1. Moving the markets

As the Russia-Ukraine conflict spreads and intensifies, it should come as no surprise that equities eventually would be affected negatively. We have seen some late session comeback attempts, but current geopolitical conditions may make it very difficult to continue these efforts.

The reality, that sanctioning others may have a boomerang effect came into play today, when crude oil surged over to $100, making future gasoline price hikes at the pump a virtual certainty. Commodities rallied in sync, with my favorite index (DBC), which we own, spiking 4% on the day.  

With our domestic Trend Tracking Index (TTI-section 3 below) diving deeper into bear market territory, equities seem to be stuck in a fog of uncertainty and lack incentive to stabilize—at least for the time being.

Bond yields around the world crashed, with some having their biggest drops since 1992 (UK-10-year). While US banks were the worst performers today, their European cousins were in much worse shape, down some 25% in the last few days, as Bloomberg shows here.

Here at home, the 10-year yield tumbled to below 1.7%, a level last seen at the beginning of January. All other maturities showed similar performances. With the flight to safety on traders’ minds, the US Dollar rebounded and closed higher.

Gold did what it’s supposed to, namely rally during times of uncertainty, and the precious metal did not disappoint, as it surged +2.57% for the session.

Among all this upheaval, the Atlanta Fed announced their GDP estimate for Q1 2022. I hate to be the bearer of bad news, but the number they spewed out was a big fat ZERO. In other words, no growth, and when coupling this with the inflationary trends we’re seeing, it appears to me that “Stagflation” is now firmly baked into the cake.

1. Moving the markets

Volatility reigned supreme in the markets, but in the end, this session did not turn out as bad as had been feared over the weekend. With the Russia-Ukraine war heating up and sanctions being announced around the world, there will be more fallout ahead for all parties involved.

After being down some 500 points early on, the Dow, along with the other two major indexes, roundtripped yet managed to find a bottom late in the session, which turned into catalyst for digging themselves out of a deep hole.

As a result, we only closed moderately in the red with the Nasdaq eking out a 0.41% gain, after having been down over 3% in the overnight session. February, however, was a rough one for stocks with all indexes posting sharp monthly losses.

ZH summed up February like this:

It’s almost difficult to remember now, but February started with a lingering focus on the Omicron wave of the virus and the expected business interruptions that COVID was again causing. The virus has since faded in the US although it still has a very real presence in Asia.

The realization that inflation does not appear to be temporary and may be more persistent than recent past bouts of higher prices has also caused markets to increase expectations for the number of rate hikes that the Fed is likely to initiate in the imminent hiking cycle.

And as we exit February, Goldman’s Chris Hussey notes that attention is now divided between what the Fed will say (and do) on March 16th and how the situation between Russia and Ukraine will evolve. Against this backdrop of rising inflation, rates, and geopolitical risk, Energy and Materials outperformed again in February.

As could be expected, during times of turbulence, bonds benefited today as yields retreated with the 10-year pulling back to 1.82%, but for the month, all yields were higher. The US Dollar dropped today and ended the month moderately lower, while gold successfully defended its $1,900 level.  

Any kind of “war” presents a “risk off” environment, during which reduced exposure and/or flight into those sectors benefitting from the current situation, is a sensible way to go.

Everything we are currently witnessing is simply unprecedented and predictions are merely wild guesses likely influenced by wishful thinking.

We are facing many unknowns, and a more conservative approach to investing with less exposure will better protect our portfolios, should the unknowns increase in magnitude and pull equities deeper into bear market territory.

1. Moving the markets

The Russian-Ukraine saber rattling shifted into overdrive and pulled equities down sharply with the Dow down over 850 points at its low of the session.

As if by magic, a stunning afternoon comeback managed to wipe out all the morning’s losses with the major indexes ending in the green, as the Nasdaq ruled supreme, and the always present short-squeeze lent its usual assist.  

Apparently, traders and algo alike ignored warnings such as the one from Wells Fargo’s analyst “now is not a time to be buying the dip in stocks.” It’s difficult to fathom that the so-called worst invasion since WW 2 is a buying opportunity, as ZH put it.

Nomura’s Charlie McElligott cleared things up by explaining it this way:

If it’s hedge unwinds, not optimism that is driving this, it may leave us open to pullback thereafter unless flows sustain.

Roundtripping in a wild fashion was Crude Oil, which exploded to over $100 but gave back most of its gains. Gold followed suit and reversed its early advances by losing the $1,900 level.

Bond yields enjoyed the rollercoaster ride as well but, while serving as a “safe haven” first (lower yields), then spiking and thereby covering an unusual broad trading range.

Makes you wonder if tomorrow will bring joy or revulsion.