Mid-day: In the throes of geopolitics

The stock market is down more than 1.0% in midday action on increased Ukraine-Russia tensions and lingering concerns about monetary policy. The S&P 500 is down 1.0%, the Nasdaq Composite is down 1.4%, and the Dow Jones Industrial Average is down 1.3%.

Russia recognized yesterday the independence of Ukraine’s Donetsk and Luhansk regions and ordered “peaceful” troops to the oblasts, which the White House is labeling as an invasion. The U.S., UK, and EU have announced initial sanctions, and Germany said it would stop the approval process for the Nord Stream 2 pipeline from Russia.

Ten of the 11 S&P 500 sectors are trading lower in front of an expected update from President Biden at 1:00 p.m. ET. After an early rebound bid, stocks have recently pushed to session lows amid a lack of interest to buy into the weakness, which has further restrained risk sentiment.

The consumer discretionary sector (-3.4%) is the weakest performer amid a 9% decline in Home Depot ( HD 315.26, -31.64, -9.1%) following its earnings report. HD beat expectations but provided conservative FY22 sales guidance, acknowledging slower year-over-year growth.

The energy sector (-1.4%), which was up 3% shortly after the open, is now trading lower by 1.4% as oil prices remain elevated above $92 per barrel ($92.23, +2.02, +2.2%). The utilities sector (+0.1%) is the lone sector clinging onto a slim gain.

Strikingly, the Treasury market isn’t exhibiting a flight to safety. The 10-yr yield is unchanged at 1.93% despite the geopolitical angst while the 2-yr yield is up six basis points to 1.53% on continued expectations for the Fed to stick with the tightening script.

Fed Governor Bowman (FOMC voter) said yesterday that she supports a March rate hike in addition to further rate increases in the coming months if the economy evolves as expected. On a related note, preliminary IHS Markit Manufacturing and Services PMIs for February showed an uptick in expansionary activity.

The CBOE Volatility Index is brushing up against 30.00 (29.84, +2.09, +7.5%) on increased interest to protect against further downside. The S&P 500 is trading near its lowest closing level since last October.

Reviewing today’s economic data:

  • The Conference Board’s Consumer Confidence Index dropped to 110.5 in February (Briefing.com consensus 109.0) from a downwardly revised 111.1 (from 113.8) in January. In the same period a year ago, the index stood at 95.2.
  • The key takeaway from the report is the recognition that expectations for short-term growth prospects weakened, pointing to a possible moderation in spending activity in coming months, particularly if inflation pressures remain persistent and real disposable personal income is negative.
  • The S&P Case-Shiller Home Price Index for December increased 18.6% year-over-year (Briefing.com consensus 18.3%) following an 18.3% increase in November.
  • The FHFA Housing Price Index for December increased 1.2% month-over-month following a revised 1.2% increase (from 1.1%) in November.
  • The preliminary IHS Markit Manufacturing PMI for February increased to 57.5 from 55.5 in January while the preliminary Services PMI increased to 56.7 from 51.2 in January.