Equity index futures bounced back off their lows in the wake of early news as Russian President Vladimir Putin ordered troops into two regions of Ukraine. The Donetsk and Luhansk regions have tried to break away from Ukraine, and on Monday, the Russian parliament voted to recognize these regions. Then on Tuesday, Putin order troops into the regions.
In response to the actions, U.S. President Joe Biden signed an executive order that prohibits new investment from the United States into the new regions. He and Putin have agreed “in principle” to meet later this week.
Other world leaders are condemning the actions by Russia. German Chancellor Olaf Scholz and French President Emmanuel Macron said they had spoken with Putin and were disappointed in his action. Scholz said Germany would not certify the Russian Nord 2 oil pipeline into Europe. Russia has been pushing the pipeline for some time and had found an ally with Germany despite opposing pressure from many in the European Union.
Asian markets were much lower on the news as China avoided taking sides on the matter. Instead, China emphasized the importance of every country’s sovereignty.
Oil prices have been quite volatile already on the news, rallying 4.8% and falling as much as 1.65% in premarket trading. Oil futures were trading a little more than 3% higher before the open. Many investors may be looking to gold as a safe harbor. Gold futures were trading 0.38% higher ahead of the open but have also experienced a lot of volatility. Also, ahead of the open, the 10-year Treasury yield was actually 0.36% higher, which suggests investors aren’t looking very hard for safe harbors and may see little threat of escalation in Eastern Europe. However, the Cboe Market Volatility Index (VIX) is up nearly 6% and is around 32.
Outside of geopolitical developments, earnings season moves forward as retailers start to take center stage among those reporting. Home Depot (NYSE:HD) announced better-than-expected earnings and revenues, but the stock fell more than 3% in premarket trading despite the company raising its dividend.
Department stores Macy’s (NYSE:M) and Dillards (NYSE:DDS) also reported earnings. Macy’s beat on top and bottom line estimates and provided a fiscal year outlook above what analysts were expecting. The stock rallied more than 6% in premarket trading. Dillard’s was also able to beat on both metrics and rally 8.33% in premarket trading.
Friday’s Action
Stocks failed to bounce back from Thursday’s sell-off as many investors looked to unload riskier assets ahead of an extended-holiday weekend. With many in the White House looking at Feb. 20 as the next likely day for Russia to invade Ukraine, it makes sense that investors wouldn’t want to hold riskier assets over the President’s Day weekend. However, markets did rally from their intraday lows and trimmed some losses.
All major indices closed lower on the day. The S&P 500 fell more than 1%, nearing its January lows around the 4300 level. However, the benchmark index rallied off its lows to close 0.73% lower. The Dow Jones Industrial Average nearly matched the SPX, closing 0.69% lower. The Nasdaq Composite had the biggest intraday rally by closing lower at 1.27% after being down nearly 1.8%.
Oil prices ended its three-day slide on a volatile day of trading. WTI crude futures closed 0.6% higher. Throughout the week, falling oil prices took the energy sector down off its perch as the top-performing sector of 2022, at least for a weak. The Energy Select Sector Index closed the week about 1.9% lower. Consumer staples were assumed the crown this week as investors looked to get a little more defensive. The Consumer Staples Select Sector Index returned about 0.85% for the week and was the only positive sector.
As investors ready themselves for a new week of trading, they must realize that the Russia-Ukraine issue probably isn’t going to go away soon. Russia isn’t happy about Ukraine possibly joining the North Atlantic Treaty Organization (NATO) and the prospect of NATO armaments and troops potentially being set up along another of its borders. NATO member nations aren’t backing down and are sending reinforcements into the area looking to help offset the 190,000 Russian troops that were reported by The New York Times.
CHART OF THE DAY: FINDING SUPPORT. S&P 500 Index (SPX—candlesticks) is nearing 4300 level (yellow), which has been support three times in the last nine months. Data Sources: ICE), S&P Dow Jones Indices. Chart source: The thinkorswim® platform. For illustrative purposes only. Past performance does not guarantee future results.
Reading The Tape: Before the Thursday’s market open, S&P 500 futures were sitting atop the 200-day moving average. However, once the price penetrated the moving average, more sellers appeared to join in, driving the contract lower. The next level of support was the 4400 level, which coincided with an important level in two of the previous three days. However, 4400 was penetrated going into the close, which brought another group of sellers in. Traders could be looking for 4300 as the next level of support because it was able to hold until the end of January.
Disclaimer: TD Ameritrade® commentary for educational purposes only. Member SIPC. Options involve risks and are not suitable for all investors. Please read Characteristics and Risks of Standardized Options.