US Stock Markets Drop Sharply Last Week; Worst Since March 2020

In a rough week, the Dow (-4.5%), NASDAQ (-7.6%), and S&P 500 (-5.7%) exhibited their worst weekly loss since the beginning of the pandemic in March 2020.  The NASDAQ reached correction territory, as the index has slipped 10% from its high last November.  Meanwhile taxable bonds were down slightly at about 0.2%, while tax-free municipal bond were down about 0.5%.  Bonds had been reacting adversely to a rise in interest rates, but geopolitical tensions and unexpectedly high unemployment claims late last week helped propel bonds in the last couple days.

The markets had been getting hit since the beginning of the year mainly due to concerns of inflation, which could subsequently prompt the Fed to raise interest rates.  A rise in interest rates could cause a slowdown in the economy, and growth stocks with higher PE ratios reacted by losing value.  On top of that, there have been growing tensions with Russia regarding Ukraine, which has been increasing the chances of a potential military conflict.  Further, China raised geopolitical tensions over the weekend as they flew dozens of war plans in the region of Taiwan.  It can be expected that these geopolitical tensions will have adverse effects on the markets in the near term.

While we don’t normally let ourselves be driven by headlines, we are also concerned that these military conflicts with two of the world’s super powers could have even more adverse impacts to the markets in the coming weeks or months.  As such, we intend to make adjustments to the portfolio allocations to pare back on risk. 

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