Weekly Brief: Ukraine invasion and the market sentiment

The invasion

The tension between Russia and Ukraine had investors patiently waiting for either the start of an invasion or reconciliation between the two nations. Stock markets around the world bled as tensions grew higher and overleveraged investors continued to cut back on losses. On February 23rd, the stalemate was finally broken when president Putin announced that Russia would be launching a “special military operation” in Ukraine confirming the beginning of an invasion. The news saw Russian equities falling sharply, wiping out more than 150 billion dollars in value and the Russian index MOEX was seen to have retraced by around 50% from its October high. Russian equities were not the only assets to have been affected as stock markets around the world also faltered.

The rebound

February 24th, the day after Russia commenced its invasion of Ukraine, stock markets around the world began a rebound. Most surprising of all was the rebound of the Russian index MOEX which saw a rebound of 15% from its previous 50% drop as investors looked at the long-term prospects of the index. American indices also experienced rebounds as Western countries imposed heavy sanctions on Russia. After the rebound, major indices such as the NASDAQ and S&P 500 ended the day with a gain of 3.4% and 1.5% respectively. Following the American stocks, Asian stocks followed suit with Japan’s Nikkei 225 index surging 1.4% and South Korea’s Kospi rose by 1.2%.

Investor's pick

As Russia began its invasion of Ukraine, investors looked for stocks that could perform well during moments of war and chose defense stocks and ETFs as their investment of choice. Defense sector funds such as iShares U.S. Aerospace & Defense (ITA), SPDR S&P Aerospace & Defense (XAR), and Invesco Aerospace & Defense (PPA) ETFs were up 2% to 4% as investors bet on the chance that nations will increase military spending. Investors who felt like the conflict could escalate on a wider scale invested in defense sector stocks such as Lockheed Martin (LMT) and Northrop Grumman (NOC) supply the United States and its North Atlantic Treaty Organization (NATO) counterparts with fighter jets and missile systems causing the stocks to climb.

Oil’s surge and fall

Following the immediate aftermath of the invasion of Ukraine, oil prices around the world surged to 105.79$ a barrel due to fears of the war disrupting the supply of oil from Russia. Russia is the second-largest oil producer in the world producing 10.1 million barrels of oil per day, close behind the United States which produces 11.3 million barrels per day. After the initial surge in oil price, the price of oil settled as the president of the United States gave a speech detailing the sanctions to be put in place against Russia. The penalties included Russian banks, Oligarchs and high-tech imports but had not targetted the Russian oil and gas industry allowing oil to end the day at 99.08$ a barrel.

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References

By CNN Business. (2022, February 25). Stock market news today: Dow and S&P 500 updates. CNN. https://edition.cnn.com/business/live-news/stock-market-news-russia-ukraine-22422/index.html

Carson, E. D. (2022, February 25). Dow Jones Futures Fall After Powerful Market Rebound On Russia Invasion Sanctions; These Stocks Soar. Investor’s Business Daily. https://www.investors.com/market-trend/stock-market-today/dow-jones-futures-market-rebounds-powerfully-amid-russia-invasion-sanctions/

Galouchka, K. (2022, February 24). Russian Stocks Slump Most on Record, Erasing $150 Billion in Value. Bloomberg. Retrieved February 25, 2022, from https://www.bloomberg.com/tosv2.html?vid=&uuid=afc83e8a-9631-11ec-bf0f-734b6a43526b&url=L25ld3MvYXJ0aWNsZXMvMjAyMi0wMi0yNC9ydXNzaWFuLXN0b2Nrcy1zbHVtcC1tb3N0LW9uLXJlY29yZC1vbi11a3JhaW5lLWF0dGFjay1jaGFydA==

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Ozsoy, T., & Wong, M. (2022, February 25). Russian Stocks, Ruble Halt Slide as Traders Digest Sanctions. BloombergQuint. Retrieved February 25, 2022, from https://www.bloombergquint.com/markets/ruble-rebounds-from-record-low-as-ukraine-conflict-roils-markets

Rich, G. (2022, February 24). Defense Stocks In Focus As U.S. Military Takes “Defensive Moves” Amid Russia’s Ukraine Invasion. Investor’s Business Daily. https://www.investors.com/news/defense-stocks-in-focus-as-u-s-military-takes-defensive-moves-amid-russia-ukraine-invasion/

The Guardian. (2022, February 25). Ukraine crisis live | World news | The Guardian. Retrieved February 25, 2022, from https://www.theguardian.com/world/series/ukraine-live