• U.S. equities faced a challenging February, with escalating geopolitical concerns including Russia’s invasion of Ukraine along with uncertainty over the Fed’s rate hike trajectory resulting in the S&P 500^® briefly trading in official correction territory.  Smaller-caps outperformed, with the S&P MidCap 400^® and S&P SmallCap 600^® both up 1%.
• International performance was also disappointing, with the S&P Developed Ex-U.S. BMI down 1% and the S&P Emerging BMI down 3%, as swings in oil prices amid Ukraine-Russia tensions roiled markets.
• High Beta was the only factor to post a gain, with Growth in the rear.

• Anxiety about impending rate hikes as well as a tapering in asset purchases by the Fed to combat inflation led to the worst monthly performance for U.S. equities since March 2020, with the S&P 500^® down 5% in January. Smaller caps performed even worse.
• International performance was also disappointing, with the S&P Developed Ex-U.S. BMI down 5%. The S&P Emerging BMI, down 1%, fared slightly better, aided by strong performance in Latin America, although headwinds included Ukraine-Russia tensions as well as the Fed’s hawkish stance.
• Given the risk-off sentiment, Dividend and Value strategies led. Growth was the laggard, down 8%.

• U.S job openings fall to 10.4M
• PPI for final demand +0.6% in Oct.

What to watch in the week ahead: Retail Sales.

Inflation has heated up significantly this year as surging consumer demand collided with supply shortages across major sectors of the economy. CPI inflation has been tracking above 5% year-over-year since the start of the summer, with the latest year-over-year gain in CPI at 5.2% overall and 4.0% excluding food and energy. The year-over-year gains in inflation have been amplified by declines in prices a year ago, but supply chain issues have been a problem. In particular, the global semiconductor shortage has increased the prices of a wide range of goods throughout the economy, and most notably for autos. These higher input costs have sent inflation higher, as well as a general recovery in prices of air fares, restaurants, and rents from their pandemic lows.

• Despite lingering inflation concerns, U.S. equities recovered strongly in October, thanks to robust corporate earnings. The S&P 500^® posted a gain of 7%, outperforming mid- and small-caps, as the S&P MidCap 400^® and the S&P SmallCap 600^® rose 6% and 3%, respectively. Volatility declined, as the VIX^® closed at 16.26.
• All factors posted gains, with Growth and High Beta in the lead. Unsurprisingly, defensive factors trailed in October.
• All sectors posted gains. Consumer Discretionary led, followed by Energy, which continued its dramatic turnaround, up 58% year-to-date.