Federal Reserve meeting, war, new lockdowns – What drives markets now?

Stock bulls hope to keep the positive momentum flowing after major indexes posted their strongest gains since November 2020, last week. However, they still have a ways to go before being in positive territory for the year with the S&P 500 down - 6.4%, the Dow down -4.4%, and the Nasdaq still sitting on a loss of -11.2%.

Federal Reserve meeting

With the long-awaited Federal Reserve March policy meeting out of the way, investors will now be listening closely for any clues regarding future policy moves from individual officials as they hit the speaking circuit this week.

Fed Chair Jerome Powell delivers remarks at the National Association for Business Economics today, then again on Wednesday at a summit hosted by the Bank for International Settlements. I should note, seven other Fed officials are scheduled to speak at various events this week. Investors also remain focused on Ukraine war headlines where Russia’s assault seems to have stepped up in some areas. In fact, Russia has given Ukrainian forces a deadline of today to surrender control of the besieged port city of Mariupol, the scene of some of the heaviest fighting since Russia launched its invasion of Ukraine more than three weeks ago.

Ukrainian war

The eastern port city has been devastated by relentless shelling, with whole neighborhoods reduced to piles of rubble. Electricity, gas and water have been cut off and many remaining residents are without food. Ukraine’s armed forces said the situation was “difficult: there is famine in the city, street fights, people are trying to leave”. Some officials involved in ceasefire negotiations say the two sides have moved closer to an agreement, though they also said the same thing last week.

China’s top diplomat to Washington said his country is committed to de-escalating the war but global intelligence officials from the U.S. and EU continue to warn that China is considering military support to Russia. Shipments of U.S.-supplied weapons are supposed to be entering Ukraine within days, something Russia has vowed to disrupt and which would likely ratchet up tensions even further.

Obviously, it remains a very volatile and fluid situation and gaining accurate information is difficult as global powers keep their cards close to their chests. Interestingly, the Iran nuclear deal appears to again be a go as Russia has backed off some of its demands that had threatened to derail its revival. Negotiators now say they are “close” to a deal with some speculating it could come as soon as this week.

New lockdowns in China

This could put some nearby pressure on oil prices which have struggled a bit as of late thanks to worries about demand in China amid a wave of fresh Covid lockdowns.

China this weekend began relaxing some of the harshest restrictions in order to “minimize” disruptions but port backlogs are already happening. The Port of Shenzhen is said to have over +35 ships waiting to dock while outbound freight heading to the U.S. and other countries has slowed considerably due to numerous factory closures as well as a lack of trucks arriving as drivers face extreme travel restrictions.

Shenzhen includes the Yantian terminal, which handles about a quarter of all U.S.- bound shipments. Similar issues are being reported at other key ports, including Shanghai, the world’s largest. While this is likely to create more disruptions to the availability of some raw materials and other supplies, the upside is that it could allow U.S. ports to work through their own backlogs, particularly on the West coast.

S&P 500 overview

The accumulation and ADL are looking very good. With cyclical and seasonal bottoms coming soon, short-term sell-offs should be considered as buying opportunities. More strength should be expected if SP500 holds above 4600 – 4650 levels.

In conclusion

Today, there is nothing much of note on the economic data front but investors are anxious to hear from Nike, which announces earnings after markets close. The company’s fiscal third-quarter results will include the first two months of 2022 and provide some insights into how fallout from Russia’s war in Ukraine and the Covid lockdowns in China might be impacting multinationals. Nike’s forward guidance likely holds the most interest with investors particularly anxious about inventory flows for Nike as well as other companies with manufacturing operations in China.