It’s amazing how quickly the headlines have changed. No longer is the situation in Ukraine on the top of the news feed, we are now reading about the “slap heard around the world”, the potential legalization of marijuana in this country, the yield-curve inversion, and the strategic release of more oil reserves. Oh, I also forgot that we had monthly employment data released on Friday. PHEW!
The House of Representatives passed legislation on Friday that would make marijuana legal throughout the United States, removing criminal penalties for those who manufacture, distribute, or possess the drug. With 220 votes in favor and 204 votes against, the vote was split right down the middle. The bill faces an uncertain future in the Senate, but supporters are more optimistic that it will pass now that Democrats control both chambers of Congress. Back in December 2020, the House passed an earlier version only for it to be stalled in the Senate. With the midterm elections approaching, Democrats are pushed to act now if they want this legislation to pass.
Friday’s jobs report prompted short-term rates to rise further, causing the 2-year and 10-year treasury yield curves to invert. When these inversions occur, the sentiment is that investors are expecting a slowing economy—they think short term conditions are better than those further out. However, economists have noted that this indication does not always guarantee a recession is imminent and that it can often take more than a year for the yield curve to invert before an economic downturn actually occurs. At the very least, these inversions are an important indicator to monitor going forward.
The White House also announced Thursday that the US will release 1 million barrels of oil per day from its strategic reserves to help lower gas prices and combat inflation across the country. After the news, Brent crude futures for May declined 4% to $108.89 a barrel on the international market. Crude oil futures in the United States fell 4.7% to $102.84. Although this is encouraging news, prices remain high and will likely remain elevated until later in the year unless alternate producers can catch up to demand. The White House said Biden will also push lawmakers to promote American energy independence by passing legislation that accelerates the transition to sustainable energy. Although this may be a long-term endeavor, it is in our national interest to become an energy independent nation.
While these storylines present their own unique risks, the underlining geopolitical tensions will still be a large part of the directional moves in our financial markets in the weeks ahead. Mainstream media clearly knows we have a short attention span and that shift in viewership is ever changing. With the first quarter wrapped up, earnings season is next on deck. With red hot inflation in play, will we start to see the first major signs of a slowdown in consumer spending? For now, the anticipation and waiting game will begin. At least the weather is starting to improve!
Enjoy the rest of your Sunday!