Close: Stocks sink initially on Russia concerns, then stage major reversal

The S&P 500 dropped as much as 2.6% on Thursday after Russia invaded Ukraine, but the benchmark index ended the session up 1.5% in a buy-the-dip trade led by the mega-caps/growth stocks.

The Nasdaq Composite rose 3.3% after being down 3.5% intraday. The Russell 2000 rose 2.6% after being down 2.6% intraday. The Dow Jones Industrial Average rose 0.3% after being down 2.6% intraday.

Initially, investors dumped risk assets and flocked into safe-haven assets like Treasuries and gold. WTI crude futures even peaked above $100.00 per barrel. All 11 S&P 500 sectors were trading lower, and Russia’s MOEX and RTS indices tanked 33% and 38%, respectively.

U.S. stocks gradually came back, though, and the rebound bid gathered steam as President Biden announced new sanctions against Russia that weren’t as severe as some were thinking (or hoping).

Notably, the U.S. will limit certain Russian exports but not oil and gas exports. The U.S. will limit Russia’s ability to do business in dollars, euros, pounds, and yen, but it will allow Russia to still use the SWIFT financial system. President Putin was not sanctioned.

The most beaten-up stocks – including the mega-caps – in the S&P 500 information technology (+3.5%), communication services (+3.1%), and consumer discretionary (+2.5%) sectors helped lift the market into positive territory. The Vanguard Mega Cap Growth ETF ( MGK 222.02, +7.14) rallied 3.3%.

Conversely, the consumer staples (-1.7%), financials (-1.2%), energy (-0.9%), and materials (-0.3%) sectors were the four sectors that still closed lower.

The Russia-Ukraine situation could still get worse, but the comeback in stock prices, the retracement in oil prices ($92.80, +0.68, +0.7%), and the decreased demand for Treasuries provided investors reasons to lighten up.

In the Treasury market, the 2-yr yield declined six basis points to 1.54% after touching 1.46% overnight. The 10-yr yield declined one basis point to 1.97% after touching 1.84% overnight. The U.S. Dollar Index rose 0.9% to 97.03. Gold futures rose 0.9% to $1926.60/ozt but turned negative after the settlement time.

Separately, Cleveland Fed President Mester (FOMC voter) acknowledged that the geopolitical landscape will play a role in determining the appropriate pace of removing accommodation. That’s to say if the situation worsens inflation, the central bank could double down with its tightening plans, but if not, then the Fed might be more forgiving. Time will tell.

Reviewing Thursday’s economic data:

  • New home sales decreased 4.5% month-over-month in January to a seasonally adjusted annual rate of 801,000 units ( consensus 805,000) from an upwardly revised 839,000 (from 811,000) in December.
  • The key takeaway from the report is the recognition that the sale of lower-priced homes has decelerated, likely due to less supply and affordability pressures. That is leading to higher-priced homes accounting for a larger percentage of new homes sold, which is driving up both median and average selling prices.
  • Initial jobless claims for the week ending February 19 decreased by 17,000 to 232,000 ( consensus 240,000) and continuing claims for the week ending February 12 decreased by 112,000 to 1.476 million – the lowest level since March 14, 1970.
  • The key takeaway from the report is that initial claims are at a level that is consistent with a tight labor market.
  • Q4 GDP was revised up to 7.0%, as expected, from the advance estimate of 6.9%, but the GDP Price Deflator was also revised up to 7.1% ( consensus 6.9%) from the advance estimate of 6.9%.
  • The key takeaway from the report is the recognition that inventory building accounted for the bulk of the GDP increase in Q4, accounting for 4.90 percentage points. Real final sales of domestic product, which exclude the change in private inventories, were up 2.0%.

Looking ahead to Friday, investors will receive Personal Income and Spending for January, PCE Prices for January, Durable Goods Orders for January, Pending Home Sales for January, and the final University of Michigan Index of Consumer Sentiment for February.

  • Dow Jones Industrial Average -8.6% YTD
  • S&P 500 -10.0% YTD
  • Russell 2000 -11.2% YTD
  • Nasdaq Composite -13.9% YTD


  • Europe: DAX -4.0%, FTSE -3.9%, CAC -3.8%
  • Asia: Nikkei -1.8%, Hang Seng -3.2%, Shanghai -1.7%


  • Crude Oil +1.10 @ 93.28
  • Nat Gas +0.06 @ 4.67
  • Gold -20.50 @ 1888.80
  • Silver -0.55 @ 23.94
  • Copper 0.00 @ 4.47

I do think 2 major factors are at play behind what happened today, perhaps leading to a short “relief ralley”. The first one would be that the Ukraine tensions could lead to the Fed being less hawkish with their rate hikes and may only raise rates by 25 basis points instead of 50. The second factor would be that the sanctions that Biden announced during his speech wasn’t worse than we already knew. If the sanctions were any more harsh, they could risk hurting the European economy, which I assume is why Biden didn’t implement harsher sanctions. Today’s theme seemed to be “sell the winners, buy the losers”. Specifically the beaten down high growth names.


I agree with both of these, it did feel like a relief rally indeed.