Daily Comment (March 1, 2022)

by Patrick Fearon-Hernandez, CFA, and Thomas Wash

[Posted: 9:30 AM EST] | PDF

We begin today’s Comment with an update on the Russia-Ukraine war.  The biggest development is that Russia seems poised to intensify its attacks and broaden them to include indiscriminate volleys against civilians.  We next review a number of global, international, and U.S. developments that could affect the financial markets today.  We conclude with the latest news related to the coronavirus pandemic.

Russia-Ukraine:  Russian and Ukrainian officials met yesterday to discuss a ceasefire, but reports suggest they only made marginal progress and plan to meet again later this week.  In the meantime, it appears that Russian President Putin has ordered a step-up in attacks, with intense shelling of Ukraine’s second-largest city, Kharkiv, and intelligence reports of a massive column of Russian reinforcements heading toward the capital and biggest city, Kyiv.

Global Dividend Stocks:  According to a widely followed report on dividend payouts, the growth in total global distributions was expected to moderate to about 3% in 2022 from a whopping 17% in 2021.  However, the Russia-Ukraine war is now expected to slow this year’s growth rate even more.

Global Supply Chains:  In yet another blow to global supply, Toyota Motor (TM, $182.95) said a computer virus at one of its suppliers will force it to close all 14 of its plants in Japan until Wednesday.  The shutdown adds to the difficulties of a global semiconductor shortage that forced Toyota’s factories to operate below full capacity for much of the past year.  It could add to the global supply shortages that have driven up consumer inflation and prompted major central banks to plan on interest-rate hikes.

United States-Taiwan:  One obvious question from the Russo-Ukrainian War is what it means for the U.S.’s commitment to defend Taiwan from Chinese aggression.  To send a message of reassurance and remind China not to step up pressure on Taipei while the U.S. focuses on Eastern Europe, the White House has sent a high-level delegation of former officials to Taiwan.  The group includes former Chairman of the Joint Chiefs of Staff Michael Mullen and former top Pentagon official Michèle Flournoy. In addition to the show of support for Taipei, the delegation will urge Taiwan to intensify long-needed efforts to bolster its own defenses.

U.S. Politics:  President Biden tonight will deliver his first formal State of the Union speech to a joint sitting of Congress.  Besides talking up the strong economic recovery, falling coronavirus caseloads, and trying to rally the nation behind its approach to the Russia-Ukraine conflict, Biden is expected to urge Congress to move forward with the parts of his economic program that have stalled.

U.S. Labor Market:  The tight labor market has prompted mass resignations.  One little-noted factor driving workers to quit their jobs is employers’ longstanding practice of giving them only limited hours in order to maintain staffing flexibility and avoid providing benefits.  With the balance of power now shifting toward workers, we would not be surprised if employers will have to give their employees more hours and stability.  While that could help ensure staffing levels, it would probably also raise costs and weigh on profit margins and stock prices over time, not to mention adding to inflation.

COVID-19:  Official data show confirmed cases have risen to  437,243,739 worldwide, with 5,958,335 deaths.  In the U.S., confirmed cases rose to 79,045,719, with 950,521 deaths.  (For an interactive chart that allows you to compare cases and deaths among countries, scaled by population, click here.)  Meanwhile, in data on the U.S. vaccination program, the number of people who are considered fully vaccinated now totals 215,602,728, equal to 64.9% of the total population.


 Economic and Financial Market Impacts

  • The rapid growth of life-science research during the pandemic is triggering a record boom in the development of new lab space and offices serving these companies.
    • Development of buildings geared toward biotechnology, pharmaceutical, and other laboratory firms was already on the rise before 2020, but demand for this space intensified as billions of dollars poured into research and development related to the virus.
    • Life-science space has also been enjoying high occupancy rates because—unlike traditional office buildings—much of the lab work requires specialized equipment and building infrastructure that cannot be easily replicated at home.
    • The trend suggests real estate investment trusts (REITs) focused on lab buildings could be a big beneficiary.

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