The stock market has been extremely volatile this year. The Dow Jones Industrial Average (DJI) immediately sold off at the market opening on Monday. It dropped over 1,000 points from 34,265 to 33,166 at 12:30 PM. Over the following four hours, the markets recovered all the losses and finished 100 points higher. That’s a three percent swing! Tuesday, the market sold off 700 points before recovering most of the loss to close down just 45 points. Investors appear to be more concerned about the post COVID landscape without stimulus money, rising interest rates, and inflation. As of 8:20 AM today, the market is heading higher as the DJI is up ~300 points. The Federal Reserve speaks at 2:30 PM (ET) and will have more insight into inflation and interest rates. I believe they have already telegraphed what they will do so the market should hold onto the gains. If they catch the market off guard and decide to increase interest rates or decrease quantitative easing quicker, we’ll see all the gains disappear.
Furthermore, we must contend with the possibility that Russia will invade Ukraine. The US economy is largely insulated from the Russian economy; however, the European Union desperately needs Russian natural gas to heat their homes and produce electricity. Germany, for example, is shutting down its last three nuclear power plants this year, all of its coal plants, by 2038. Instead, it will rely on solar, wind, and natural gas to produce electricity. Typically, Germany builds its natural gas supplies in the summer months. However, last year the wind didn’t blow, and the sun didn’t shine, so they could not build up their gas supplies. To make things worse, Russia also withheld gas supplies to Germany. So it’s not surprising that Germany isn’t holding Russia accountable for its actions.
You know it’s bad when the Barclay’s Aggregate Bond ETF (AGG) was the top performer and the S&P 500 ETF (SPY) was down 5.75%. Investors were selling their stocks and running to “safe” bonds.