Can The 200-Day Moving Average Hold Under Rising Russian Tension And Negative Economic News?

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(Thursday Market Open) Equity index futures were pointing to a slightly lower open once again as investors appear unsure where to go next. However, news broke from the U.S. State Department that a Russian attack on Ukraine was imminent. The news caused the futures to slide in premarket trading. Outside of geopolitical tensions, a number of economic announcements and earnings announcements are giving investors plenty to sift through.

The housing market saw a higher-than-expected increase in building permits but lower-than-expected number of housing starts in January. Initial jobless claims came in higher than expected despite an enormous number of job openings. Finally, the Philadelphia Fed Manufacturing Index came in well below its projected number. The mostly bearish economic news failed to push equity futures lower.

The S&P 500 futures appear to be attracted to the 200-day moving average like magnet. The futures dropped on the Russian attack news but halted at the moving average. With the Cboe Market Volatility Index (VIX) slightly higher and oil prices and the 10-year Treasury Yield (TNX) lower, it’s difficult to determine a direction for the day.

Moving on to earnings announcements before the market open, Walmart (NYSE: WMT) reported higher-than-expected earnings and revenues prompting the stocks to rally 2.64%. The company was able to defy supply chain disruptions and wage increases to achieve record sales in the United States. Additionally, WMT increased its dividend.

After the close on Wednesday, semiconductor makers Nvidia (NASDAQ: NVDA) and Applied Materials (NASDAQ: AMT) reported better-than-expected earnings and revenues. However, the stocks went different ways in extended-hours trading. NVDA fell 1.72% despite reporting a 53% increase in quarterly revenues and a 69% increase in revenues. AMAT rallied more than 4% because the company is seeing large demand for its chip-making machines.

Sticking with technology stocks, Cisco (NASDAQ: CSCO) also beat on top and bottom line numbers, causing the stocks to rally 4.52% in after-hours trading. The networking and software giant increased revenue 6% from a year ago. CSCO also increased its 2022 fiscal year revenues and earnings outlook. The company also announced plans to expand its $18 billion stock repurchase program by an additional $15 billion. However, it did not comment on published reports that the company was looking to acquire Splunk (NASDAQ: SPLK).

Wednesday’s Action

The day after the Nasdaq Composite ($COMP) rode a surge in growth stocks to lead stocks higher, the index led stocks lower. The Nasdaq dropped 1.45% on Wednesday as the relief rally appeared to run out of steam. However, it rallied throughout the day to close down just 0.11%. Stocks rallied on Wednesday when news that Russia was already in the process of pulling some troops back from the Ukrainian border. However, there are no confirming reports providing evidence that this is true.

The Federal Open Market Committee (FOMC) meeting minutes were released during Wednesday’s afternoon trading session. The minutes revealed an outline from Fed officials for plans to hike interest rates and a reduction of the Fed’s balance sheet. Many committee members were pushing for a measured approach, but they did acknowledge that inflation was spreading beyond pandemic-affected sectors and into the broader economy.

Stocks immediately pulled back after the FOMC minutes but then rallied. The rally not only took stocks off their daily lows but helped the S&P 500 (SPX) close in positive territory. Investors have been beleaguered by St. Louis Fed President James Bullock publicly pushing for a more aggressive approach to raising interest rates, but the minutes appeared to reflect a more tempered committee as whole. Thus, the Cboe Market Volatility Index (VIX) dropped below 25 once again.

One stock of note was Generac (NYSE: GNRC), which rallied more than 14% after beating earnings estimates and reaching $1 billion revenue for the first time in company history. The company saw large demand driven by “mega trends” of extreme weather have consumers setting up their homes with standby generators.

High Interest in Inflation

Oil futures tried to bounce back on Wednesday, rallying about 3.25% in the morning. However, oil prices fell from these highs to close 2.18% lower on the day. Oil prices appeared to pull back after the Energy Information Administration (EIA) released its Weekly Petroleum Status Report. Crude oil inventories came in higher than expected, which suggests that there has been less demand for oil. With that said, inventories are still about 10% below their five-year average for this time of the year.

While yesterday’s hotter-than-expected Producer Price Index (PPI) went relatively unnoticed with the market rally, bond investors were still paying attention. The 10-year Treasury Yield (TNX) is testing levels not seen since the summer of 2019. The TNX closed at 2.047% on Wednesday, which is a new 52-week high.  

CHART OF THE DAY: INFESTATION? Gold futures (/GC—candlesticks) have exhibited weakness over the last two years when compared to the S&P 500 using a relative strength indicator (green). However, gold appears to be gaining some ground on stocks, which many gold bugs may view as a bullish signal. Data Sources: ICE, S&P Dow Jones Indices. Chart source: The thinkorswim® platform. For illustrative purposes only. Past performance does not guarantee future results.

Contracting the Gold Bug: Gold futures bounced back from yesterday’s sell-off to rally 0.71%. With the recent turmoil between Russia and Ukraine, gold has rallied more than 4.5% off its January bottom. Additionally, the precious metal has strengthened as the U.S. Dollar Index has weakened in the last two weeks.

Gold miner Barrick (GOLD) topped earnings estimates and revealed plans to introduce a variable dividend that is linked to debt levels. This could result in a dividend yield of about 3% according to Barron’s. Barrick’s rival company Newmont (NEM) already offers a variable dividend. Barrick rallied 7.5% on the earnings and dividend news. Barrick appeared to boost other gold stocks because the AMEX Gold Bugs Index rallied 3.33% on Wednesday.

TD Ameritrade® commentary for educational purposes only. Member SIPC.

Featured image sourced from Pixabay

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