Growing tension between the United States and Russia…
JJ Kinahan, Chief Market Strategist, TD Ameritrade
(Market close Thursday) Stocks fell sharply in response to rising tensions over Russia and Ukraine. The White House continues to warn of an imminent threat of Russian invasion of Ukraine and has highlighted several factors that could facilitate the invasion. However, financial news pundits are debating the market’s signals of rising tensions. As stocks fall and gold rises, there seems to be room for skepticism from some analysts.
The United States and its allies continue to express concerns about Russian troops and troop movements. They see similarities between how Russia is cramming troops along the Ukrainian border and how it positioned its troops before taking over Crimea in 2014. Russian troop buildup coincides with 45,000 Russian troops conducting military exercises in neighboring Belarus, which Guardian says adds even more troops to the region.
CNBC reported that the White House pointed to other factors that could lead to the invasion. One is the Olympic backdrop which is similar to Nazi Germany’s attack in the Munich Olympics. Another is the benefit of winter, which provides frozen ground that would make invasion easier because ground troops can move on solid ground.
Additionally, the White House fears that Russia is using a “false flag” strategy where it finds an excuse for the invasion. US Secretary of State Antony Blinken has appeared before the United Nations and suggested recent Russian-backed separatist attacks in Ukraine may be false flag incidents.
Russia has denied the threat of invasion. On Monday, Russian Foreign Minister Sergey Lavrov hinted that there was still a diplomatic way out of the current situation. Then on Tuesday, Russian President Vladimir Putin said he had already started withdrawing his troops from the region and that troops in Belarus were expected to leave on February 20.
Ukrainian officials also downplayed reports of the invasion. On Friday, Ukrainian Foreign Minister Dmytro Kuleba said there was “nothing new” from the UK or the US. Then on Monday, Ukrainian President Zelensky wasn’t taking the threat seriously when he tried to be ‘ironical’ when he claimed Russia would attack on Feb. 16 and declare it a national holiday, according to Briefing.com .
Action and reaction
The shares sold off sharply on the news with the S&P500 (SPX) down 2.12%, the Nasdaq Compound ($COMP) down 2.88%, and the Dow Jones Industrial Average ($DJI) down 1.78%. Thursday ended up being the worst day of the year for the Dow Jones. Investors focused on selling growth as S&P 500 Pure Growth Index fell 3.10%. Blue chip stocks walmart (WMT) and Cisco (CSCO) were able to swim upstream on strong earnings reports. WMT rose 4% on the day, while CSCO rose 2.80%.
Investors turned defensive, with consumer staples remaining positive for most of the day. Businesses that are needed in all economic conditions have been able to rally. For example, Coca Cola (KO) and Procter & Gamble (PG) closed up 2% and 1.15% respectively. Utilities were also able to close in the green, while all other sectors closed in the red. Technology, consumer discretionary and financials were the worst performers.
Debate tea leaves
The sale was ordered, which some financial experts say is a sign that the sale was more about stock revaluation and less about geopolitical risk. Another confusing market signal comes from oil prices. Russia and Ukraine are big oil players and the unrest is expected to cause big oil supply problems. However, oil prices have fallen for the past three consecutive days, dropping almost 6%. Thursday’s oil price plunge could be the result of talks between the United States and Iran that could lift some sanctions on Iran that would allow them to start selling oil outside their borders in the near future. .
Another point of contention concerns currencies. The Russian ruble weakened against the U.S. dollar on Thursday, in what some see as a sign of concern as investors flee countries at war due to the weak currency that often accompanies war. However, the ruble appreciated against the dollar for most of the month and is about 5% off its January low.
Finally, when expecting conflict, investors often move to safe havens like Treasuries and gold. On Thursday, it looks like there was some bond buying because the 2 years and 10-year Treasury yields (TNX) are off their three-year highs. The 10-year rate fell back below 2%. Perhaps the best point comes gold futureswhich climbed 1.52% on Thursday and is up more than 6% over the past month.
On the ground
All day long, lithium miner Albemarle (ALB) fell 19.79% after reporting a revenue loss despite better-than-expected earnings. Investors appeared to be concerned that the ALB was burning through its cash at a high rate. In 2020, ALB used $51.6 million, but in 2021 it used $609.5 million.
A few stocks fell hard ahead of their earnings reports which are expected after the close. Roku (ROKU) fell 9.4% before its earnings announcement, then fell another 7.39% after the bell. ROKU reported better-than-expected earnings, but missed revenue. The company warned of continued supply chain disruptions. To make matters worse, the company’s press release directed investors to its website which quickly crashed, according to Barron’s.
Real estate platform red fin (RDFN) also sold 6.13% before its earnings report, then fell another 10.89% after its report. The company reported better-than-expected earnings and revenue.
Before the market opens on Thursday, S&P 500 Futures Contracts were sitting at the top of the 200-day moving average. However, once the price penetrated the moving average, more sellers seemed to join in, driving the contract lower. The next level of support was the 4400 level, which coincided with a major level in two of the previous three days. However, 4400 was penetrated before the close, which brought another group of sellers. Traders might look for 4300 as the next level of support as it was able to hold until the end of January.
not a word
Useful educational content and programming
Check out all of our upcoming webcasts or watch one of our hundreds of archived videos, covering everything from market commentary to portfolio planning basics to trading strategies for active investors. You can also deepen your investment know-how with our free immersive online courses. No matter your level of experience, there is something for everyone.
Looking to stay on top of the markets? Check out the TD Ameritrade Network, live programming that brings you market news and helps you sharpen your trading knowledge. And for the hottest events of the day, delivered straight to your inbox, you can now subscribe to the daily Market Minute newsletter here.
TD Ameritrade Network is brought to you by TD Ameritrade Media Productions Company. TD Ameritrade Media Productions Company and TD Ameritrade, Inc. are separate but affiliated subsidiaries of TD Ameritrade Holding Corporation. TD Ameritrade Holding Corporation is a wholly owned subsidiary of The Charles Schwab Corporation.