While markets were closed for Presidents’ Day, that didn’t stop market and global volatility. The unease between Russia and Ukraine appears to be worsening which, in turn, is causing unease in the stock market.
Let’s dig in.
Monday: Russia, Ukraine, Oil and the Markets
When investors are faced with uncertainty from geopolitical risks, they will usually discount that into the stock market. Not only that but this doubt is, in turn, pushing energy prices higher.
The news about Russia and Ukraine is not good for stocks but it doesn’t look like the stock market will crash. We should look at risk indicators for advance warning of a panic, but at this point, it seems more likely that we will have new opportunities to open positions in damaged sectors in the S&P 500 in the short term.
Looking towards the end of the week, this stock market is a wait and see. Let’s look to see if it holds at support and if it does, even if the news continues to be shaky, we should be in good shape.
Wednesday’s Strategic Trader Weekly Update: Why Ukraine Matters to the Stock Market
President Biden was among several world leaders to issue a tranche of sanctions against Russia and Vladimir Putin this week, including issuing sanctions against the company building Russia’s Nord Stream 2 gas pipeline. Without it, natural gas cannot travel through the Baltic Sea pipeline to reach Germany.
In Wednesday’s update, we discussed the world’s dependence on natural gas from the U.S. and Russia, the top producers. Russia supplies 21% of the liquid natural gas used in Europe, and energy prices would skyrocket if those supplies were curtailed. There’s no evidence that supplies will be disrupted in the long run, but it’s a realistic possibility and rising energy prices will drive inflation and interest rates higher.
The stock market is in a unique situation with high levels of volatility, but for option sellers like us, it means more income and returns from selling calls and short puts.
Before we panic about oil, Ukraine and the other factors that are contributing to a volatile stock market, let’s look at the Personal Consumption Expenditure numbers announced today. This inflation report may not hold the same weight as CPI, but the Fed will be sure to pay attention.
The PCE measure rose 5.2% in January from a year ago, marking the biggest rise since April 1983. The same report also shows that consumer spending rose 2.1% on the month over the estimated 1.6%.
And for some good news, here are the profits our readers stood to make this week:
- 3.96% (80.42% annualized) on Bank of America (NYSE:BAC) Feb. 18, 2022 $46 Covered Calls in 24 days.
This boosts our average gain per trade closed this year to 3.92% and our average annualized gain to 174.66%. Click here to start seeing gains like the ones our readers enjoy!
Last Night’s Livestream: Russia Invades — Where’s the Bottom for Stocks?
Russia has invaded Ukraine which caused the S&P 500 to go higher. This might be confusing but let’s look at what generated this chain reaction.
Stocks gapped lower on Wednesday — with the S&P 500 dropping to nearly 15% below its recent all-time high on Jan. 4 — after Russia invaded Ukraine. So how low could stocks drop?
When we look at the S&P 500 from yesterday, we see that it continues to move higher and higher throughout the day before closing above yesterday’s close price.
Diving in a bit more, the technology and communication stocks did well and there was also a nice performance in real estate, but not all stocks had a good day. The financial sector got hit pretty hard yesterday and healthcare stocks took a toll.
We’ll be back with you next week.