Close: Geopolitical noise drives volatile price action

The S&P 500 lost 0.7% on Tuesday in a volatile session driven by geopolitical headlines. The Nasdaq Composite (-0.3%) and Dow Jones Industrial Average (-0.6%) joined the benchmark index in negative territory, while the Russell 2000 (+0.6%) closed higher.

Nine of the 11 S&P 500 sectors closed lower, including the defensive-oriented consume staples (-2.6%), health care (-2.1%), and utilities (-1.6%) sectors at the bottom of the standings. The energy (+1.4%) and consumer discretionary (+0.1%) sectors closed higher.

The stock market struggled out of the gate, as oil prices flirted with $130 per barrel in anticipation of the U.S. banning energy imports from Russia. On a related note, the UK and EU said they would phase out their Russian energy imports this year, but the UK said it was still exploring options for a ban on gas imports.

Soon after President Biden announced the ban, stocks carved out a bottom and then rallied to session highs amid a report indicating that Ukraine was no longer insisting on NATO membership.

The S&P 500 went from a 0.7% intraday decline to a 1.8% intraday gain. Crude futures pared gains and settled at $123.76/bbl (+$4.49, +3.8%).

The rally off the lows was likely driven by short-covering activity from investors caught off guard by the market’s sell-the-rumor, buy-the-fact response. Unfortunately, the gains didn’t last long because the market turned negative after reports indicated that President Putin was going to ban the export of certain products and raw materials from the Russian Federation until Dec. 31.

The volatile price action frustrated investors, but at least the Treasury market communicated a more consistent message through its steady rise in yields. Namely, the Russia-Ukraine situation is expected to exacerbate inflation pressures via supply chain disruptions and, in turn, force the Fed to react with tighter monetary policy.

The 2-yr yield rose nine basis points to 1.63%, and the 10-yr yield rose 12 basis points to 1.87%. The U.S. Dollar Index decreased 0.2% to 99.06.

For what it’s worth, nickel prices soared at the London Metal Exchange (LME) on Tuesday, more than doubling at one point to exceed $100,000 per metric ton. While that gain was pared some, the LME suspended trading for the rest of the day.

Reviewing Tuesday’s economic data:

  • The trade deficit widened in January to $89.7 billion ( consensus -$87.5 billion) from a downwardly revised $82.0 billion (from -$80.7 billion). Exports were $3.9 billion less than December exports and imports were $3.8 billion more than December imports.
  • The key takeaway from the report is that it marked the third straight month of a widening deficit, underscoring weakening trade activity related to the Omicron variant and ongoing supply chain disruptions. In the same period a year ago, the trade deficit was $65.1 billion.
  • Wholesale inventories increased 0.8% in January, as expected, following a revised 2.6% increase (from 2.2%) in December.
  • The NFIB Small Business Optimism Index for February decreased to 95.7 from 97.1 in January.

Looking ahead, investors will receive the JOLTS - Job Openings report for January and the weekly MBA Mortgage Applications Index on Wednesday.

  • Dow Jones Industrial Average -10.2% YTD
  • S&P 500 -12.5% YTD
  • Russell 2000 -12.6% YTD
  • Nasdaq Composite -18.2% YTD


  • Europe: DAX -0.0%, FTSE +0.1%, CAC -0.3%
  • Asia: Nikkei -1.7%, Hang Seng -1.4%, Shanghai -2.4%


  • Crude Oil +4.49 @ 123.76
  • Nat Gas -0.30 @ 4.57
  • Gold +50.80 @ 2047.30
  • Silver +1.00 @ 26.76
  • Copper -0.01 @ 4.74