U.S. stocks fell again on Friday, 18th February 2022, after whipsawing throughout the week on news related to Russia’s potential invasion of Ukraine.
We began the week on warnings by the U.S that Russia would invade Ukraine within the week. While this did not happen, the U.S. still warns of an imminent invasion that could happen in days. There were comments by the Russians of a withdrawal of troops back to base after some exercises, but the West saw no evidence of the said withdrawals.
On Friday, the U.S. and Russia’s top diplomats agreed to meet next week which gave some relief to the markets. bBut, false reports coming out of Russia on Ukraine attacks put pressure on stocks as the market fears Russia is creating a reason for invading Ukraine. Here are the latest updates on the crisis.
On the other hand, one of the Fed’s most-dovish officials called for a “substantial” policy shift — while playing down the need for aggressive tightening — as a second pushed back against a half-point hike next month.
Also, the Friday’s options expiry may have caused some of the volatility seen near the close.
During this interval, the S&P and Dow fell by 0.7%, while the Nasdaq fell by 1.2%.
Here are the closing levels on Friday, 18th February 2022: –
| Last | Change | %Change | |
| Dow Jones | 34,079.18. | -232.85. | -0.68% |
| S&P 500 | 4,348.87 | -31.39 | -0.72% |
| Nasdaq Comp | 13,548.07. | -168.65. | -1.23% |
| U.S. 10Y | 1.93% | ||
| VIX | 27.75 | -0.36 | -1.28% |
The Russian-Ukraine tensions are not going away anytime soon. All we can hope for is that it does not escalate into war. Markets will continue to monitor any news that comes out from the conflict. So far, it’s been a bad strategy to trade on those news as it is easy to get whipsawed out of the position.
Investors will also be looking for clearer guidance from the Fed. As many analysts are calling for 5,6 or 7 hikes, possibly 50bps in March, the Fed needs to come out and confirm or deny such big moves.
Even if they confirm worst case scenario, analysts believe that clear guidance can stabilise markets and it is even possible for markets to trade higher once they eliminate the element of surprise. This is assuming we continue to project GDP growth of around 4% and S&P earnings to be up 10% for 2022.
On the technical front, this Bloomberg article warns that the Nasdaq has fallen into a Death Cross. This is when the 50-day moving average falls below the 200-day moving average. Usually, it shows a negative technical indicator and suggests a more downside trend.
Having said that, the article also states that “since 1971, there have been 31 death crosses for the Nasdaq Composite”, according to data compiled by Potomac Fund Management. The index rose over the next 21 days 71% of the time, and it was higher six months later 77% of the time”. So, you be the judge.
For now, it just feels like it’s not a good time to be a bull.
Source: CBOE, Bloomberg
This commentary is written by James Gomes
James has been in the finance industry for over 30 years and most recently worked for a large U.S. bank for more than 20 years.
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