Mid-day: Stocks rally off lows

The S&P 500 is up 1.4% after being down 1.0% earlier today, as the market reacts positively to an official ban of Russia energy imports and a report from AFP News indicating that Ukraine is no longer insisting on NATO membership.

The Nasdaq Composite is up 2.0% after down 1.3% intraday. The Dow Jones Industrial Average is up 1.4% after being down 0.7% intraday. The Russell 2000 is up 2.0% after trading flat intraday.

The S&P 500 consumer discretionary (+2.3%), communication services (+2.1%), and information technology (+1.6%) sectors, which have taken a beating in recent days, are leading the turnaround.

Conversely, the defensive-oriented health care (-0.5%), consumer staples (-0.6%), and utilities (-0.3%) sectors trade lower. The energy sector (unch), which was up 5% intraday, is now unchanged as oil prices ($123.18, +3.78, +3.2%) pare early gains.

WTI crude futures flirted with $130 per barrel in anticipation of President Biden’s announcement that the U.S. will ban oil, gas, and coal imports from Russia. Prior to the announcement, the UK said it will phase out Russian oil imports by the end of the year but stopped short of banning gas imports at this time.

Oil prices peaked before the U.S. announcement and now trade at $123 per barrel following the Ukraine-NATO headline, which the market is thinking could lead to a ceasefire agreement this week.

The price action in equites has presumably caught investors off guard, which is to say that the strong bounce in equities is being partially driven by short-covering activity. The CBOE Volatility Index is down 6.2% to 34.20 amid decreased hedging interest.

Treasury yields, meanwhile, are still trading sharply higher. The 10-yr yield is up 12 basis points to 1.87% as high oil prices continue to feed into inflation expectations, and the 2-yr yield is up six basis points to 1.60% amid continued rate-hike expectations.

Reviewing today’s economic data:

  • The trade deficit widened in January to $89.7 billion (Briefing.com 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.
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