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WEEKLY INVESTMENT PERSPECTIVE

The S&P 500 rallied into the close but finished the trading week essentially flat. For the week, the S&P 500 had slight gain (.3%) while the Dow Jones edged slightly lower (-0.2%) and the Nasdaq gained 0.6%, after the three benchmarks indexes closed the first negative quarter for stocks in two years. United States investors appeared to largely dismiss a recession signal from the bond market that was triggered when the two-year and ten-year Treasury yields inverted for the first time since 2019. Crude oil posted its biggest weekly loss in more than 10 years after the Biden administration ordered an unprecedented release of U.S. strategic reserves to tame surging prices at the pump.

The yield on the 2-year Treasury briefly exceeded the 10-year on Tuesday for the first time since 2019, in a potential warning sign that coming Fed rate hikes may trigger a recession. The inversion only lasted minutes before returning to a 5-basis point spread. A short-lived inversion also occurred in the summer of 2019 amid the trade war with China, and while that was followed by the COVID downturn of 2020, the last persistent inversion of the Treasury curve occurred in 2006-2007.

There's reason to believe this time around yield curve inversion may not be as good of an indicator as it has been in the past, particularly given the enormous amount of quantitative easing undertaken by global central banks. Fed Chair Powell announced last week that he's paying more attention to the first 18 months of the yield curve rather than the longer end. The inversion could also be more of a blip than a lasting trend, and in fact, the curve steepened again on Friday.

In Ukraine evidence of Russian war crimes is mounting, and French President Emmanuel Macron has called for more sanctions on Russian oil even with the economic pain it may cause in Europe. Despite the reports of advanced peace talks between Russia and Ukraine, Russia launched missiles at Ukraine’s port city Odessa and has been laying boobytraps in cities in which they’ve retreated. It appears fruitful peace talks are far away.

While near-term volatility and uncertainty can be unnerving, proper asset allocation coupled with security selection are in place to ensure a prudent strategy in these turbulent times. If questions arise or you just want to talk, please reach out to your wealth advisor.


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