STOCK INDEXES BREAK JANUARY LOWS -- GOLD AND OIL SPIKE HIGHER WHILE BONDS REBOUND -- WE MAY BE HEADING INTO STAGFLATION

STOCK INDEXES REACH NEW LOWS ON RUSSIAN INVASION... News of a full-scale Russian invasion of Ukraine is pushing global stocks sharply lower and pushing money into traditional safe havens like gold, oil, and bonds.   The price of West Texas crude oil spiked to $100 this morning while gold prices also spiked higher.   Gold has now reached the highest level since 2020.  Agricultural prices are trading sharply higher.   Some money is also flowing into Treasury bonds which are bouncing.   All eleven stock sectors are in the red.   Over the past week, the strongest stock sectors have been defensive in nature which include energy, healthcare, utilities, real estate, and consumer staples.   Weakest sectors include consumer discretionary stocks, technology, financials, and industrials.   Today's big stock drop has pushed major stocks indexes below their January lows.   Chart 1 shows the Dow Industrials falling to the lowest level since last March.  Charts 2 and 3 show the S&P 500 and Nasdaq 100 (QQQ) falling to the lowest level since last spring.

BACK TO THE 1970s?... Stagflation refers to a period of rising inflation coinciding with a slower global economy.   Some of us are old enough to remember the stagflation of the 1970s which lasted for most of that decade.   It was a good time for commodities which rose sharply, but not good for bonds and stocks.   A lot of the current trends resemble the start of that inflationary period.   To complicate matters, the Fed is expected to start raising rates next month.   It remains to be seen if the current situation in Ukraine causes the Fed to be less aggressive in raising rates.   Even it it does, rising energy prices around the globe suggest that inflationary pressures will continue to rise which will make the Fed's job even harder.    Rising rates risk hurting the stock market even further as well as the economy.   That's the definition of stagflation.