Wall Street awash in red ink as Russia-Ukraine crisis escalates     

Global stocks plunged again as Russian troops were intensifying their attacks on the major Ukrainian cities and Zaporizhzhia nuclear plant, stirring anxiety among investors. As a reprisal for this invasion, Western countries have imposed a raft of stiffer economic sanctions, including Moscow’s exclusion from the SWIFT messaging system. They have also frozen Russia's central bank’s ability to tap its $640 billion of reserves abroad. Those retaliation measures have already hit their mark as evidenced by the disruptions to Russian exports. As an illustration, Energy Intelligence estimates that Russian oil export flows fell by at least one-third — around 2.5 million barrels a day — this week though the German Economy Minister Robert Habeck said he would not support a ban on imports of Russian oil, gas and coal.

The Russian stock market remained closed all week long. This situation led the New York Stock Exchange to halt trading in three Russia-focused ETFs on Friday.

Against this gloomy backdrop, the strong job market recovery passed unnoticed. Yet the U.S. economy created 678,000 nonfarm payrolls last month while wage growth decelerated. Wall Street expected a gain of 440,000 jobs.

The S&P ended the week in the red. It fell -1.27% (-9.18% YTD) while the Nasdaq slid -2.78% (-14.90% YTD). Conversely, the VIX index shot up +16% to settle near levels of 32. Unsurprisingly, European indices did worse than their U.S. peers. The MSCI EMU took a nosedive (-10.26% WTD, -17.26% YTD). The FTSE was down -6.71% WTD (-5.38% YTD). Asian markets followed suit, though to a lesser extent. Japan’s Nikkei slid -1.85% (-9.75% YTD) and the Shanghai Composite edged down -0.11% (-5.28% YTD).

Investors search for safe haven  

Escalation in the conflict has pushed commodity prices (crude oil, metals, grains) sky-high, raising fears of political instability in countries highly dependent on imports. Thus U.S. oil prices rose above $115 a barrel for the first time since 2008 as potential supply disruptions from the ongoing geopolitical tensions offset the IEA’s release of 60 million barrels from emergency reserves to ease rising prices. The energy sector logically outperformed the broad market (+9.26% week-over-week). Investors also piled into the most defensive sectors as risk-off sentiment prevailed: utilities (+4.78%), real estate (+1.72%), health care (+1.17%).

On the flip side, financials were hit hard (-4.87%) as U.S. Treasury yields fell sharply. Several other sectors kept the broader market lower. Information technology lost -3.01% despite the slump in U.S. interest rates. Communication services (-2.67%) were weighed by Netflix (-7.44%) and FB Meta-Platforms (-4.95%). Both stocks lost around 40% since the beginning of the year. Consumer discretionary slid -2.63% as the Amazon shares were under major pressure (-5.30%).

Flight to liquidity and safety

U.S. government yields tumbled with rising risk aversion. The U.S. 10-year T-note yield fell back to +1.72%. The yield on German 10-year government bonds traded in negative territory (-0.07%), losing 30bps over the week.

U.S. investment-grade corporate bonds snapped their 8-week losing streak (+0.07%) but the trend reversal for this asset class was stronger in Europe (+1.58%). By contrast, the flight-to-quality pushed high yield bond prices lower (-0.53% in Europe and -0.13% in the U.S.). Emerging debt was severely hit (-4.43% in local currencies) by the spike in global commodity prices and the greenback’s ascent (dollar index up 1.97%). The EUR-USD currency pair slid below 1.10 (-4.30% week-over-week).  Elsewhere, gold shined again (+4.31% WTD, spot price at $1,970.70/Oz) as investors are scared by scenes of fear and chaos in Ukraine.

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