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The week of March 13 finally saw the stock market indexes break out of its five-week losing streak. The major U.S. stock market indexes saw gains of 6 percent to 8 percent for the week. The Dow Jones Industrial Average closed up 5.5 percent. While the S&P 500 finished higher by 6.2 percent. The NASDAQ had a good week, closing higher by 8.2 percent. Because of the calmer markets, the Chicago Board of Options Volatility Index was down 22.4 percent to 23.9. It was the best weekly showing since November 2020.

Markets retreated modestly on Monday with the S&P 500 declining 0.04 percent, NASDAQ 0.40 percent and the Dow Jones Industrial Average 0.58 percent.

The Russian invasion of Ukraine continues into its fourth week, but the markets are taking this in stride. There has been little progress with any negotiations as of today. Russia has expanded its missile attacks to Western Ukraine, while the heaviest fighting is reported in the city of Mariupol.

As expected, the Federal Reserve raised its benchmark lending rate by 25 basis points, which puts the current lending rate in the range of 0.25 percent to 0.50 percent. This rate hike is the first interest rate hike since 2018 and is expected to be the first of several rate hikes this year.

Fed policymakers have indicated that they will raise rates at each of the six remaining FOMC meetings this year. The Fed believes the rate will be near 1.9 percent by the end of the year. Federal Reserve Governor Christopher Walker stated that the Fed might have to raise rates by 50 basis points at least once this year to get inflation under control.

Walker thinks that the Fed should be aggressive at first if there is to be a significant impact on inflation later this year. At the same time, St. Louis Fed President James Bullard stated that the Fed should raise rates to 3 percent by the end of 2022.

Fed Chairman Jerome Powell said the Fed is not seeing any evidence of a wage-price spiral at this time, but there is a “misalignment” of supply and demand in the labor market. A wage-price spiral occurs when workers demand higher wages to pay for increasing prices, which could drive prices up even higher. He also stated that the chance of a recession in the next year is not particularly high.

Chairman Powell also said the Fed made progress at last week’s meeting by starting the process to reduce their holdings of Treasury securities and agency mortgage-backed securities and agency debt. But as of yet, the Fed has not started to reduce the size of its holdings.

The last time the Fed reduced its balance sheet occurred in 2017 – 2019, to the tune of about $50 billion per month. He said that this time, it will be more aggressive. As of today, the Fed’s balance sheet is just below $9 trillion.

There is always a fear that higher interest rates will lead to higher unemployment. The current goal of the Fed is to achieve price stability while maintaining a strong labor market.

Crude oil prices have fallen 15 percent from their recent highs of March 8, which helped the market last week. After the price dropped to as low as $94, it closed the week down 3.1 percent at around $105. It is still up 42.2 percent year-to-date.

Along with the rising rates and the current high inflation rate, government bonds fell during the week, causing yields to rise sharply for a second week in a row.

Mortgage rates also increased over past week. As of March 18, the average rate for a 30-year fixed-rate mortgage stood at 4.48 percent, up 16 basis points (0.16 percent) over last week. The rate for a 15-year fixed-rate mortgage was up to 3.70 percent, up 15 basis points from a week ago.

The week of March 7 was another negative for the stock market and the fifth week in a row that the major stock market indexes declined. Russia’s ongoing war in Ukraine continued to unsettle the markets as many cease-fire announcements failed to materialize. The war has caused both the stock markets and commodities to be volatile.

Last week, the Dow Jones Industrial Average dropped for a fifth straight week, its longest losing streak since 2019. The Dow ended the week down 2 percent and has lost 9.3 percent year-to-date. The S&P 500 lost 2.9 percent and is now down 11.8 percent YTD. The news at the NASDAQ is just as gloomy, losing 3.5 percent for the week, for a year-to-date loss of 17.9 percent.

Commodities continue to increase in price. As expected, President Biden banned oil imports from Russia, causing oil prices to surge. On Monday, oil surged to $130, sending stocks down once again. At one point last Monday, the DJIA was down 573 points or 1.7 percent. The S&P 500 was down 2.1 percent, and the NASDAQ fell 2.5 percent.

Oil prices dropped back to close the week at $109.16, down 5.6 percent for the week. West Texas Intermediate is now up 46.12 percent YTD, and its 1-year price is up 83.44 percent.

Even though oil receded to these levels, gas prices at the pump continued to climb. According to AAA, as of Friday, the average for regular gas stood at $4.32 nationally, with California the highest at $5.73.

As usually happens during geopolitical concerns and inflationary worries, gold also saw an increase last week, touching $2,043 on March 7. It ended the week at $1,985, which is up 8.74 percent year-to-date, and its 1-year price is up 14.87 percent.

Inflation continued to increase. The consumer price index was released on March 12, showing that inflation has accelerated at the fastest pace since January 1982. During the past 12 months, the wide-ranging basket of consumer goods and services that make up the consumer price index increased 7.9 percent.

Excluding volatile products like food and energy, core inflation was up 6.4 percent. Even though this is in line with estimates, this is the highest increase since August 1982. The core consumer price index was up 0.5 percent for the month, again in line with what Wall Street expected for the month.

Food prices continued their upward spiral, with the food index rising 1 percent and the food at home index was up another 1.4 percent. Inflation continues to eat away at paychecks. When taking into consideration the real inflation-adjusted hourly wage for February, hourly earnings fell 0.8 percent last month and a 2.6 percent drop from a year ago.

The cost of housing or shelter, which accounts for one-third of the consumer price index, rose another 0.5 percent, with a 12-month rise of 4.7 percent. This is the fastest increase in the cost of shelter since May 1991.

It is still believed that inflation will continue until the supply chain problems ease and the price of oil drops.

For housing, supply is still the major problem. In many cities, the supply of homes is at all-time lows. For example, in Denver, the seven-county metro area had 1,486 homes for sale in February. Just five months ago, there were 5,200 homes for sale, which was half the usual number of homes for sale in 2010.

With the dropping supply of homes for sale available, prices are continuing to rise at a record-breaking pace. In Denver, sales prices for homes increased $84,000 in just 30 days.

The Federal Reserve will have its much-anticipated FOMC meeting on March 15-16. It is now widely believed that there is no chance of a 50 basis point increase and that the Fed will raise the rate by 25 basis points. A slower approach to fighting inflation now looks like the Fed will raise rates 0.25 percent at each of the next four or five FOMC meetings. Balance-sheet reductions will most likely begin in the second half of this year. What Mr. Powell says at this meeting will be just as important as the amount of the rate hike.