still challenged by supply constraints and higher costs. The 1.2% increase followed a revised 0.1% gain in January while total industrial production, which also includes mining and utility output, rose 0.5% last month. On a yearly basis, industrial production in February was 7.5% higher than its yearearlier level, but severe winter weather in February 2021 significantly suppressed industrial activity that month. A more useful comparison shows that the index has advanced a still strong 4.2% since January 2021. In addition, factories were also able to ramp up capacity after weathering omicron-related challenges in recent months. Capacity utilization for manufacturing increased 0.9% in February to 78%, the highest since 2018, from 77.1% a month earlier. Factory production last month was boosted by stronger output of mineral products, wood, aerospace equipment, apparel, and furniture. Total industrial capacity climbed to a an almost three-year high of 77.6%. A steady inflow of orders, a reflection of steady demand from businesses and consumers, remains a source of strength for domestic producers.

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Market Watch: March 18, 2022

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