Stocks remain under pressure as the Ukraine crisis roils the global economy, spreading uncertainty at a key time in the post-pandemic recovery. Still, some positives have emerged.
The S&P 500 dropped 1.3 percent between Friday, February 25, and Friday, March 4. It was the index’s third negative week in the last four, continuing a slide that began shortly after the start of 2022. The Nasdaq-100 and Dow Jones Industrial Average also fell, but the Dow Jones Transportation Average rallied more than 1 percent.
Russia’s invasion of Ukraine, plus widespread sanctions by the West, have created several issues for investors. First, commodities had their most tumultuous week in recent memory. Crude oil, copper and corn had some of their biggest jumps of the century. (Wheat set a record, up 40 percent.) Other products like coal, iron ore and aluminum also surged.
|Biggest Gainers in the S&P 500 Last Week|
|Occidental Petroleum (OXY)||+45%|
|Constellation Energy (CEG)||+16%|
Second, the price spikes could complicate the Federal Reserve’s plans to gradually raise interest rates. How much lasting inflationary damage has been done? Will Jerome Powell be forced to play catch-up, and do so at a time of potentially lower confidence?
Third, the geopolitical crisis has sent investors scrambling for the safety of longer-dated Treasuries. Those falling rates at the 10- and 30-year maturities, combined with expected rate hikes in the overnight market, are flattening the yield curve. It’s potentially bad news for banks and financials that profit from the difference between short- and long-term rates.
Strong Economic Data
Finally, the Ukraine conflict comes at a time of accelerating economic growth in the U.S. Non-farm payrolls just had their biggest gain since July, beating forecasts and pulling the unemployment rate lower than expected. Jobless claims also beat estimates, and pent-up demand for goods pushed the Institute for Supply Management’s manufacturing index above consensus. While that kind of news is positive, it remains a headwind for the high-multiple growth stocks dominating the market. (Last week the Nasdaq-100 fell 1.2 percentage points more than the S&P 500.)
Financials and technology were the worst-performing sectors last week, with subgroups like semiconductors and banks leading the downside. Commodity-related names were the best performers: steelmakers, oil drillers, fertilizer companies and gold miners.
Defense contractors like Northrop Grumman (NOC) and L3Harris Technologies (LHX) jumped amid the increased the military tensions. Railroads like Norfolk Southern (NSC) and CSX (CSX) rallied amid strong demand for coal — one of their key cargos.
Last week also brought some potentially bearish fundamental news, according to FactSet. The research firm noted that Wall Street analysts forecast earnings will grow just 4.8 percent in the first quarter — the least since the fourth quarter of 2020. Factset also noted that twice as many companies have issued bearish guidance than positive.
Charting the S&P 500
As cited last week, the S&P 500 is fighting a bearish trendline that began in January. The index briefly pushed above it on Thursday but quickly retreated. Buyers then defended the support zone around 4290 from early October and late January. The next potentially important level could be around the January low of 4223.
Despite the negative backdrop, the bulls have some potential arguments in their favor. First, strength in the Dow Jones Transportation Average is providing non-confirmation of the broader market’s lows. Next, sentiment surveys (sometimes a contrary indicator) have shown high levels of pessimism. Third, market breadth has improved as the Advance-Decline line inches higher and more companies make new 52-week highs.
The Week Ahead
This week is quieter than last, although there are still a handful of scheduled events. Unscheduled developments in Europe are likely to remain dominant — especially if Western nations officially boycott Russian crude oil.
|Biggest Decliners in the S&P 500 Last Week|
|EPAM Systems (EPAM)||-48%|
|IPG Photonics (IPGP)||-24%|
Today is quiet. Apple (AAPL) holds an event at 1 p.m. ET tomorrow, where CEO Tim Cook is expected to unveil lower-cost iPhones and a new iPad.
Crude-oil inventories are due Wednesday morning.
The consumer price index inflation report follows on Thursday, along with initial jobless claims.
Consumer sentiment is the final event on Friday morning.