Weekly Market Update

Headlines from Russia and Ukraine continue to weigh on market sentiment and stocks were unable to overcome Friday’s strong February jobs report, as geopolitics propelled oil prices above $115 a barrel for the first time since 2008 and renewed fears of inflation remaining persistently high. Rising raw material prices are not limited to energy, however, as commodities have enjoyed their strongest start to a year since 1915 (per BofA), and we think the recent move in grain prices, most notably wheat, deserves more attention.

Ukraine and Russia account for almost one-third of the global supply of wheat and while oil prices have certainly surged, wheat prices have gone parabolic, up over 50% since mid-February while alternative grains like corn have also jumped. Grocery prices in the US rose 7.4% in January from a year prior, the most since 2008, so record wheat prices come at a particularly inopportune time as the Federal Reserve desperately tries to keep the proverbial inflation genie in the bottle. Furthermore, rising grain prices make feeding animals more expensive and impact meat prices that were already expected to rise as much as 7.5% in 2022 (per the US Department of Agriculture). Fortunately, Friday’s job’s report did show some potential signs of labor supply shortages improving as people rejoined the labor force and wages grew at their slowest pace since March 2021, so not all of this week’s data was inflationary. Nonetheless, the knock-on effects of rising commodity prices, particularly food and energy, will undoubtedly be closely watched by a Federal Reserve that seems virtually guaranteed to hike short-term interest rates twenty-five basis points (0.25%) on March 16th. Next week, we expect geopolitical headlines to continue to have outsized importance for markets, but also see potential market-moving events in Thursday’s consumer price index for February and the potential for Iranian oil supply to return to global markets as nuclear/sanction deal talks progress.

Ian G. Browning, CFA
Managing Director, Investment Strategies | Shareholder