Stocks are looking to bounce back on Friday, but there are some risks going into a holiday weekend and potential news from the Federal Reserve today. In fact, there’s a debate that investors may be more fearful of the Fed than it is of the tensions around Russia and Ukraine. Ahead of the three-day President’s Day weekend, investors may see a lower volume day or at least see volumes diminish as the day matures and traders take off early.
Speaking of diminishing, equity index futures were pointing to a higher open early in premarket trading but have pulled back from overnight highs. Just before the open, equity index futures turned negative. Futures could be pulling back on the rising tensions in Eastern Europe; however, oil prices are creating a conundrum because they’re down another 1.75% in premarket trading, which is the opposite of what investors would expect during contentious times with large oil-producing countries.
Perhaps the negativity reflects investors feeling a little risk averse going into a three-day weekend. With the geopolitical risks, it’s likely that many investors won’t want to hold riskier investments over the holiday.
There is some good news this morning around the Russia-Ukraine tensions: United States Secretary of State Antony Blinken has agreed to meet with Russia’s foreign minister next week if there’s no invasion.
At some point today, the Fed Monetary Policy report will be submitted to Congress. The Federal Reserve Act requires the Federal Reserve Board to submit written reports semiannually to the Senate Committee on Banking, Housing, and Urban Affairs, as well as the House Committee on Financial Services. Outside of the report, Chicago Fed President Charles L. Evans is scheduled to speak. Investors will be interested to see how much support or resistance St. Louis Fed President James Bullard has in his push for an aggressive Fed policy.
Stocks fell hard in response to rising tension over Russia and Ukraine. The White House continues to warn of an imminent threat of Russian invading Ukraine and has pointed to several factors that could make invasion easier. However, financial news pundits are debating on what signals the market are making in relation to the rising tension. While stocks are falling and gold is spiking, there appears to be room for skepticism from some analysts.
The United States and its allies continue to express concerns over Russian troops and troop movements. They’re seeing similarities between the way Russia is stacking troops along the Ukrainian border and the way it positioned troops before taking over Crimea in 2014. The Russian troop buildup coincides with 45,000 Russian troops performing military exercises in neighboring Belarus, which, according to the Guardian, adds even more troops in the area.
The sell-off was orderly and on lower volume, which some financial pundits argue is a sign that the sell-off was more about revaluing stocks and less about geopolitical risk.
Another confusing market signal is coming from oil prices. Russia and Ukraine are big players in petroleum and unrest should cause big issues for oil supplies. However, oil prices have fallen the last three days in a row, dropping nearly 6%. Thursday’s falling oil price could be a result of talks between the United States and Iran that could remove some sanctions on Iran that would allow them to start selling oil outside of their borders in the near future.
Debaters are also pointing to currencies. The Russian ruble weakened against the U.S. dollar on Thursday, which some see as a sign of concern as investors flee warring countries because of the weakness in a currency that often comes with war. However, the ruble has appreciated against the dollar most of the month and is about 5% off its January low.
Finally, when expecting a conflict, investors often move into safe harbors like Treasuries and gold. On Thursday, there did appear to be some bond buying because the 2-year and 10-year Treasury yields (TNX) are off their three-year highs. The 10-year yield has dropped back below 2%. Treasury yields were down a little more in premarket trading. Perhaps the better point comes gold futures, which spiked 1.52% on Thursday and have rallied more than 6% in the past month. Gold has pulled back 0.15% this morning in premarket action.
The S&P 500 (SPX) declined 2.12% on the day, the Nasdaq Composite ($COMP) fell 2.88%, and the Dow Jones Industrial Average ($DJI) dropped 1.78%. Thursday ended up being the worst day for the year for the Dow. Investors focused on selling growth as the S&P 500 Pure Growth Index fell 3.10%. Blue-chip stocks Walmart (WMT) and Cisco (CSCO) were able to swim upstream thanks to strong earnings reports. WMT rose 4% on the day, while CSCO rallied 2.80%.
Investors got defensive with consumer staples staying in the green most of the day. Companies that are needed in all economic conditions were able to rally. For example, Coca-Cola (KO) and Procter & Gamble (PG) closed 2% and 1.15% higher respectively. Utilities were also able to close in the green, while all other sectors closed in the red. Technology, consumer discretionary, and financial stocks were worst performers.
A few stocks are moving this morning. DraftKings (DKNG) is moving in the wrong direction for many investors, dropping nearly 14% in premarket trading. It reported earnings, better-than-expected revenues, and a smaller-than-expected loss. While the company did raise its projected revenues, it failed to raise its projected EBITDA as high as analysts were estimating. To make matters worse, the company appears to be quickly burning through cash too. While you have to spend money to make money, cash is king especially during difficult times.
Industrial and farm equipment manufacturer, Deere (DE), reported better-than-expected earnings and revenue prompting the stocks to rally about 1% in premarket trading. DE also raised its 2022 guidance.
On Thursday, lithium miner Albemarle (ALB) dropped 19.79% after reporting a miss on revenue despite better-than-expected earnings. Investors appeared to be concerned that the ALB is burning through its cash at a high rate. In 2020, ALB used $51.6 million, but in 2021, it used $609.5 million.
A couple of stocks fell hard ahead of their earnings reports that are schedule after the close. Roku (ROKU) fell 9.4% ahead of its earnings announcement and then fell another 7.39% after the bell. ROKU reported better-than-expected earnings but missed on revenues. The company warned of ongoing supply chain disruptions. To make matters worse, the company’s press release directed investors to its website that soon crashed, according to Barron’s.
Real estate platform Redfin (RDFN) also sold off 6.13% ahead of its earnings report and then fell another 10.89% after its report. The company did report better-than-expected earnings and revenues.
CHART OF THE DAY: BREAKING POINTS. S&P 500 futures (/ES—candlesticks) broke support at the 200-day … [+]
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.
TD Ameritrade® commentary for educational purposes only. Member SIPC.