Sell the rumor, buy the war?
Sounds ridiculous, right?
Regardless of how bizarre that sounds and feels, that's how it looked. Financial markets around the globe had felt the pressure going into the Thursday session in North America, and trading in the Western Hemisphere started out under that same pressure as well. The Nasdaq Composite, in particular, had been down 3.5% for the day at its low and down more than 20% from the November high for that index, which is supposed to signify a bear market (although that textbook definition is really a relic at this point, left over from another, slower, more well thought out market model). Instead, the S&P 500 closed up 1.5% for the regular session, making our broadest large-cap equity index something of a laggard, as the Nasdaq 100 scored an increase of 3.44%, the Nasdaq Composite mentioned above closed up 3.34%, the Russell 2000 tacked on 2.67% and the Dow Transports ramped 2.09%.
The risk-on reversal was far broader than that, as equities only tell part of the story. Just an FYI, equity index futures are acting a bit wobbly as the wee hours pass. West Texas Intermediate (WTI) crude traded above $100 per barrel on Thursday morning and just above $92 overnight. WTI already has traded in a range of more than $2 in very early Friday trading. The US Ten-Year Note had paid as little as 1.85% early Thursday and almost as much as 1.98% by Thursday night. The VIX traded below 30 late Thursday after printing above 37 earlier. All this, while futures trading in Chicago has priced out for the most part any single 50-basis-point rate hike at one time until November.
Market tides appeared to turn for the better after US President Joe Biden announced new sanctions targeting Russian banks and some elites in response to Russian President Vladimir Putin's multi-pronged invasion of Ukrainian soil. Some folks believe the US president steadied the marketplace through showing at least some reaction. Many others felt that keyword-reading algorithms simply responded to sanctions that do not approach the level of severity that had been expected.
The US president did cut off Russia's five largest banks while restricting exports of both semiconductors and aircraft components and did take measures to make it more difficult to do business or clear trades in US dollars.
However, expected but missing from the US list were sanctions on energy-based commodity exports or stocks of aluminum, both of which would have done the Russian economy more harm but possibly also harmed US consumers. In addition, Russia was not banned from the Belgian international payments system SWIFT that links more than 11,000 financial institutions. Apparently, Europe was not all-in on a SWIFT ban, and to be honest, sanctions that do not include energy, aluminum or SWIFT are little more than words and will deter nothing.
While there is thought that cutting Moscow off from SWIFT and from transacting in US dollars, British pounds, euros or Japanese yen could put as much as a 5% dent in Russian GDP, the counter-thought is that such a move could push Russia further into China's sphere of influence. Both nations have long been wary of dollar-denominated commodity and debt markets and have been openly creative in seeking alternatives that they see as beneficial.
On the Ground
By all accounts, mostly unconfirmed, the Ukrainian military, though vastly out-gunned, is performing about as well as could possibly be expected. Guess that's what happens when one is forced to defend one's home. On Friday morning, Russian forces appear to have reached the suburbs of the Ukrainian capital city of Kyiv as fighting at the capital city's Hostomel airport remained intense. The airport changed hands several times over on Thursday, involving airborne and air assault assets, as well as guided missiles. The account reminds the armchair historian of "The Wheatfield" at Gettysburg.
Ukraine's defense ministry is acknowledging 137 KIA (killed in action) on day one with over 400 wounded. The ministry is also claiming to have taken out seven Russian fixed-wing aircraft, six helicopters and at least 30 tanks. Anywhere between 450 Russian soldiers (British intelligence) and 800 (Ukrainian estimate) had lost their lives on the first day, with Soviet forces failing to achieve any single major objective at that point.
NATO will hold an emergency meeting of the leadership of all 30 member nations on Friday in order to discuss the invasion. Can't wait to see what lightning level of genius comes out of this get-together.
On That Note...
Food for thought: Turkey is a NATO member and Turkey by rights of the Montreux Convention in 1936 governs both the Bosphorus and Dardanelles straits that allow for passage between the Mediterranean and Black seas. The Convention allows that nations at war may not use these straights for passage. Should NATO decide that Russia is a nation at war, Turkey could by rights, with the support of the US, UK, France and Canada, decide that Russian naval vessels may not pass into or out of the Black Sea via that route. Hmmm...
Does the Thursday rally cancel the call that ended the overall market rally attempt beginning with the Jan. 24 intraday reversal? Are US equity markets in correction? The answer, or my answer, because anyone can be wrong, is that this is a different market now... so yes. I mean, no. That attempted rally is over, and we are in a new period, less driven for the short term by the trajectory of monetary policy, sustained economic growth and corporate earnings, though those remain the longer-term drivers. For now, the entire ballgame is based on headline risk, or in reality, the algorithmic reaction to how headlines are worded. So be careful, journalists.
The rally was led by tech. The Technology sector SPDR ETF (XLK) gained merely 3.42% on Thursday, which is deceptive. The Dow Jones US Software Index increased 5.83% on Thursday, while the Dow Jones US Internet Index, which is part of the Communications Services (XLC) sector, gained 4.64%. The Philadelphia Semiconductor Index picked up an even 3.7% for the session.
On Thursday, winners beat losers by roughly 4 to 3 at the New York Stock Exchange and by about 3 to 2 at the Nasdaq. Advancing volume took a 51.8% share of the aggregate for NYSE listed stocks and an incredible 78% of said aggregate for Nasdaq-listed names. That said, aggregate trading volume increased 28.5% for NYSE stocks on Thursday from Wednesday and an even 25% for Nasdaq stocks. Interestingly, Thursday was the heaviest trading day for subordinates in aggregate of both the S&P 500 and Nasdaq Composite since Jan. 24. In short, the pros bought a lot of stock on Thursday. I just don't know how many humans participated in making those decisions.
On Defense Contractors...
Yes, I wrote the piece on Thursday focusing from a technical perspective on Sarge names Lockheed Martin (LMT) and Northrop Grumman (NOC) . I remain long those two names and neither disappointed, up 1.75% and 2.44% respectively, for the session.
However, the top two performing names in the Dow Jones US Defense Index (+2.6%) were longtime Sarge fave Kratos Defense (KTOS) , an unmanned military aircraft (drones) specialist that ran 21.74% on Thursday after not responding to a positive earnings release on Tuesday, and RADA Electronics (RADA) , an Israeli defense contractor focused on providing mounted tactical radars for military vehicles as a subcontractor as well as for other purposes; it ran 11.74%.
Kratos is a midcap name that has also worked alongside the larger firms on the development of hypersonic weapons. RADA is a small-cap name and a current holding of the "Stocks Under $10" portfolio.
Economics (All Times Eastern)
08:30 - Durable Goods Orders (Jan): Expecting 0.5% m/m, Last -0.9% m/m.
08:30 - ex-Transportation (Jan): Expecting 0.4% m/m, Last 0.4% m/m.
08:30 - ex-Defense (Jan): Expecting 0.1% m/m, Last 0.1% m/m.
08:30 - Core Capital Goods (Jan): Expecting 0.5% m/m, Last 0.0% m/m.
08:30 - Personal Income (February): Expecting -0.3% m/m, Last 0.3% m/m.
08:30 - Consumer Spending (February): Expecting 1.5% m/m, Last -0.6% m/m.
08:30 - PCE Price Index (February): Expecting 6.0% y/y, Last 5.8% y/y.
08:30 - Core PCE Price Index (February): Expecting 5.1% y/y, Last 4.9% y/y.
10:00 - U of M Consumer Sentiment (March-F): Flashed 61.7.
10:00 - Pending Home Sales (Jan): Expecting 1.1% m/m, Last -3.8% m/m.
13:00 - Baker Hughes Oil Rig Count (Weekly): Last 520.
The Fed (All Times Eastern)
No public appearances scheduled.
Today's Earnings Highlights (Consensus EPS Expectations)
Before the Open: (FL) (1.46), (TREE) (-.09), (PNW) (.05), (SSP) (.51)
After the Close: (PNM) (.32)