Market Notebook

Equities traded lower last week while bonds continued in a strong downward trend. Inflation concerns and the possibility of conflict in Ukraine appeared to contribute to lower prices in both equities and bonds.

From a technical analysis perspective, the October 4th, 2021 low in the S&P 500 marks the price area to watch. Should hostilities break out in Ukraine, the S&P 500 as measured by SPY could easily retest the October 4th low. Price action between the January 4th, 2022 high and the October 4th low would represent consolidation. Lower volatility and price consolidation would be welcome at this point.

Regarding the week ahead, it does not appear that market participants are done pricing in inflation concerns and risks associated with conflict in Ukraine. As such, volatility is expected. Most likely, next week will be a week to exercise caution regarding equities. As for bonds, they remain firmly stuck in a downward trend. It seems prudent to avoid bond purchases in the short term unless absolutely necessary.

If conflict comes to Ukraine, keep in mind that such conflict does not change the investment thesis for a balanced portfolio. While risk-off price action can be psychologically painful, remember that a balanced portfolio is designed to weather such events over its investment time horizon. Put another way, even though tomorrow may appear gloomy, the distant future appears quite bright.

All the best.