The market was quite weak during yesterday's trading session, as fighting escalated in Ukraine. Traders bid up the prices of oil and natural gas and sold off companies that rely heavily on that fuel for their operations, such as airlines, cruise ships, and the travel industry in general. Additionally, financial companies took a hit, as bond yields declined. Selling occurred throughout the session, and by the end, the indices were near their daily lows. All told, the Dow Jones Industrial Average finished off 598 points, the S&P 500 was lower by 68 points, and the NASDAQ dropped 219 points. Market breadth was weak, as decliners outpaced advances by a 1.5-to-1.0 ratio. Energy issues were among the best performers on the day, aided by a strong rise in the related commodities, while financial issues were among the worst, hurt by higher stock volatility and lower bond prices. This may be the case once again today.
Meantime, the futures market continued to rebound after the trading session until President Biden gave the State of the Union Address. Traders noted that additional sanctions and the announcement of the U.S. closing its airspace to Russian planes might prove headwinds for economic growth. Relatedly, the President announced that the U.S. strategic oil reserve would release 60 million barrels of oil to quell price increases; despite this, energy stocks remained amongst the top performers. Ultimately, the futures markets recovered this morning and indicate a higher opening to trading stateside. Several regional Fed governors will give remarks in the morning, and U.S. Fed Chairman Powell will testify to a U.S. House committee. These remarks may drive trading in the early portion of today’s session.
In commodity news, oil prices rose above $110 per barrel this morning, as traders think supply and demand will remain out of sync due to the war in Ukraine and the retaliatory sanctions by the United States and its NATO allies. Indeed, a wide variety of countries levied additional sanctions against Russia over the past few days, which will reduce the places where it can ship its oil and gas production. This, along with news this morning that OPEC+ does not plan to increase its daily production of crude oil, will further exacerbate the global supply shortage. Meanwhile, U.S. Treasury bond yields continue to fall as traders move into the safe-haven assets. The 10-year Treasury bond yield declined to under 1.70% yesterday, as buying was strong throughout the session. This move lower was much bigger than any trade session in the recent past. Elsewhere, the CBOE Volatility Index (VIX) rose, as traders demanded more options protection. A higher VIX usually signals greater potential price volatility in the days ahead.
Over the next few days, several economic reports are slated for release. These include initial jobless claims and the Institute for Supply Management’s Services index on Thursday, as well as nonfarm payrolls on Friday. This morning, we learned from Automatic Data Processing (ADP) that private sector payrolls rose by 475,000 last month, coming above the expectation of around 400,000. However, the January figure was revised from a decline of 305,000 to a gain of 509,000 positions. Elsewhere, several earnings reports are slated for release in the coming days, including after the closing bell today. However, it will slow in the days ahead as we head into the tail end of the fourth-quarter earnings season. Overall, we think traders will be looking for any developments in the situation in Ukraine, as well as Federal Reserve Chairman Powell's testimony.
– John E. Seibert III
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.
