Week of Feb. 28 news roundup: uncertainty wreaks havoc throughout financial markets
Volatility is here to stay
Investors do not appreciate uncertainty— that has always been clear. Whether it be a change in the direction of key economic indicators or a surprise move from a central bank arbiter, unexpected events generally lead to significant volatility (and often selling pressures) throughout markets.
The Chicago Board Options Exchange’s VIX, an index representing market expectations about the S&P 500’s volatility, is up over 60% year-to-date at the time of writing.
To put this into perspective, the index (widely regarded as the “fear index”) opened Monday as high as 31.38, well above the high teens level of Jan. 2022. It is important to note the all-time high close for the index was 82.69, a level reached on Mar. 16, 2020, one of the more infamous trading days of the past 100 years.
While present volatility is well below what most would deem historic levels, it is elevated enough to cause turmoil within global financial markets.
Throughout the beginning of 2022, stocks have tumbled off of their late 2021 highs, with the technology sector bearing the brunt of the selling pressures. Most notably, companies such as Meta and Peloton shed billions in market value (the former lost more than $230B in one day, an all time record for a domestic company).
Some companies have benefited greatly from the inflationary economic backdrop, including the energy sector and other commodity producers. Exxon Mobil’s share price, for example, is up nearly 25% year-to-date and has more than doubled their Mar. 2020 low.
While bond market participants have predicted a hike to the key Fed Funds benchmark (and therefore confirmation of a new rising rate environment), the language from the Fed itself appears much more uncertain, even erring on the side of monetary accommodation.
No matter what happens, the coming weeks are sure to provide loads of interesting economic and financial developments.
Fed’s trading scandal reaches tentative close
Speaking of the Fed, remember when three of the most senior officials (including the Chairman of the Colby Board of Trustees) stepped down upon insider trading and ethics concerns?
If you don’t, I wrote about it in The Colby Echo in fall of 2021.
For now, the insider trading saga has appeared to come to a conclusion, as the Federal Reserve has enacted a new set of strict restrictions for officials.
According to a Federal Open Market Committee (FOMC) statement, Fed officials can no longer trade individual stocks, bonds, or derivatives, or ABS and RMBS. Senior officials must also give 45 days advance notice and approval for any transaction and cannot trade during periods of high market volatility or around key FOMC policy meetings.
Additionally, central bankers were banned from trading sector funds, short selling, foreign exchange and commodities, and cryptocurrencies.
These bans were intended “to ensure public confidence in the impartiality and integrity of the Committee’s work,” according to the same Fed statement.
The additional bans come as a surprise, as the Fed had only outlined the ban on individual stock and bond trading following the ethics scandal last fall.
Going forward, the question seems to be whether such bans are extended to members of Congress.
Maine’s housing market continues to soar
While much has been written throughout the pandemic regarding the housing boom nationwide, Maine specifically is experiencing one of its hottest housing markets on record.
According to the Maine Housing Report, Jan. 2022 was the second-highest opening month on record. “Buyer demand remains strong for residential real estate in Maine. Home sales in Jan. 2022 are above the pre-pandemic Jan,” President of the Maine Association of Realtors notes. “2020 sales volume by nearly 10%, but are 7.2% lower than Jan. a year ago. Markets remain strong statewide but are constrained due to the low availability of for-sale inventory.”
The median sale price for single-family homes in Maine rose to $292,250, representing nearly a 15% year-over-year increase.
While demand has clearly exceeded existing inventory throughout the pandemic, mortgage rates have begun to rise off of their all-time lows.
For example, the 30-Year Fixed Rate Mortgage has risen from an average of about 3% to around 4% in response to implied monetary tightening from the Fed.
As the cost of borrowing increases for homeowners, it will be interesting to see whether this sustained demand pressure will continue in Maine, especially in rural areas.
~ Cam Dyer ’22
