The stock market put in a weak day yesterday. Stocks fell sharply on Tuesday when reports surfaced that Russia escalated the conflict with Ukraine by moving troops into states that it recognized as independent on Monday. This action appears to be the precursor to a larger scale invasion in the coming days.
In reaction, traders sold risky assets. Escalated geopolitical tensions overshadowed solid earnings reports yesterday, with a number of companies posting strong results and issuing good outlooks. However, traders turned their eyes back to the situation in Eastern Europe, and stocks fell throughout much of the day. Selling accelerated when President Biden announced his first set of sanctions on Russia, causing the markets to become oversold. The indices then bounced for a bit in the afternoon before turning lower. All told, the S&P 500 fell 44 points, the Dow Jones Industrial Average declined 483 points, and the NASDAQ was off 167 points. The futures market continued to rise through the night as traders bought back positions, and the numbers remain solidly in the green, suggesting a strong start to the trading day, as investors will probably try to recover a good portion of yesterday's losses.
Yesterday, market breadth was quite negative, as decliners outpaced advancers by a 3.5-to-1.0 ratio. Consumer discretionary stocks were among the worst performers, hurt by fears of economic slowdown related to increased international tensions, and traders, as noted above, reduced their ownership of risky assets. Utility equities were among the best performers, though only on a relative basis.
In commodity news, oil prices rose considerably yesterday, as fears grew about the situation in Europe. Many traders believe that this could reduce the supply of crude from Russia, causing a further supply-demand imbalance and higher prices in the days ahead. Elsewhere, U.S. Treasury bonds were a mixed bag yesterday. Short-term bond yields generally rose, and long-term yields fell. This usually is a negative for financial companies' earnings. The CBOE Volatility Index (VIX) rose, as traders demanded more option protection. This suggests higher expected price volatility in the sessions ahead.
Looking ahead, there will be plenty of economic reports in the coming days. These include initial jobless claims and new home sales on Thursday and the University of Michigan's final consumer sentiment index for February. We will also get the first revision to the fourth-quarter GDP estimate before tomorrow’s opening bell. On the earnings front, several hundred companies are slated to report either after the close today or sometime on Thursday morning. In general, we think that traders will be most interested in the state of the economy, especially given the escalating worldwide geopolitical picture and the likely disruptions to the global oil supplies.
– John E. Seibert III
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.
