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Last Thursday, the Dow Jones Industrial Average dropped 550 points to end the worst quarter in two years. There was no major news to account for the 1.56 percent loss. It was most likely institutional investors that were repositioning for the second quarter.

The final tally for the first quarter includes the DJIA losing 4.6 percent and the S&P 500 dropping 4.9 percent. The NASDAQ did even worse, closing down 9 percent for the first quarter. For the NASDAQ, this is the worst quarter since 2020, at the start of the Covid-19 pandemic.

Contributing to the market’s problems are the continuing high inflation, the Federal Reserve raising rates, and the Russian invasion of Ukraine. Even though the first quarter was negative, March saw the markets finish higher for the month. The Dow rose 2.2 percent, and the NASDAQ and S&P 500 gained more than 3 percent.

Among the sectors hardest hit on Thursday were the tech hardware and semiconductor stocks, with AMD dropping more than 8 percent after analysts at Barclays downgraded AMD from overweight to equal weight. Other stocks with big losses included Dell, losing 7.6 percent, and HP, down 6.5 percent for the day.

The major market indexes finished the week mixed, with the DOW down just 0.1 percent, the S&P 500 up 0.1 percent, and the NASDAQ ended the week up 0.7 percent.

On Friday, the jobs report showed that the country added 431,000 jobs during March, which was below the estimated 490,000. The unemployment rate declined to 3.6 percent. For the first quarter, 1.7 million jobs were added, and there are still 1.8 jobs for every unemployed person.

The survey of households showed that the total employment level is within 408,000 of where it stood before the pandemic. As expected, average hourly earnings increased 0.4 percent for the month. On a 12-month basis, wages increased 5.6 percent, which is in line with expectations.

On Thursday, the core personal consumption expenditures price index (PCE) was released, showing an increase of 5.4 percent from the same period in 2021. The Federal Reserve views the PCE as the key gauge for inflation. The 5.4 percent increase is the biggest jump since April 1983.

Including the more volatile food and energy prices, the PCE rose 6.4 percent, the fastest pace since January 1982. Rising consumer prices had an impact on consumer spending, which rose just 0.2 percent for the month, compared to an expected 0.5 percent increase. With the attention on surging prices, services inflation was relatively flat with an increase of 0.3 percent.

With the 10-year Treasury notes climbing, mortgage rates are also inching higher. Mortgage application volume dropped 6.8 percent last week compared to the previous week. As of April 2, the average rate for a 30-year fixed mortgage is 4.90 percent, up 98 basis points from a month ago.

The average for a 15-year fixed rate is now at 4.22 percent, up 0.97 percent from a month ago. Mortgage refinance applications dropped 15 percent last week and are down 60 percent from a year ago.

As for oil prices, President Biden announced last week that he will release 1 million barrels per day from the Strategic Petroleum Reserve for the next six months. Releasing this much oil for this length of time from the reserves is an unprecedented move.

President Biden went on to criticize the oil industry for sitting on 9,000 already approved but unused oil permits for production. After this announcement, the benchmark Brent crude dropped 4.88 percent to close on Wednesday at $107.91.

Oil continued to drop, with Brent crude finishing the week at $104.39 and West Texas Intermediate closing at $99.42, after starting the week at $111.37. According to AAA, the national average for regular gas stood at $4.20.

The markets continued to watch two situations, one being the ongoing Russian invasion of Ukraine and the other the Federal Reserve. The situation in Ukraine continues to be a focal point for the market, and there has been no further progress to a peaceful solution.

The major market indexes were positive for a second straight week. The S&P 500 and NASDAQ gained approximately 2 percent, while the DJIA rose 0.3 percent. All three are still negative for the year. The Chicago Board of Options Volatility Index dropped again to close the week at 20.81.

Federal Reserve Chairman Jerome Powell said that they are prepared to act more aggressively when it comes to withdrawing support for the economy to bring soaring inflation under control. He indicated the Fed could soon push rates at relatively high levels in order to slow demand and temper inflation, which is now moving at its fastest pace since the early 1980s. These comments are the most direct statements yet that the Federal Reserve is ready to act more forcefully to attack inflation.

As far as the Federal Reserve is concerned, it is all about fighting inflation at this point. The Fed funds futures are now moving higher for May and June. They are currently predicting a 73 percent chance of a 50-basis point increase in May and a 63 percent chance of another 50 basis point increase in June. July is still pricing in a 25-basis point increase.

Still, some economists had differing views, believing the Fed can raise rates all they want, but until the supply chain is fixed, it won’t do any good curbing inflation. If demand remains high and the supply chain is still lagging, prices will continue to climb. In addition to supply chain issues, the labor shortage continues to slow the supply chain. Businesses continue to report that they are having problems hiring enough workers.

The continuing war in Ukraine and sanctions on Russia are also having a secondary effect on the global supply chain. Taking Russia and Ukraine out of the global markets could have significant impacts on energy, rare earth minerals and wheat. Wheat could affect global food supplies, and raw minerals could add to the current shortage of semiconductors.

On a positive note, the U.S. economy is still growing at its most rapid pace in decades. On Thursday, March 24, the initial jobless claims fell to the lowest level since 1969, with a decrease of 28,000 to 187,000 initial claims. This figure was well below the estimate of 210,000 initial claims. Chairman Powell described this labor market as being tight to an unhealthy level. There are millions of job openings currently along with historically low unemployment levels. Employers are having a hard time attracting new employees and keeping current ones.

Bond prices continued to drop sharply. Yields on the 10-year U.S. Treasury bond jumped to 2.49 percent to close the week to a level not seen since May 2019. The year-to-date increase on the 10-year is 98 basis points. The 2-year U.S. Treasury bond closed the week at 2.30 percent, an increase of 157 basis points YTD. This is being watched closely as some are predicting an inverted yield curve, which could predict a recession.

After dropping the previous week, oil prices increased again about 10 percent for the week, closing Friday at $113 per barrel.

As we head into the April earnings season, the outlook is a little gloomy as many companies are lowering their expectations. Last week, more than twice as many companies lowered their earnings guidance than had raised them. According to FactSet, 66 companies cut expectations, while 29 raised them.

Reflecting higher interest rates, mortgage rates neared 5 percent, closing at 4.95 percent Friday for a 30-year fixed mortgage. The last time the 30-year mortgage topped 5 percent was in 2011. Friday’s close is 164 basis points (1.64 percent) higher than a year ago.

Rents are also increasing at a record rate, causing potential homebuyers to be unable to save enough money for a down payment. At the same time, lenders are becoming stricter about how much debt they will allow borrowers to take on in relation to their income. As we head into the spring homebuying season, the inventory of homes continues to be low. With mortgage rates and home prices continuing to rise, the median mortgage payment is now more than 20 percent higher than it was a year ago.

The National Association of Realtors is now predicting rates will stay near 4.5 percent, an increase of 50 basis points from their previous prediction. They also expect home sales to drop 3 percent this year. This expectation could decline further as some are predicting sales to fall by as much as 8 percent this year.

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.