Russia-addled Wall Street may be banking on a rescue: Morning Brief

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Thursday, February 24, 2022

Why things aren’t as bearish as they appear

Dispatches from Wall Street — where tensions between Russia and Ukraine turned hot overnight, displacing fears of inflation fighting central bankers — have become decidedly bleak these days.

Cratering stocks are “on a war footing,” as Barron’s said this week, which sent major benchmarks swooning to their lowest levels of 2022. The conflict in Eastern Europe has lit a fire under crude oil and put precious metals on a tear, which are sure to fan new price pressures.

Yet a hat tip goes to TKer’s Sam Ro for this call out of Goldman Sachs data, which suggests the market is still relatively bullish despite what’s happening in Eastern Europe. The bank noted that short positions (i.e. bearish bets) against many stocks remain “extremely low” considering what’s happening in the world.

The market's bearish bets are surprisingly benign for an era of high volatility.

The market’s bearish bets are surprisingly benign for an era of high volatility.

Things may change now that Russia has attacked its neighbor. But for now, despite risk aversion and blood-curdling volatility, the absence of explicit short bets against blue-chip stocks are an indication of a market that’s waiting for the right opportunity to start buying again.

“I do think the risk right now in the market is actually to the upside,” Great Hill Capital’s Thomas Hayes told Yahoo Finance Live on Wednesday. “Everyone is positioned for more downside. I think this is just some after tremors… This is a case of ‘sell the rumor, buy the news.'”

As the Morning Brief pointed out in Wednesday’s edition, geopolitics tends to exert a powerful yet relatively limited influence on market prices over time. But now that Russia has begun an armed incursion on Ukrainian soil, Wall Street is poised for more red ink.

Still, one intriguing possibility, albeit a low one, is that the lack of short sellers — and the S&P’s sharp tumble into correction territory — are themselves harbingers of a more dovish Federal Reserve.

Over at Capital Economics, economist Nicholas Farr hinted at the tantalizing prospect of the “Powell Put,” a cheeky Wall Street term suggesting that the Fed chair could move to mollify spooked investors when things go seriously awry.

“The historical record shows that big falls in the U.S. stock market are a good predictor for the Fed to turn more dovish,” Farr wrote. “But, even if the stock market were to fall further this year, the Fed might not dial back on its plans to tighten, which could keep U.S. equities under pressure.”

That hints at something the Morning Brief has discussed before, namely that a “Joseph Heller” market is setting itself up for a year of relatively lackluster returns. While Capital Economics sees the S&P ending with a 14% gain in 2022, Farr warned there are “clearly downside risks” — and not just from Russia.

However, the current gloom also suggests investors may not be positioned for cooler heads to eventually prevail. Goldman Sachs’ emerging markets team noted that the current Russia-Ukraine crisis has resulted in “significantly more risk premium” priced into Russian and emerging market (EM) assets than in prior scares involving Moscow.

Yet even still, “a de-escalation (and cyclical rebound) could mean a significant risk premium unwind,” analysts said. “While risk premium can extend if geopolitical volatility broadens, our estimates also imply that, relative to historical episodes, there is likely more tactical upside in risk-sensitive EM assets in a de-escalation scenario.”

LPL Financial chief market strategist Ryan Detrick wrote this week that the broader market averages about one 10% correction per year, and we’ve gone nearly two years without one.

“The good news is stocks do quite well after corrections. As shown in the LPL Chart of the Day, this is the 33rd correction or bear market for the S&P 500 since 1950. As uncomfortable and frustrating market corrections can be, investors need to remember that future returns after such pain can bring a lot of gains,” added Ryan. “In fact, after previous corrections and bear markets, the S&P 500 rose nearly 90% of the time a year or two later, with very strong returns.”

The lesson? Just as quickly as investors climb a wall of worry, they can disembark just as rapidly once the coast is clear — as the market’s initial reaction to, and rebound from, the Omicron variant would suggest.

By Javier E. David, editor at Yahoo Finance. Follow him at @Teflongeek

What to watch today

Economy

  • 8:30 a.m. ET: Chicago Fed National Activity Index, January (0.16 expected, -0.15 in December)

  • 8:30 a.m. ET: Initial Jobless Claims, week ended Feb. 19 (235k expected, 248k prior)

  • 8:30 a.m. ET: Continuing Claims, week ended Feb. 12 (1.580 million expected, 1.593 million prior)

  • 8:30 a.m. ET: GDP annualized, quarter-over-quarter, 4Q second estimate (7.0% expected, 6.9% in prior estimate)

  • 8:30 a.m. ET: Personal consumption, 4Q second estimate (3.4% expected, 3.3% in prior estimate)

  • 8:30 a.m. ET: GDP Price Index, 4Q second estimate (6.9% expected, 6.9% in prior estimate)

  • 8:30 a.m. ET: Core PCE quarter-over-quarter, 4Q second estimate (4.9% expected, 4.9% in prior estimate)

  • 10:00 a.m. ET: New Home Sales, January (802k expected, 811k prior)

  • 10:00 a.m. ET: New Home Sales, month-over-month, January (-1.2% expected, 11.9% prior)

  • 11:00 a.m. ET: Kansas City Fed Manufacturing Activity, February (25 expected, 24 in January)

Earnings

Pre-market

  • 7:00 a.m. ET: Discovery Inc. (DISCA) is expected to report adjusted earnings of $0.86 per share on revenue of $3.13 billion

  • 7:00 a.m. ET: Norwegian Cruise Line Holdings (NCLH) is expected to report an adjusted loss of $1.60 per share on revenue of $571.58 million

  • Keurig Dr. Pepper (KDP) is expected to report adjusted earnings of $0.45 per share on revenue of $3.31 billion

  • Newmont Corp. (NEM) is expected to report adjusted earnings of $0.77 per share on revenue of $3.36 billion

  • SeaWorld Entertainment (SEAS) is expected to report adjusted earnings of $0.30 per share on revenue of $343.22 million

  • Moderna (MRNA) is expected to report adjusted earnings of $10.17 per share on revenue of $6.9 billion

  • Planet Fitness (PLNT) is expected to report adjusted earnings of $0.25 per share on revenue of $177.31 million

  • Nikola (NKLA) is expected to report an adjusted loss of $0.32 per share on revenue of $5.06 million

  • Wayfair (W) is expected to report an adjusted loss of $0.71 per share on revenue of $3.29 billion

  • Six Flags Entertainment (SIX) is expected to report an adjusted loss of $0.08 per share on revenue of $268.09 million

Post-market

  • 4:00 p.m. ET: Coinbase (COIN) is expected to report adjusted earnings of $2.34 per share on revenue of $2.0 billion

  • Occidental Petroleum (OXY) is expected to report adjusted earnings of $1.09 per share on revenue of $7.32 billion

  • Intuit (INTU) is expected to report adjusted earnings of $1.83 per share on revenue of $2.66 billion

  • Opendoor Technologies (OPEN) is expected to report an adjusted loss of $0.14 per share on revenue of $3.19 billion

  • Autodesk (ADSK) is expected to report adjusted earnings of $1.44 per share on revenue of $1.2 billion

  • Dell Technologies (DELL) is expected to report adjusted earnings of $1.94 per share on revenue of $27.54 billion

  • Block Inc. (SQ) is expected to report adjusted earnings of $1.24 per share on revenue of $4.01 billion

  • Zscaler (ZS) is expected to report adjusted earnings of $0.11 per share on revenue of $242.03 million

  • Rocket Cos. (RKT) is expected to report adjusted earnings of $0.37 per share on revenue of $2.60 billion

  • VMWare (VMW) is expected to report adjusted earnings of $1.96 per share on revenue of $3.52 billion

  • Etsy (ETSY ) is expected to report adjusted earnings of $0.89 per share on revenue of $685.47 million

  • Beyond Meat (BYND) is expected to report an adjusted loss of $0.69 per share on revenue of $101.4 million

  • Monster Beverage Corp. (MNST) is expected to report adjusted earnings of $0.61 per share on revenue of $1.33 billion

Politics

  • President Biden will participate in a virtual G7 Leaders’ meeting at 9:00 a.m. ET to discuss Russia’s attack in Ukraine. Afterwards, in the early afternoon, the president will address the nation and provide an update on the U.S. response.

Top News

European stock markets sink as Russia invades Ukraine [Yahoo Finance UK]

EU unlikely to cut Russia off SWIFT for now [Reuters]

Lloyds on ‘heightened alert’ amid Russian cyberattack fears [Yahoo Finance UK]

Bitcoin dives to lowest in a month after Russia invades Ukraine [Reuters]

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