Euclid Investment Advisory Blog

Review & Analysis at Close March 7, 2022

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Equities

For the week, the US Equity markets declined, although less than foreign markets: the S&P 500 declined 3.94%, NASDAQ Comp. down 6.33%. Europe declined 11%, Emerging Markets down 7.65% and China down 8.96%.

  • Equity Style Ranking: For the week, no US equity style escaped declines, ranging from -2% for Large Cap Value to -6.9% for Large Cap Growth. We note that none have exceeded their February 24 lows. We see some lessening of selling pressure. The selloff today and that of Feb 24 (date of Russian invasion) is less than that in the third week of January. This suggests that the market is running out of motivated sellers. Those who earlier wanted to sell have sold. However, motivations can change based on events.

  • Sector rank, one week% change: Only Energy, Utilities, Real Estate, and Health Care had gains - typical of market going to defensive sectors.

Bonds
The 30-year US Treasury Yield declined to 2.152%. The 10-year US Treasury Yield declined to 1.751% after hitting resistance at 2.015%. Both remain in a long-term uptrend. The pullback in the 10-year Treasury resulted from the Fed’s announcement last week that it plans to raise rates by 0.25% at its March 15-16 meeting. The market had been expecting a 0.5% rate increase. Bank stocks, expecting the higher increase, fell.

The volatile 2-year US Treasury Yield rose sharply to 1.55 from 1.31 on March 1. The Yield Curve's flattening accelerated. The yield spread decreased to 0.23 from 0.42 last week, and from its chart appears to be in free-fall. This is signaling an economic slowdown on the horizon.

Currencies
Currencies vs. US Dollar: The Australian Dollar has made a double bottom and appears to be on the verge of rising. We use the Australian Dollar get an insight on China, to which Australia exports coal and basic materials. Also, Australia recently has increased coal exports to Europe. Understandably, the Euro plunged and is approaching its lows of Q1 2020 (Covid pandemic selloff). The British Pound and the Yen also declined.

US Dollar vs. basket of major currencies: The US dollar rose sharply to overbought status at 99.23. We expect its advance may encounter Q1 2020 resistance at 100.50. Gold rose sharply to 1864.1 73 and is nearing its highs from Q1 2020.

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