Back From the Brink

By Connor Smith |  Thursday, February 24 The Invasion. After days of speculation and warnings from U.S. intelligence officials, Russia invaded Ukraine. President Vladimir Putin has said his goal is to topple the government in Kyiv. Multiple outlets reported airstrikes in major cities and a Russian capture of the Chernobyl nuclear plant. U.S. equities initially sank on Thursday. The Dow Jones Industrial Average shed as much as 859.12 points, while the Nasdaq Composite briefly fell into bear market territory for the first time since 2020. But, led by a rebound in tech, the three major indexes managed to close in the green. The Nasdaq Composite, which was down more than 3% at its low, closed up 3.3% and snapped a five-trading-day losing streak. With Microsoft and Salesforce.com contributing more than 90 points a piece, the Dow finished up 92.07 points, or 0.28%, despite falling 2.6% earlier in the day. The S&P 500 index closed up 1.5%. The Cboe Volatility Index—Wall Street's fear gauge—initially surged before closing 2.3% lower. Barron's Jack Denton and Jacob Sonenshine wrote that though WTI crude oil initially rose more than 7%, it pared gains to 1.3% at just over $93 a barrel: The price of oil dropped as President Biden spoke Thursday, but he didn’t announce any sanctions on Russian oil. That’s one reason stocks rebounded. It wasn’t just tech stocks. While most cyclical stocks fell, the Industrial Select Sector SPDR Fund (XLI) managed to gain 1.3%. Stocks have already been under pressure in the last few weeks—the Dow is down 3% in the past month—because of the potential oil sanctions. For now, markets breathed a small sigh of relief when Biden declined to announce oil sanctions. “We’re seeing sell the rumor buy the news,” said Tom Essaye, founder of Sevens Report Research. “This [Biden speech] could have been more draconian.”  Still, the Energy Select Sector SPDR exchange-traded fund fell 0.8%. Barron's Avi Salzman wrote that some energy investors were surprised by the move, since they thought energy stocks would rally. But in general the consensus was that most stocks in the market were falling, and that energy was just part of the risk-off move. That’s especially true given that energy stocks were rising heading into the conflict. Hedge funds that had added them in recent weeks were suddenly compelled to lighten their load. “What we think is happening is with volatility increasing, essentially all hedge funds are de-grossing across the board,” said David Heikkinen, a managing director at the Houston-based asset manager Pickering Energy Partners. Investors who had been holding energy stocks in ETFs are selling, and that is hurting the underlying stocks, wrote Truist Securities analyst Neal Dingmann in an email. That doesn't mean Wall Street is out of the woods yet. Investors will be watching Russia's invasion, and the broader geopolitical implications. Plus—if you haven't forgotten—concerns about rising interest rates and inflation persist.

 

DJIA: +0.28% to 33,223.83 S&P 500: +1.50% to 4,288.70 Nasdaq: +3.34% to 13,473.59 The Hot Stock: Enphase Energy +16.4% The Biggest Loser: EPAM Systems -8.6% Best Sector: Technology +3.4% Worst Sector: Consumer Staples -1.7%