Financial Pundits Debate Market Signals Related To Russia-Ukraine Tensions

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(Thursday Market Close) Stocks fell hard in response to rising tension over Russia and Ukraine. The White House continues to warn of an imminent threat of Russian invading Ukraine and has pointed to several factors that could make invasion easier. However, financial news pundits are debating on what signals the market are making in relation to the rising tension. While stocks are falling and gold is spiking, there appears to be room for skepticism from some analysts.   

The United States and its allies continue to express concerns over Russian troops and troop movements. They’re seeing similarities between the way Russia is stacking troops along the Ukrainian border and the way it positioned troops before taking over Crimea in 2014. The Russian troop buildup coincides with 45,000 Russian troops performing military exercises in neighboring Belarus, which, according to the Guardian, adds even more troops in the area.

CNBC has reported that the White House has pointed to other factors that could lead to the invasion. One is the Olympic backdrop that is similar to when Nazi Germany attacked during the Munich Olympics. Another is the advantage of winter, which provides frozen terrain that would make invasion easier because ground troops can move on solid footing.

Additionally, the White House is concerned that Russia will use a “false flag” strategy where it finds an excuse for the invasion. U.S. Secretary of State Antony Blinken appeared before the United Nations and suggested that recent Russian-backed separatist attacks in the Ukraine could be false flag incidences.

Russia has denied the threat of invasion. On Monday, Russian Foreign Minister Sergei Lavrov suggested there was still a diplomatic way out of the current situation. Then on Tuesday, Russian President Vladimir Putin said that he had already started withdrawing troops from the area and that troops in Belarus are schedule to leave February 20.  

Ukraine officials have also downplayed the invasion reports. On Friday, Ukrainian Foreign Minister Dmytro Kuleba said that there was “nothing new” from the United Kingdom or the United States. Then on Monday, Ukraine President Zelensky was not taking the threat seriously when attempting to be “tongue in cheek” when he claimed that Russia would be attacking on February 16 and that he would declare it a national holiday, according to Briefing.com.

Action and Reaction

Stocks have sold off hard on the news with the S&P 500 (SPX) declining 2.12%, the Nasdaq Composite ($COMP) falling 2.88%, and the Dow Jones Industrial Average ($DJI) dropping 1.78%. Thursday ended up being the worst day for the year for the Dow. Investors focused on selling growth as the S&P 500 Pure Growth Index fell 3.10%. Blue-chip stocks Walmart (WMT) and Cisco (CSCO) were able to swim upstream thanks to strong earnings reports. WMT rose 4% on the day, while CSCO rallied 2.80%.

Investors got defensive with consumer staples staying in the green most of the day. Companies that are needed in all economic conditions were able to rally. For example, Coca-Cola (KO) and Procter & Gamble (PG) closed 2% and 1.15% higher respectively. Utilities were also able to close in the green, while all other sectors closed in the red. Technology, consumer discretionary, and financial stocks were worst performers.

Debating the Tea Leaves

The sell-off was orderly, which some financial pundits argue is a sign that the sell-off was more about revaluing stocks and less about geopolitical risk. Another confusing market signal is coming from oil prices. Russia and Ukraine are big players in petroleum and unrest should cause big issues for oil supplies. However, oil prices have fallen the last three days in a row, dropping nearly 6%. Thursday’s falling oil price could be a result of talks between the United States and Iran that could remove some sanctions on Iran that would allow them to start selling oil outside of their borders in the near future.

Another point of contention is over currencies. The Russian ruble weakened against the U.S. dollar on Thursday, which some see as a sign of concern as investors flee warring countries because of the weakness in a currency that often comes with war. However, the ruble has appreciated against the dollar most of the month and is about 5% off its January low.  

Finally, when expecting a conflict, investors often move safe harbors like Treasuries and gold. On Thursday, there did appear to be some bond buying because the 2-year and 10-year Treasury yields (TNX) are off their three-year highs. The 10-year yield has dropped back below 2%. Perhaps the better point comes gold futures, which spiked 1.52% on Thursday and have rallied more than 6% in the past month.

On the Ground

Throughout the day, lithium miner Albemarle (ALB) dropped 19.79% after reporting a miss on revenue despite better-than-expected earnings. Investors appeared to be concerned that the ALB is burning through its cash at a high rate. In 2020, ALB used $51.6 million, but in 2021, it used $609.5 million.

A couple of stocks fell hard ahead of their earnings reports that are schedule after the close. Roku (ROKU) fell 9.4% ahead of its earnings announcement and then fell another 7.39% after the bell. ROKU reported better-than-expected earnings but missed on revenues. The company warned of ongoing supply chain disruptions. To make matters worse, the company’s press release directed investors to its website that soon crashed, according to Barron’s. 

Real estate platform Redfin (RDFN) also sold off 6.13% ahead of its earnings report and then fell another 10.89% after its report. The company did report better-than-expected earnings and revenues. 

CHART OF THE DAY: BREAKING POINTS. S&P 500 futures (/ES—candlesticks) broke support at the 200-day moving average (blue) and the 4400 level (yellow). Data Sources: ICE, S&P Dow Jones Indices. Chart source: The thinkorswim® platform. For illustrative purposes only. Past performance does not guarantee future results.

Reading the Tape

Before the Thursday’s market open, S&P 500 futures were sitting atop the 200-day moving average. However, once the price penetrated the moving average, more sellers appeared to join in, driving the contract lower. The next level of support was the 4400 level, which coincided with an important level in two of the previous three days. However, 4400 was penetrated going into the close, which brought another group of sellers in. Traders could be looking for 4300 as the next level of support because it was able to hold until the end of January.

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

Image sourced from Pixabay

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