"Russian oil will no longer be accepted at U.S. ports and the American people will deal another powerful blow to (Russian President) Putin's war machine."
- President Joe Biden
Going It Alone, Almost
A pen had rolled off of the desk and lay there on the floor. For quite a while. A sharp wind blew through an abandoned playground in a tough neighborhood that long ago echoed that laughter of children and the chatter of neighbors. A puddle at the end of the street appeared to almost beautifully display the many colors of the rainbow, streaked with used motor oil. Oil. Oh yeah. The time had come.
The Biden administration had been debating within. Pressure had come from U.S. legislators, a famously divided branch of government in quite bilateral fashion. Finally, after days of stalling, a ban that could be expected to push higher U.S. and global energy prices that were already at their peaks, would be placed on Russian oil and gas. The U.S. banned all Russian "product", while the UK agreed to phase out the import of said Russian product by the end of the year. The EU would not be participating.
For a little background, Russia was the world's largest exporter of crude oil and petroleum products, shipping out, at least as of 2021, almost 8M barrels per day. Sixty percent of Russia's energy exports end up in Europe, with a rough 20% in China. The U.S. accounts for about 8% (combining commodities and refined derivative products), while the UK just 2% or so.
The president was cordial, but blunt. Biden said... "We're moving forward with this ban, understanding that many of our European allies and partners may not be in a position to join us. But we're working closely with Europe and our partners to develop a long-term strategy to reduce their dependence on Russia as well." The president added that defending freedom would bring with it increased costs to American consumers in the form of higher energy prices, while warning companies against price gouging.
For his part, Ukrainian President Volodymyr Zelensky tweeted out, "Thankful for US and @POTUS personal leadership in striking in the heart of Putin's war machine and banning oil, gas, and coal from the US market. Encourage other countries and leaders to follow."
Tuesday's Markets
The anticipation of, reality of, and lack of action across NATO and the EU caused wild moves across U.S. financial markets. Equities mounted three sharp sell-offs and two rather aggressive rallies over the course of six and a half hours. Crude oil soared, then cooled off. U.S. Treasury securities sold off. Gold rallied dramatically. As far as equities were concerned, at the index level, Tuesday looked for the most part, like a "down" day, but on positive breadth and elevated trading volume. What the heck does that mean? Good question.
The S&P 500 closed down 0.72% for the regular session after being up as much as 1.8% early in the afternoon in New York. The Nasdaq Composite surrendered just 0.28% after having traded almost 2.6% higher at one point. The smaller the cap size, the better the outcome. For the day, the S&P Midcap 400 gained 0.36%, while the Russell 2000 scored an increase of 0.6%.
Winners beat losers by a tiny margin at both the NYSE and Nasdaq. Advancing volume took a 63% share of all NYSE-listed composite trading and a 58% share of Nasdaq-listed trading. All on intense aggregate trading volume. That volume increased on Tuesday from a very active Monday for names domiciled at both of New York's primary equity exchanges. S&P 500 subordinate names put together their heaviest trading day in aggregate this month and their second heaviest trading session of 2022. Ditto for Nasdaq Composite subordinate names.
As far as sector performance is concerned, nine of the 11 S&P sector SPDR ETFs closed Tuesday in the red. Of course, Energy (XLE) was your leader, up 1.2%. That has become the norm of late. Beyond that, however, the script was flipped from Monday. The four defensive sectors that had held their own on Monday, finished in places 8 through 11 on Tuesday with both Healthcare (XLV) and Staples (XLP) giving up more than 2%. Discretionaries (XLY) that were pummeled on Monday, actually showed some green (+0.21%) on Tuesday.
Wednesday Morning
Most readers have likely noticed that markets have been on the move through the wee hours. European equities are trading notably higher. U.S. equity index futures are responding to increased demand. It's still very early, several hours until the bell rings at 11 Wall Street, but U.S. Treasuries remain under pressure, as does for the first time in a few days... gold. Bitcoin, and other cryptocurrencies are suddenly back in favor.
What gives? As far as cryptos are concerned, Treasury Secretary Janet Yellen accidentally posted a statement to the Treasury Department website on Tuesday night (dated March 9th) addressing an Executive Order concerning the cryptocurrency space that President Biden has not issued just yet. (Guessing the president will be issuing that order today.) The order apparently will balance the need for regulation and consumer protection while leaving room for innovation and comes off less severe than many investors in cryptocurrencies had feared.
More Importantly...
As far as equities, futures and debt securities are concerned, the movement seems to be a reaction to an interview that Ukrainian President Zelensky did with ABC News, where concerning NATO membership, he says "I have cooled down regarding this question a long time ago after we understood that... NATO is not prepared to accept Ukraine." Zelensky added, "The alliance is afraid of controversial things, and of confrontation with Russia."
Elsewhere, UK Prime Minister Boris Johnson said that Ukraine had no "serious prospect" of NATO membership. Readers will recall that earlier this week, Russian President Vladimir Putin appeared to back off of his hardline stance of demanding complete Ukrainian capitulation and inferred that he would accept a cease-fire should Ukraine recognize Crimea as part of Russia, recognize the Donetsk and Luhansk regions as independent, and amend the national constitution so that applying for membership in either NATO or the EU would be impossible.
Does that mean that peace has a chance? Already two million displaced Ukrainians and thousands left dead for no good reason at all, as well as a nation where much of the infrastructure has been destroyed may or may not be ready for that, nor might be their frustrated invaders... but that is what has markets perked up a bit so early on Wednesday.
The foreign ministers of Ukraine and Russia are set to meet in Turkey this Thursday.
What Kept You Guys?
On Tuesday, a bevy of U.S. multinational corporations finally got around to heading for the exits from doing business in Russia. McDonald's (MCD) is temporarily closing 850 Russian locations as well as 100 Ukrainian locations, while continuing to pay a rough 62K Russian/Ukrainian employees. These stores are corporate owned. Not sure that McDonald's could pull this off if they were franchisees.
PepsiCo (PEP) suspended soda sales in Russia, and may or may not write off the value. Coca-Cola (KO) halted Russian operations. Amazon (AMZN) announced that its cloud computing business would stop accepting new customers inside both Russia and Belarus. Lastly, Starbucks' (SBUX) licensed partner agreed to pause activity at 130 locations inside Russia.
Hot Potatoes
In a bizarre case of "nobody wants to be responsible", Poland agreed to make its 29 Soviet made MiG-29 fighter jets available to the U.S. to then be transferred to the Ukrainian Air Force. Poland would provide the MiGs free of charge with the expectation that their numbers could be replaced with Lockheed Martin's (LMT) F-16 fighter jets, as the Polish Air Force flies both, but the Ukrainian Air Force does not and Ukrainian pilots can fly MiG-29's without undergoing additional training.
The problem appears to be that the U.S. seems to have been surprised by this announcement, apparently not expecting that the Poles would expect the U.S. to be a middleman in this transfer. The Pentagon does not see "substantive rationale" for having Polish jets intended for Ukraine at a U.S. base, involving the U.S. military specifically and the NATO alliance more broadly. The Poles, quite understandably, do not want to be seen as acting alone on this and want the broader involvement of their allies.
Quite simply, what this is, is sloppy performance at the diplomatic level. There should never have been any room for misunderstanding here, and now, key decisions will have to be made concerning these fighter jets that the Ukrainian Air Force desperately needs, and those decisions will have to be made in plain view of both the public, U.S. allies, and U.S. adversaries.
In other embarrassing news, both Saudi Arabia and the UAE appear to be dodging calls from the White House as the Biden administration is apparently reaching out to OPEC leadership in an attempt to make up for Russia's reduced role in global energy markets.
Corporate News
- MongoDB (MDB) is up 12% in overnight trading as the firm reported a Q4 adjusted loss that was far smaller than Wall Street had expected on revenues greater than Wall Street had expected. Year over year sales growth of 56% was good for a fourth consecutive quarter of acceleration. Looking ahead, MongoDB expects to lose less money on an adjusted basis for the current quarter than Wall Street is looking for, again on sales greater than expected. Even accounting for this morning's 12% move (last sale: $316), MDB stands 46.4% below the stock's November high of $590.
- General Electric (GE) disclosed late Tuesday that the firm's board had authorized a $3B share repurchase program "as one of a number of potential capital allocation alternatives on an ongoing basis, along with organic and inorganic investments." The news comes as GE prepares to split into three distinct companies.
It's Not Because I Don't Love Them...
...But, I think it may be time to at least take some cash out of some of my energy and defense names, without exiting any of these names in full. This run has been incredible, and these stocks have worked their magic, offsetting other more difficult positions on my book... but the move has gone parabolic. That does not mean that the party is necessarily over, but this is unsustainable in the medium to long-term.
Readers know that I have already tapped LMT twice in little more than a week, so I can leave that one alone, but Northrop Grumman (NOC) is trading back near target this morning. I can't let that pass. As for my energy names... Chevron (CVX) and APA (APA) are probably ripe, while I think I'll save Civitas (CIVI) for another day as that one is still attempting to break out of a long basing period of consolidation.
Economics (All Times Eastern)
10:00 - JOLTs Job Openings (Jan): Last 10.925M.
10:00 - JOLTs Quits (Jan): Last 4.3M.
10:30 - Oil Inventories (Weekly): Last -2.597M.
10:30 - Gasoline Stocks (Weekly): Last -468K.
13:00 - Ten Year Note Auction: $34B.
The Fed (All Times Eastern)
Fed Blackout Period.
Today's Earnings Highlights (Consensus EPS Expectations)
Before the Open: (CPB) (.68)
After the Close: (CRWD) (.20)
(AMZN and SBUX are holdings in the Action Alerts PLUS member club. Want to be alerted before AAP buys or sells these stocks? Learn more now.)
