My colleague Sam Millette, manager, fixed income on Commonwealth’s Investment Management and Research team, has helped me put together this month’s Market Risk Update. Thanks for the assist, Sam!

My colleague Sam Millette, manager, fixed income on Commonwealth’s Investment Management and Research team, has helped me put together this month’s Economic Risk Factor Update. Thanks for the assist, Sam!

After a terrible January for the markets, February continued the decline, with fears about inflation and Fed rate increases dominating the start of the month, only to be superseded by the Russian invasion of Ukraine. Although the Covid-19 news continued to improve, by the end of the month, markets had moved on from medical risks to economic and geopolitical fears. Looking forward, those are the risks that are likely to dominate, as Covid-19, while still with us, has left both the headlines and, apparently, the markets.

Several important economic updates were released last week, with a focus on February’s business confidence and job reports. The job report showed that more jobs were added than expected during the month, which drove the unemployment rate to a new pandemic-era low. This will be another busy week of updates relating to international trade, consumer inflation, and consumer sentiment.

It’s possible that the autocratic regime in Russia didn’t fully appreciate the power of stakeholder capitalism. In the wake of the invasion, stakeholders have clearly chosen sides—and they do not include the Kremlin. Corporations have responded, and many have decided to sever Russian ties through divestment. Shell and BP recently announced their intention to abandon their involvement in Russia. Further, Sberbank (Russia's largest lender) says it is leaving the European banking market in the face of Western sanctions against Moscow.

A question I have been considering, and which recent events have made more urgent, is what retired investors (or those close to retirement) should be thinking as they look at the inflation figures. Is there something they should be doing? If so, what?

In recent posts, we’ve looked at both the fundamentals underlying market response to the Ukraine invasion, as well as the historical data around similar events. The conclusions were generally reassuring to us as investors. Today, though, I want to do something a bit different. Rather than consider the specifics and what they might mean, I want to ask more general questions. How should we be thinking about this? And can we use that to draw any conclusions around the likely next developments?

Markets were down across the board in February, with U.S. indices dropping between 3 percent and 4 percent, while international markets were down 2 percent to 3 percent. Still, markets bounced back a bit to end the month. The reasons for this were twofold: interest rates pulled back in the U.S. and the medical news continued to improve.

Last week’s important economic updates centered around consumer confidence, personal income and spending, and durable goods orders reports. Personal spending growth increased more than expected in January, echoing a similar, better-than-expected rebound in retail sales growth during the month. This will be another busy week of updates, with a focus on business confidence and the February employment report.

Recent equity market volatility is being partially attributed to potential Fed tightening, as the Fed has signaled a shift from an accommodative monetary policy stance to one that is more restrictive. It is doing so in response to the recent hot inflation reads and a rebound in inflation expectations. In general, equities are considered a hedge against inflation. Why, then, are equity investors so concerned? The reason is that not all equity sectors are created alike. Specifically, some can combat inflation and subsequent interest rate increases better than others.