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Market Strategy 2/28/2022

  • John Stoltzfus
  • February 28, 2022

Prospects Rise for a New Cold War

After the Russian attack on Ukraine investors should focus on asset allocation for more uncertain times
  • Volatility in equity markets is likely to persist until negotiations are initiated that have potential to diffuse the hostile situation caused by Russia’s incursion in Ukraine.
  • Markets are likely to test last week’s rally early this week as they consider the impact of sanctions ramped higher on Russia over the past three days.
  • With 476 or 95% of the firms in the S&P 500 index having reported, earnings are up 30.3% in Q4 from a year ago on back of revenue growth of 17.7%.
  • Data last week captured the plunge in consumer sentiment while data on personal consumption showed a strong appetite to spend on goods and services.
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The Russian incursion into Ukraine over the course of the last week has raised market volatility and caused stocks, bonds, currencies and commodities to bounce noticeably between gains and losses as traders and investors ponder “news from the front” and weigh the potential outcome of the latest round of sanctions against Russia taken by the international community and its implications not only for the Russian economy and Ukraine but on the economies of countries belonging to regions around the world.

Looking back over history the strategic position of Russia as a military power and source of key mineral wealth presents a test of world leadership beyond parallel from a geopolitical and military perspective that’s reminiscent of the Cuban Missile Crisis of 1962.

While Russia occupies a vast land mass, it is a relatively small economy among the developed and emerging nations of the world today (according to the World Bank’s purchasing power parity measures it ranked 11th in the world in 2020, behind Canada and South Korea). That said, its mineral wealth includes resources of oil, aluminum, nickel, palladium and rare earth metals so its importance to the production and extraction of these important raw materials and commodities adds a level of uncertainty that pervades much of the globe as markets begin to open for the last day of trading in the month of February.

Quotation from Aenean Pretium

Near-term volatility likely will persist on the landscape as global market participants weigh developments as they cross the proverbial transom.

At this point in time missives from Russia’s leadership suggest resolution to the conflict it has undertaken is not likely to come anytime soon. If anything, Russia’s leader Vladimir Putin just last week implied a desire to restore to Russia the borderlines of the former Soviet Union.

Initial rounds of sanctions imposed on Russia by the US and European Union and many other countries and allies did not deter the viciousness of the initial attacks on Ukraine. Mass protests in Ukraine, European nations, the US and elsewhere, including a few brave souls in Russia itself, did not appear to be taken with much regard by the Kremlin.

The latest rounds of sanctions initiated over the weekend by the US and European allies, which include actions against Russia’s central bank as well as several other key financial institutions of that country, have raised the bar significantly with retaliation directed at Russia’s actions moving to levels that have caused the ruble to plunge and runs on Russian banks as Russian citizens rush to convert rubles into dollars and other currencies. Prospects for more sanctions to follow are in the wings should this latest round of sanctions go unheeded by the Russian government.

The outcome of this current geopolitical crisis lies in the hands of the leadership of the countries of the world particularly the membership of NATO (including the US), the European Union, as well as Russia and its allies including China.

What does all this mean for the global markets?

Near-term volatility likely will persist on the landscape as global market participants weigh developments as they cross the proverbial transom.

Last week saw stocks stateside rally powerfully when the first round of sanctions, while significant, were not viewed as sufficient and were followed up by further measures over the weekend.

As we moved to publish on Sunday, global futures were moving lower in anticipation of market openings around the world.

On Sunday, Bloomberg news reported that Vladimir Putin had put Russia’s nuclear forces on “higher alert.” It also reported that Ukrainian and Russian officials are due to meet at the Belarus border.

As concerning as Mr. Putin’s remarks are, history in the age of nuclear weapons shows the art and science of negotiation can be highly effective at disarming situations which in eras prior to and including World War II led to conflagrations that turned into world conflicts.

In our view disarming the risk of any degree of nuclear arms deployment will take precedent in what follows in the days ahead. Bellicose gamesmanship notwithstanding, we would expect that efforts to seek peace will emanate from more corners of the earth than the world can imagine at this moment.

On Sunday, the United Nations Security Council voted for the 193-member General Assembly to hold an emergency session on Russia’s invasion of Ukraine today (Monday) . It’s worth noting that the vote to authorize an emergency session was 11 in favor with Russia opposed, and China, India and the United Arab Emirates abstaining.

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John Stoltzfus


Chief Investment Strategist, Oppenheimer Asset Management Inc.

John is one of the most popular faces around Oppenheimer: our clients have come to rely on his market recaps for timely analysis and a confident viewpoint on the road forward. He frequently lends his expertise to CNBC, Bloomberg, Fox Business, and other notable networks.

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