Reports of rising tensions between Russia and Ukraine slammed U.S. stocks on Friday and lifted prices for oil and safe-haven assets including U.S. Treasuries and gold, as investors already rattled by a hawkish turn from the Federal Reserve digested a potentially more serious conflict in Eastern Europe. The TSX escaped trading with a modest gain, supported by the rally in commodity prices.
Geopolitical worries have added another layer of volatility to an already-jumpy market as investors priced in the possibility of escalating conflict between Russia and Ukraine, though some doubted the issue would weigh on U.S. asset prices over the longer term.
“The market is reacting because an actual invasion has not yet been priced in,” said Michael Farr of Farr, Miller and Washington LLC. “The severity of an invasion, if one occurs, will correlate to the severity of the market’s reaction.”
Russia has massed enough troops near Ukraine to launch a major invasion, Washington said on Friday. It urged all U.S. citizens to leave the country within 48 hours after Moscow further stiffened its response to Western diplomacy.
White House national security adviser Jake Sullivan said it remained unclear whether Putin had definitively given the order to invade, and that he expected U.S. President Joe Biden to press for a phone call soon with his Russian counterpart.
Despite Friday’s market gyrations, some investors were skeptical whether a more serious conflict could be a drag on broader markets over the longer term.
“The reaction the market is likely to have is selling until it becomes more evident what an invasion looks like and then what kind of response U.S. and European allies have to it,” said Mark Luschini, chief investment strategist at Janney Montgomery Scott. “We’re not suggesting making any changes predicated on the news cycle around the topic.”
The benchmark S&P 500 index closed down nearly 1.9% while the tech-heavy Nasdaq was off around 2.8%. The moves followed weakness on Thursday sparked by expectations that the Fed will become more hawkish to fight surging inflation. The Cboe Volatility Index, known as Wall Street’s fear gauge, was up for a second straight session and hit its highest level since the end of January.
Worries over the conflict will “create volatility until people verify it’s true and what is the duration before international leadership steps in and to what extent does the rest of the world step in,” said Thomas Hayes, managing member at Great Hill Capital LLC in New York.
“We just have to see how this plays out over the weekend and whether or not international leadership can bring this under wraps,” he said.
The Toronto Stock Exchange’s S&P/TSX composite index ended up 17.12 points, or 0.1%, at 21,548.84. For the week, it was up 1.3%, its third straight weekly advance.
“Everyone is looking for places to go to hide,” said Greg Taylor, portfolio manager at Purpose Investments. “Toronto is looking like a pretty good situation with energy up a lot ... and then today we’ve got the golds kicking in.”
The energy sector advanced 3.6% as the escalating Ukraine tensions added to concern about tight supply in the oil market. U.S. crude oil futures settled 3.6% higher at $93.10 a barrel.
The materials group, which includes precious and base metals miners and fertilizer companies, was up 3.4% as gold attracted safe-haven demand. It touched its highest level in nearly three months at $US1,865.15 per ounce.
Auto parts maker Magna International fell 6.4% after the company said that disruptions at the Ambassador bridge caused by Canadian trucker protests against coronavirus mandates have started to have some initial impact on its operations.
Consumer discretionary shares lost 3.2% and technology ended 2.8% lower.
On Wall Street, nine of the 11 major S&P 500 sector indexes declined, led by technology, down 3.0%, and consumer discretionary, down 2.8%. The energy sector index surged 2.8%.
Nvidia Corp tumbled 7.3%, Amazon.com Inc dropped 3.6%, and Apple Inc and Microsoft Corp both lost over 2%. The four companies weighed more than any others on the S&P 500′s decline.
U.S. exchanges were busy, with 13.4 billion shares changing hands, compared with a 12.6 billion average over the last 20 trading days.
Wall Street’s latest sell-off follows a slump on Thursday, when data showed consumer prices surged 7.5% in January, the biggest annual increase in 40 years. Comments from St. Louis Fed Bank President James Bullard about aggressive rate hikes have also rattled investor sentiment.
For the week, the S&P 500 fell 1.8% and the Nasdaq shed 2.2%.
Traders are pricing in a half-point rate hike in March with just a scant chance of a smaller quarter-point raise, and heavy bets for a policy path that would bring rates to a range of 1.75%-2.00% by the end of the year.
“If the Ukraine is attacked, it adds more credence to our view that the Fed will be more dovish than the market currently believes as the war would make the outlook even more uncertain,” said Jay Hatfield, chief investment officer at Infrastructure Capital Management in New York.
A University of Michigan survey showed U.S. consumer sentiment fell to its lowest in more than a decade in early February on expectations that inflation would continue to rise in the near term. (Full Story)
The CBOE volatility index, also known as Wall Street’s fear gauge, was up for a second straight session and hit its highest level since the end of January.
Online real-estate platform Zillow Group Inc jumped 12.7% after beating Wall Street estimates for quarterly sales, boosted by an 11-fold revenue increase in its homes segment.
Under Armour Inc slumped 12.5% after warning that its profit margin would be under pressure in the current quarter.
Declining issues outnumbered advancers on the NYSE by a 2.40-to-1 ratio; on Nasdaq, a 2.54-to-1 ratio favored decliners. The S&P 500 posted 15 new 52-week highs and 13 new lows; the Nasdaq Composite recorded 40 new highs and 208 new lows.
The yield on 10-year Treasury notes was down 8 basis points to 1.949% on Friday, losing its grip on the 2% level, as traders snapped up safe-haven bonds. Bond yields move opposite to their prices.
Reuters, Globe staff
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