Stocks opened lower this morning before rising substantially a few hours later. Russian President Vladimir Putin happily reported that talks had taken a “certain positive shift” within the last 24 hours.
This had bulls feeling cautiously optimistic, including Leuthold Group chief investment strategist Jim Paulsen.
“Potentially good news from favorable comments regarding cease-fire negotiations from Putin but investors are unsure how much weight to put on this given some of his previous comments which turned out to be hollow,” Paulsen said.
Then, in a press conference held at 10:38 am EST, President Joe Biden calmed the nerves of investors further when he gave remarks on the ongoing negotiations between Russia and Ukraine, as well as the US’s involvement in the war.
“We’re going to continue to stand together with our allies in Europe and send an unmistakable message. We will defend every single inch of NATO territory with the full might of the united and galvanized NATO,” Biden said after listing several new sanctions against Russia, the most important of which included an end to normal trade relations, paving the way for increased tariffs on Russian imports.
“We will not fight a war against Russia in Ukraine. Direct conflict between NATO and Russia is World War III, something we must strive to prevent,” Biden concluded.
Then, a reporter asked Biden if the US would “have a military response if Putin [launches] a chemical weapons attack?”
Biden replied:
“Russia would pay a severe price if they use chemical weapons.”
This wounded sentiment slightly before Ukraine Foreign Minister Dmytro Kuleba caused stocks to completely reverse on the day.
Kuleba said there had been “zero progress in talks” and that it was “hard for me to understand what kind of progress President Putin is referring to,” in a Bloomberg interview.
He then went on to explain that the negotiations “[didn’t] impact Russia’s behavior on the ground,” and emphasized that if Ukraine is going to be neutral (aka, a non-NATO country), it would require “security guarantees.”
The latest University of Michigan consumer sentiment index reading – released this morning – didn’t help matters, either, when it revealed a drop to 59.7 in March, down from 62.8 in February. That’s the lowest print since September 2011.
Over the last few months, Wall Street banks have unilaterally downgraded their US GDP growth projections for the year. Goldman Sachs was the most recent, slashing its real GDP growth forecast today to just +1.75% for 2022 on a Q4/Q4 basis. That’s down from +2.0% and almost 1% below the consensus estimate of +2.7%.
For Q1 of this year, Goldman now believes US GDP will grow by only 0.5%, down from its previous +1.0% forecast.
And, according to the University of Michigan’s sentiment data, it appears consumers have similar expectations.
Goldman took things one step further by observing that the yield curve is implying a 20-35% chance of a recession over the next year. The bank came to this conclusion by comparing different yield spreads (10y2y, 10y3m) and the GZ excess bond premium, the latter of which is used by the Fed as a measure of sentiment in the corporate bond market.
Treasury Secretary Janet Yellen, meanwhile, said that she still doesn’t expect a recession in comments made yesterday.
We’ll see if she’s right. Remember that Yellen, along with Fed Chairman Jerome Powell, also thought inflation would be “transitory.”
For the market’s sake, I hope she ends up going 1-for-2 with her predictions, because the alternative would be a bitter pill for bulls to swallow.
Especially as the Fed starts to do battle with inflation.
