(A few of the key points from a rather lengthy WSJ article - Author: James Mackintosh.)Lead / Opening question
: “Russia invaded Ukraine to start the biggest land war in Europe since Hitler. U.S. stocks soared. What gives? It isn’t that Wall Street secretly loves Vladimir Putin. A close look at the market’s performance on Thursday shows the reality: U.S. equities had a near-perfect reverse of what had been going on this year. It was a great stock-market switcheroo. Stock gains continued on Friday in the U.S. and elsewhere, with Russian shares leaping by a fifth in ruble terms. But it was Thursday’s move that set the tone, and which was so extraordinary on the day Ukraine was invaded… Quite why is less clear, but I have theories …
Possible factors leading to the reversal:
- “Sentiment was depressed, and a moment of panic-selling hit when the market opened, with the CBOE Vix index of implied volatility hitting its highest opening level since 2020 …
- “Attributed to legendary banker Nathan Mayer Rothschild: ‘Buy on the sound of cannon, sell on the sound of trumpets.’ When fear dominates, it’s time to buy, and many did.
- “Investors were already so worried that it didn’t take much to hit rock-bottom and so rebound. The regular American Association of Individual Investors survey this week found the highest proportion of self-described bears in almost a decade, and close to the lowest proportion of bulls.
- “Last week’s Investors Intelligence examination of newsletter writers found bearish sentiment almost equal to bullish for the first time since the March 2020 selloff. And a 10-day smoothed measure of investor opinion from the options market showed the equal-highest proportion of buying of bearish puts (used to protect from falls) to bullish calls (used to bet on rising stock prices) since shortly after the pandemic panic began.”
- There’s also some mention that the sanctions against Russian gas and oil exports (primarily to Western Europe) weren’t as harsh as first expected and are less likely to inflict economic damage.
- Elsewhere (WSJ
and this week’s Barron’s
) there is speculation that the crisis may cause the Federal Reserve to slow the pace of interest rate hikes in coming months - a positive for equities.
All of the above notwithstanding, I thought commentary overall in both the WSJ and Barron’s
on Saturday leaned somewhat towards the bearish camp with one newsletter cited in Barron’s
advising its readers to “pile up cash”. Excerpts
from: The Wall Street Journal
, February 26, 2022 / Here’s a link
; but you’ll likely need a subscription to access.