Stocks fell yesterday as tensions rose to another highpoint with Russia’s Monday night incursion into Ukraine. Consumer confidence has hit a low with impending interest rates, inflation, and geopolitical unrest.
Guns a-blazin’. You could feel the tension in the markets yesterday. Putin did the expectedly unexpected and ordered his troops into two break-away regions in Ukraine, upping his wager in a dangerous geopolitical game. Stock investors, while they are surely concerned about the well-being of the Ukrainian citizens, they are most concerned with the economic impacts of Western sanctions. No, Ukrainian self-determination and free elections are not topping the wish lists of stock investors. If the G7 nations unite against Russia…“hold on, wasn’t it G8 nations at one time,” you ask? It sure was. After behaving for a number of years, Russia was admitted into the G7 in 1997…until it misbehaved in 2014 with its annexation of the Crimea and got the boot. So, G8 – 1 = G7, which includes the US, United Kingdom, Germany, France, Italy, Japan, and Canada. It is a powerful club which represents some 50% of the world’s wealth, so when the group throws its weight behind something, it is meaningful. Yesterday many of those members were quite vocal in their opposition of Russia’s aggression. Germany halted the approval process for the Nord Stream 2 gas pipeline, the UK announced sanctions against several Russian banks and froze accounts of 3 oligarchs, while the US severed dollar-based banking ties with Russia, outlawed the trading of Russian sovereign debt, and froze the assets of “several individuals” with ties to the Kremlin. Japan and Canada made it clear that they would stand united with the G7 in a second, harsher round of sanctions should the situation worsen. The EU separately, is expected to add a list of sanctions on Russia in the coming days. This first tranche of sanctions is more severe than those imposed on Putin after his first adventure into Ukraine in 2014 but it comes just short of putting curbs on Russia’s energy exports. This first round of punishments will surely have a longer-term impact on the Russian economy, but any penalties exacted on its energy output would leave a more immediate and painful impression. The problem with that, is that energy sanctions would also have a negative impact on the global economy. With rising energy costs being a big contributor to US and EU inflation, further price pressure could make matters far worse. Here is a fun fact that might surprise you. Last May the US imported some 26,000 barrels of crude oil and petroleum products from Russia…the largest ever monthly haul. Russian oil accounts for 7% of US crude imports making it the US’s third largest import partner behind Canada and Mexico. The US is the largest consumer of oil globally, making up around 20% of global daily demand, which simply means that any disruptions in crude oil supply is likely to have an impact on the US. While it would be nice to hit Russia where it hurts, in the wallet, it will likely hurt your wallet as well. Both President Biden and Vladimir Putin are well aware of this reality. So, if you are pondering an image of the 2 world leaders with guns pointed at each other’s heads waiting for the first to flinch, it would be more appropriate to erase the guns and replace them with bags of cash and barrels of oil. Wondering why there is tension in the markets? Wonder no further and hope that cool heads prevail.
WHAT’S SHAKIN’
Lowe’s Cos Inc (LOW) shares are higher by +2.62% in the pre-market after it announced that it beat EPS and Revenue estimates by +4.68% and +2.13% respectively. The company also provided an upbeat full year guidance to 2022. Dividend Yield: 1.49%. Potential average analyst target upside: +29.3%.
Quest Diagnostics Inc (DGX) shares are trading lower by -2.11% in the pre-market after being downgraded to NEUTRAL by UBS. In the past 30 days 53% of analysts have changed their price targets 0 up, 8 down, and 7 unchanged. The company announced earnings earlier this month and beat on both EPS and Revenues. Dividend Yield: 2.02%. Potential average analyst target upside: +17.3%.
The Mosaic Co (MOS) is lower by -5.11% in the pre-market after it announced last night that it missed both EPS and Revenue estimates for the 4th quarter. The fertilizer manufacturer warned of ongoing supply chain constraints and reminded us that potential sanctions on Russian ally Belarus could have a material impact on potash, a critical ingredient in the company’s product. Dividend Yield: 1.01%. Potential average analyst target upside: +11.1%.
YESTERDAY’S MARKETS
Stocks fell in response to increased tensions in eastern Europe. The S&P500 fell by 1.01%, the Dow Jones Industrial Average traded lower by -1.42%, the Nasdaq Composite Index gave up -1.23%, the Russell 2000 slid by -1.45%, and the S&P500 ESG Index declined by -1.03%. Bonds fell and 10-year Treasury Note Yields gained +1 basis point to 1.93%. Cryptos fell by -7.00% and Bitcoin advanced by +2.20%.
NXT UP