Stocks fell last Friday on the recently prevailing fear theme associated with a Russian invasion of Ukraine…which played out in real time over the extended weekend. Growth in the housing market will simply not quit as sales of existing homes spiked in January.
Here’s 2 you 2. I am a numbers person. If you can’t quantify something numerically or statistically, you will have a very slim chance of convincing me of anything. I am that kind of numbers person. There are other types of numbers people who believe that patterns unlock some sort of mysterious force in the universe, causing the probability of an event to increase or decrease. I am not that person, no. However, one cannot deny that there are some peculiarities around certain numeric patterns. You have surely heard me speak of round numbers in the indexes and how markets tend to behave curiously around them. You have also heard me speak of Fibonacci Numbers (see paragraph 2 in an old market note of mine here: Fibonacci numbers explained ) which tend to also serve as market price magnets, sometimes attracting and other times, repelling. So, here we are on February 22nd, 2022, or 2/22/22 as those other numbers people would prefer to write it. Last night, those people were surely thinking that Russia’s incursion into Ukraine was destined to happen on this unique numerical date. It was already the 22nd in far eastern Europe.
The fact of the matter is, that markets had already predicted some sort of trouble in the region long before we turned off our screens after Friday’s close. Hearing the news yesterday as we sat down for dinner here on the east coast of the US, the “#WWIII” hashtag was already at the top of the list of Twitter trends while “Putin” and “Russia” topped the Google search trends leader board. The Fed and what it is going to do in March and beyond have, of course, been a market driver since the beginning of the year, but the Russo-Ukrainian affair pushed those aside in the past 2 weeks. The VIX went from an already elevated 20 to almost 30 in less than 10 days. Crude oil prices climbed more than +2%, natural gas increased by +10.5%, and the S&P500 lost some -5% over the time interval. Although stock investors took the brunt of the pain in the past few weeks, it is still unclear on what the direct impact an invasion might have on stocks themselves.
Apple’s stock has given up -5.09% since the incident took center stage, though it is not likely that the invasion nor any sanctions will impact the number of iPhone’s the company will sell. Apple sold off along with the markets because of fear of the unknown. We know that Russia is likely to be sanctioned as a result of the incursion. Of course, there will be some impounded mega yachts belonging to oligarchs and bank accounts frozen. Though that will certainly mess up vacation plans for a handful of mega wealthy folks, but I am sure that those oligarchs will not forgo an opportunity to upgrade their iPhones. Ok, ok all kidding aside, there is likely to be an impact on energy prices. Russia is the 3rd largest producer of crude oil in the world, and Europe, specifically Germany, is highly reliant on Russian energy. You may have heard about the Nord Stream Pipeline which runs from Russia to Germany under the Baltic Sea. That is the primary delivery vein of Russian gas, and that is likely going to be the target of sanctions. With that amount of energy taken out of the global supply, crude oil prices are sure to race yet higher than their already lofty levels. The rising cost of energy has been a big factor in inflation not only here in the US, but also in the EU, so further increases will only add to the strain. That is the only clear direct impact on the US and EU economies. What is not clear is the magnitude of the sanctions and ultimately what Russia’s next tactical move will be. Once those are known, we can look at the real numbers and determine the potential impacts on economies, and ultimately, stocks themselves. Surely that will work itself out before 3/3/33…11 years from now, when there is a high probability that stocks will be higher.
FRIDAY’S MARKETS
Fears of an impending Russian invasion of Ukraine drove stocks lower on Friday. The S&P500 fell by -0.72%, the Dow Jones Industrial Average slid by -0.68%, the Nasdaq Composite Index dropped by -1.23%, the Russell 2000 Index traded lower by -0.93%, and the S&P500 ESG Index lost -0.78%. Bonds gained and 10-year Treasury Note yields lost -4 basis points to 1.92%. Cryptos dropped by -3.05% and Bitcoin gave up -1.74%.
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