Stocks remained volatile last week as investors continued to monitor the status of the Russian invasion of Ukraine and a few key economic reports. The S&P 500 dropped 2.88% on the week and is down 11.79% YTD.

Stocks dropped again last week, but despite the decline it’s fair to say that it could have been worse. The negative headlines last week were incredibly consistent: Continued escalation in the Russia/Ukraine war, hawkish surprise by the ECB ending QE in Q3 (sooner than expected), inflation hitting yet-another 40-year high and commodity prices exploding higher. And those were just the majorly negative headlines (we’re not including negative commentary from companies such as Booking.com, the renewed implosion of Chinese shares on delisting fears, higher yields despite growth headwinds).

Yet despite all that, the S&P 500 didn’t fall to fresh lows, and we think that’s notable. More specifically, this market could be setting up for a near-term rally if we get any good news, e.g. a lasting ceasefire in Ukraine, the Fed not being as hawkish as feared, positive supply news on oil, etc. And that rally could easily send stocks back to the 4,500-4,600 range in part because sentiment has become so palpably negative.

But while we’d certainly welcome that rally, it wouldn’t change the fact that the outlook for stocks remains challenged over the coming month, and that was the case before the Russia/Ukraine situation. Point being, if we get some resolution there, it’s not a material bullish catalyst. For a rally to be sustainable towards the new highs we need to see 1) The Fed be very gradual in rate hikes and, more importantly, Quantitative Tightening, 2) Inflation peak and recede, 3) Corporate earnings hold steady and 4) Geopolitical calm. At this point, none of those things are more likely than not!