Week in Review: Russian invasion drives volatile action
The stock market made a huge comeback this week, initially selling off on a worsening Russia-Ukraine situation, then rallying on optimism that the situation won’t have a material impact on the economy.
The S&P 500 ended the week with a 0.8% gain after being down as much as 5.4% from last Friday’s close. The Nasdaq Composite (+1.1%) and Russell 2000 (+1.6%) each gained over 1.0% after being down as much as 7.1% and 5.7%, respectively. The Dow Jones Industrial Average lost 0.1% after being down 5.3% intraweek.
Russia invaded Ukraine after receiving a host of sanctions from the U.S., UK, and EU that clearly weren’t inhibitory to Russia’s plans. Notably, after the invasion, the U.S. did not sanction Russia’s oil and gas exports, nor did it block Russia’s access to the SWIFT financial system.
By week’s end, it seemed that Russia was close to completing its “special military operation” after entering Kyiv and saying it’s ready to send a delegation to Minsk to hold diplomatic talks with Ukraine. Russia’s RTS Index might have tanked 33% amid all the sanctions, but the U.S. market acknowledged that inflation might not directly worsen as initially feared.
Eight of the 11 S&P 500 sectors closed higher, paced by the defensive-oriented health care (+2.7%), real estate (+2.7%), and utilities (+2.0%) sectors. The consumer discretionary (-2.2%), consumer staples (-0.3%), and financials (-0.3%) sectors closed lower.
The retracement in commodity prices corroborated the inflation hopes. Notably, WTI crude futures settled higher by just 0.4% to $91.59/bbl after briefly topping $100.00/bbl after the Russian invasion.
That’s not to say that the market is in the clear regarding inflation. The PCE Price Index, which is the Fed’s preferred inflation gauge, rose 0.6% m/m in January, leaving it up 6.1% on a year-over-year basis.
The 2-yr yield rose 12 basis points to 1.59% on continued expectations for the Fed to hike rates at least six times in the near term. The 10-yr yield rose six basis points to 1.99%. The U.S. Dollar Index rose 0.5% to 96.54.
Source: Briefing Investor