Closing: Geopolitical tensions undercut the market

The S&P 500 fell 1.9% on Friday amid burgeoning fears of a Russian invasion of Ukraine. The Nasdaq Composite underperformed with a 2.8% decline while the Dow Jones Industrial Average (-1.4%) and Russell 2000 (-1.0%) fared slightly better than the S&P 500.

PBS reported in the afternoon that the “U.S. believes Russian President Vladimir Putin has decided to invade Ukraine.” National Security Advisor Jake Sullivan clarified that the White House doesn’t think President Putin has made a final decision, but he did acknowledge a “distinct possibility” that Russia could invade Ukraine before the end of the Olympics.

The market, which was trading mixed, took a spill following the news with the mega-caps leading the retreat. The S&P 500 sliced through its 200-day moving average (4452) on a closing basis with little interest to buy the dip given the uncertainty heading into the weekend.

Nine of the 11 S&P 500 sectors closed lower, including the information technology (-3.0%), consumer discretionary (-2.8%), and communication services (-2.5%) sectors with steep losses due to the weight of the mega-caps. The Vanguard Mega Cap Growth ETF (MGK 227.74, -7.20) fell 3.1%, versus a 1.3% decline in the Invesco S&P 500 Equal Weight ETF (RSP 155.32, -2.08).

Conversely, the energy sector rose 2.8% as oil prices climbed back above $93 per barrel ($93.09, +3.25, +3.6%). The utilities sector (+0.01%) was little changed.

Besides the higher oil prices, the geopolitical angst contributed to a decline in Treasury yields and an increase in the hedging premium (the CBOE Volatility Index rose 14.4% to 27.36). The 2-yr yield fell four basis points to 1.52%, and the 10-yr yield fell eight basis points to 1.96%. The U.S. Dollar Index rose 0.5% to 96.03.

Before the Russia-Ukraine news captured the headlines, commentary lingered on the Fed, specifically regarding tempered rate-hike fears. Bloomberg published a report suggesting that an emergency rate hike in between policy meetings was unlikely and that a 50-basis-point hike in March was not a sure bet.

Bloomberg cited less-hawkish Fed commentary in its report. San Francisco Fed President Daly said a half-point hike was not her preference, and Richmond Fed President Barkin said he was “open to it conceptually” but not yet convinced. Both Ms. Daly and Mr. Barkin are not voting members in the FOMC this year.

The probability for a half-point hike in March decreased to 50.2% from 93.8% yesterday, according to the CME FedWatch Tool.

Reviewing Friday’s economic data:

  • The preliminary reading for the University of Michigan Consumer Sentiment Index for February was not good. It slumped to 61.7 ( consensus 67.5) from the final reading of 67.2 for January. The February reading marks the lowest level for the index since November 2012.
  • The key takeaway from the report is that consumers see weakening personal financial prospects, largely due to inflation, which raises the specter of a downturn in consumer spending for an economy that derives close to 70% of GDP from consumer spending.

There is no economic data scheduled for Monday.

  • Dow Jones Industrial Average -4.4% YTD
  • S&P 500 -7.3% YTD
  • Russell 2000 -9.6% YTD
  • Nasdaq Composite -11.9% YTD


  • Europe: DAX -0.4%, FTSE -0.2%, CAC -1.3%
  • Asia: Nikkei market closed, Hang Seng -0.1%, Shanghai -0.7%


  • Crude Oil +3.39 @ 93.15
  • Nat Gas +0.01 @ 3.97
  • Gold +14.20 @ 1850.20
  • Silver -0.04 @ 23.41
  • Copper -0.14 @ 4.50