Stocks rallied yesterday after it appeared that the Russian tensions with Ukraine were deescalating. Producer prices surged beyond economists’ estimates, but markets shrugged off the miss.
Cooling or fooling? Can you hear it? Sure, you can, that is the saber rattling that is going on between Russia…and most of the rest of the world. It is not your average run-of-the-mill threat, however. Russia has amassed over 100k troops in strategic positions around neighbor Ukraine. Not just warfighters but lots of warfighting gear…and blood plasma, just in case. That seems like a very elaborate charade for a world power seeking some security concessions from its western neighbors. Russia is not just a world power from a military perspective. From an economic output perspective, Russia is not even in the top 10, so besides the military, what could it be? Russia is the 3rd largest producer of oil in the world, behind the US and Saudi Arabia. That alone guarantees that the world, along with its neighbors and biggest customers must take its threats seriously. Did you honestly believe that the energy sector was no longer relevant?
It is pretty clear that the ROW, that is the Rest of World, is not keen on having a military conflict with Russia. So, how then can you keep a disturber of the peace in line without using bombs? Economic sanctions, of course. With oil and natural gas making up roughly 60% of the country's exports, disrupting it would seem like the most logical way to punish the would-be transgressor. That would certainly hurt Russia in the pocketbook, but there would also be consequences for the rest of us. As mentioned above, Russia is the 3rd largest energy producer in the world. Take away that supply and you get…sorry to say this…price inflation in energy. In case you haven’t noticed, all those trucks delivering goods to warehouses, lined up at ports, and delivering your Amazon.com packages, still use gas or diesel fuel. All the roads which will be repaired over the next several years are still mostly made of asphalt, an energy biproduct. Plastic? Yes, that too. Even your chapped lips are at risk…yep, petroleum jelly. I am sure I don’t have to get too deep with examples to show just how important energy is to industry. My regular readers know that I like using the line “oil IS the oil of industry,” and assuming that you agree with me, the price of oil can have a material impact on the global economy. Yesterday’s Producer Price Index (PPI) showed that Unprocessed Energy Materials grew by +50.93% from a year ago! That number includes Russia’s unfettered access to global energy markets. If that access becomes restrained by economic sanctions, you can just imagine the pressure it could have on industry. It is now quite clear that companies are willing to pass on their rising costs to consumers in order to maintain the healthy margins. Increased costs, therefore, are likely to mean increased prices to us consumers. So, if you are wondering why markets were elated when news hit the tape that Russia has ordered some troops back to their bases and is willing to engage in diplomacy, now you know. You also know why crude oil prices fell by some -3.5% yesterday. Of course, we are not quite out of the woods yet and world leaders have reacted to Russia’s overtures cautiously, making statements WHILE YOU SLEPT. They warn that the threat of invasion is far from over. In other words, when you fill your car up today and it only costs you $95… don’t take it for granted.
WHAT’S SHAKIN’
Generac Holdings Inc (GNRC) shares are higher by +2.64% in the pre-market after the company announced that it beat EPS and Revenue estimates by +5.30% and +4.47% respectively. The company additionally provided strong forward Revenue guidance for 2022. Potential average analyst target upside: +68.1%.
ViacomCBS Inc (VIAC) is trading lower by -10.11% in the pre-market after it announced that it missed EPS estimates. Its streaming service added more new subscribers than analysts were targeting. In the past 30 days 38% of analysts have revised their price targets, 1 up, 9 down, 14 unchanged, and 2 dropped coverage. Dividend yield: 2.67%. Potential average analyst target upside: +21.9%.
Analog Devices Inc (ADI) shares are trading higher by +2.68% in the pre-market after it announced that it beat EPS and Revenue estimates by +8.99% and +3.14% respectively. The company also announced a roughly +10% dividend increase, making it the 19th raise in 18 years. Dividend yield (before raise) 1.88. Potential average analyst target upside: +29.1%.
ALSO, this morning: Kraft Heinz (KHC), Charles River Labs (CRL), and Crocs (CROX) all beat on EPS and Revenues. Hilton Worldwide (HLT) missed EPS targets but exceeded Revenue expectations.
YESTERDAY’S MARKETS
Stocks rallied yesterday on news that trouble between Russia and Ukraine may be calming. The S&P500 rose by +1.58%, the Dow Jones Industrial Average climbed by +1.22%, the Nasdaq Composite Index added +2.53%, the Russell 2000 advanced by +2.76%, and the S&P500 ESG Index traded higher by +1.65%. Bonds pulled back and 10-year Treasury Note yields climbed by +6 basis points as traders unwound their safety trades. Crypto advanced by +6.46% and Bitcoin climbed by +4.14%.
NXT UP