March Opening Like A Lion As Equity Index Futures Fall And Oil Futures Rise

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(Tuesday Market Open) The S&P 500 futures bounced around before the opening bell, trading in the positive and the negative. Overall, equity index futures were more negative than positive as a 40-mile-long convoy of Russian military vehicles heads to the Ukrainian capital of Kyiv, and Ukraine’s second largest city of Kharkiv is bombed and invaded by Russian troops. The actions are causing crude oil futures to spike 5.47% before the bell.

Investors are moving into safe havens as gold futures are up about 1%, and the 10-year Treasury yield (TNX) is down a staggering 4.3% with the yield at 1.762% ahead of the open. The TNX is now trading around April 2021 highs as bond prices rise.

Many investors are eyeballing the 4,300 support level on the S&P 500 (SPX) that held three times in last nine months. Last Thursday the level was broken, but the bulls pushed the index back above support before the day was out. The Cboe Market Volatility Index (VIX) has risen 6.87% this morning and is back above 32.

Stocks were mixed overseas with the European Stoxx 600 falling 1.9%, the German DAX down 2.7%, but the Japanese Nikkei rose 1.2%. Additionally, bitcoin rallied 3.54% overnight as the cryptocurrency tries to bounce back from the 30% decline from its November high. Bitcoin futures are trading near its February high around $45,000.

Despite the Russian invasion and spiking oil prices, earnings season goes on. Before Tuesday’s open, retailer Target (TGT) announced better-than-expected earnings on lower-than-expected revenues. Despite the miss on revenues, Target provided an upbeat outlook that prompted the stock to rally more than 10% in premarket trading.

Another retailer, AutoZone (AZO), beat on top and bottom line numbers, and rose 2% ahead of the bell. AZO reported 32% growth in commercial sales and opened 25 new stores last year.

After Monday’s close, a number of well-known stocks reported earnings. Starting with pandemic favorite, Zoom (ZM). ZM announced that it beat on profits and revenues but fell 11% in extended-hours trading. ZM offered a lower outlook for revenue and earnings guidance for its 2022 fiscal year. The company projected little growth for the next year, but it still announced a $1 billion stock buyback program.

Business software company, Workday (WDAY), reported better-than-expected earnings and revenue, prompting the company to rally more than 5% in after-hours trading. The company saw “an unexpected acceleration” in business, leading to a 21.6% increase in revenues.

A couple of electric vehicle makers also announced earnings. Lucid Motors (LCID) missed on top and bottom line numbers. Additionally, the company lowered its production guidance from 20,000 cars per year to just 14,000 per year; the company is having trouble getting the quality of ingredients needed for items like glass for windshields, and it doesn’t want to sacrifice quality for quantity. However, LCID is looking to build another plant in Saudi Arabia. Canoo (GOEV) also reported earnings after the close and missed profit estimates by reporting a bigger-than-expected loss. GOEV dropped 8.89% in after-hours trading.

Ruble Trouble

Stocks fell on Monday in part because last Thursday and Friday saw such an intense and impressive comeback but also on the news that Russian President Vladimir Putin appears to be gearing for more action. Over the weekend, President Vladimir Putin put Russia’s nuclear forces on high alert as Ukraine saw increased military support from its western allies. However, Russian and Ukrainian officials met at the Russian-Belarusian border to start peace talks on Monday despite the convoy.

Additionally, Russia is experiencing increased sanctions as a growing number of countries are blocking Russian banks and businesses from using the Society for Worldwide Interbank Financial Telecommunications (SWIFT), which makes it difficult for Russian companies to do business with foreign entities. However, according to Briefing.com, companies that deal in energy are not being removed.

The Russian ruble continued to plummet against the U.S. dollar despite the Bank of Russia more than doubling its interest rate from 9.5% to 20%. The ruble has lost more than 25% of its value against the U.S. dollar since Russia started making threats against Ukraine back in September 2021. The Bank of Russia plans to release about $7 billion worth of bank reserves to help unsecured consumers and mortgage loans. The Russian finance ministry said it would require companies to sell 80% of their foreign currency holdings.

Banking on Trouble

European banks were falling as investors try to determine their exposure to Russia. Barclays (BCS), HSBC (HSBC), Credit Suisse (CS), UBS (UBS), and Banco Santander (SAN) fell 4.35%, 4.77%, 1.90%, 3.77%, and 5.08% respectively. Many of these banks do a lot of business in eastern Europe and may suffer from a Russian contagion.

The Russian contagion could eventually hit U.S. bank stocks too, but currently, they have smaller risk. Nonetheless, U.S. bank stocks did fall as investors drove yields lower by buying up bonds to add a degree of safety in their portfolios. The 10-year Treasury yield (TNX) fell 7.4% as bond prices were rising. The PHLX Bank Index fell 1.31% on the day, led by Citigroup (C), which dropped 4.5%.

As one might expect, the aerospace and defense stocks were among the biggest gainers on the day. The S&P Aerospace & Defense Select Sector Industry Index rallied 4.55% on the news that the White House asked Congress for $6.4 billion to help Ukraine. BAE Systems (BAESY), Northrop Grumman (NOC), and Lockheed Martin (LMT) were among the top performers rising 8.71%, 7.93%, and 6.67% respectively. The group helped the industrials sector finish just behind the energy sector on Monday.

Energy was the top-performing sector with the Energy Select Sector Index rising 2.55%. It was helped by a 4.62% rise in crude oil futures. However, crude was trading much higher overnight, rising about 7.8%. While oil prices have been volatile during the Russian invasion, the closing price is only about 1% higher from where they were in the middle of February. 

CHART OF THE DAY: SURGING DEFENSE. The S&P Aerospace & Defense Select Index (SPSIAD—candlesticks) underperformed the S&P 500 (SPX—blue) and the Industrials Select Sector Index ($IXI—pink) over the previous year and made it back into positive territory on Monday. Data Sources: ICE, S&P Dow Jones Indices. Data Sources: ICE, S&P Dow Jones Indices. Chart source: The thinkorswim® platform. For illustrative purposes only. Past performance does not guarantee future results.

Buffett Insights: CEO of Berkshire Hathaway (BRK/A) and one of the richest people in the world, Warren Buffett, released his annual shareholder letter. In the letter, Mr. Buffett offered some interesting insights in to how he approaches investing. First, he said he’s not finding good places to invest money because of poor long-term prospects. Apparently, Mr. Buffett prefers cash to making an investment that doesn’t meet his criteria.

According to Barron’s, Mr. Buffett is also willing to be 100% in equities. While Berkshire does currently hold some fixed income right now, it’s very small compared to other insurance companies. In his letter to shareholders, Mr. Buffett talked about keeping 80% of his net worth in equities but that he prefers to be at 100%. Currently, Berkshire’s insurance asset allocation is roughly 75% stocks, 21% cash, and 4% bonds.

Mr. Buffett also told investors that it’s not enough to just know what to buy, but an investor should also know under what conditions to sell. While he’s not one to advocate timing the market, it does advocate controlling risk in a portfolio and trimming exposure when necessary to maintain a target allocation.

These are just a few insights from the world’s most famous investor. It may be worth your while to check out the letter for yourself and see what other insights you can garner from it.

Image sourced from Unsplash

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