LIVE MARKETS U.S. stocks end mixed amid more Russia sanctions

  • DJI, S&P 500 fall, Nasdaq ends up
  • Real estate weakest major S&P sector; energy leads gainers
  • Dollar dips; gold, crude gain; bitcoin surges >10%
  • U.S. 10-Year Treasury yield falls to ~1.82% from 1.97% on Friday

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U.S. STOCKS END MIXED AMID MORE RUSSIA SANCTIONS (1605 EST/2105 GMT)

Wall Street ended mixed in volatile trading on Monday, with investors wrestling with uncertainty and bank stocks dropping following powerful Western sanctions against Russia as it continued its invasion of Ukraine.

The DJI (.DJI) and S&P 500 (.SPX) fell, but the Nasdaq (.IXIC) managed to claw its way to a gain.

For the month of February, the SPX lost 3.1% putting it down 8.2% for the year so far.

Real estate (.SPLRCR) and financials (.SPSY) took the biggest hits among major S&P 500 (.SPX) sectors, while energy (.SPNY) gained the most. This, as the U.S. 10-Year Treasury yield hit lowest level since early Feb., and NYMEX crude futures rallied more than 4%.

Under the surface, banks (.SPXBK) and chips (.SOX) and were among the harder hit groups.

On the winning side, small-caps (.RUT), transports (.DJT), and FANGs (.NYFANG) rose. Clean energy stocks posted a strong gain.

The WilderHill Clean Energy index (.ECO) rallied more than 4%, and has now jumped around 15% in just three trading days. That said, the index is still down around 12% from the date of Joe Biden's November 3, 2020 election victory, and 52% from the day of his January 20, 2021 inauguration.

Meanwhile, Atlanta Fed President Raphael Bostic said on Monday that the U.S. Federal Reserve could need to raise interest rates by a half percentage point at its next meeting on March 15 and 16 if economic data between now and then shows high inflation persisting. However, Bostic said that as of today, he is still in favor of a 25bp move at the March meeting. read more

Of note, Fed Chair Jerome Powell is scheduled to deliver his regular semi-annual monetary policy update to the U.S. House Financial Services Committee on Wednesday and appear before the Senate Banking Committee on Thursday.

Here is Monday's closing snapshot:

closer02282022

(Terence Gabriel)

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CHICAGO PMI WEAKENS. NOW WHAT? (1403 EST/1903 GMT)

Chicago PMI fell to 56.3 in February from 65.2 in January, well below the consensus, 62.3, leaving economists scrambling to explain the discrepancy.

Ian Shepherdson, chief economist at Pantheon Macroeconomics wrote that the reading "increases the risk of a downside surprise in tomorrow’s ISM report" but not by much. The consensus forecast for that is 58.0.

"The manufacturing recovery has slowed since last spring’s peak, but the sector is still in decent shape, despite ongoing supply-chain problems," wrote Shepherdson who also notes that supplier delivery times fell sharply in February, and prices paid dipped, despite rising oil prices.

Also, PMI is so volatile "it’s not certain this drop is a response to events in Ukraine, especially as the invasion began only last Thursday," he wrote.

Action Economics points out in its note that Chicago PMI has "sat in expansion-territory since July of 2020, but is now back below 60 for the first time since February of 2021."

White House economic adviser Cecilia Rouse said on Monday that the biggest U.S. economic risk from Russia's invasion of Ukraine is from higher gasoline prices, and the depth of the impact will depend on the length of the conflict. read more

Other U.S. economic data released on Monday showed that the U.S. trade deficit in goods widened sharply to a record high in January amid an increase in imports as businesses continued to replenish depleted inventories.

The pace of inventory accumulation reported by the Commerce Department on Monday was, however, slower than in recent months. These prompted economists at Goldman Sachs to lower their gross domestic product growth estimate for the first quarter by 0.5 percentage point to a 1.5% annualized rate. read more

(Sinéad Carew)

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EXCHANGE-TRADED FUNDS: NOW ON A BLOCKCHAIN? (1330 ET/1830 GMT)

Exchange-traded funds (ETFs) are some of the biggest investment vehicles in the market. CFRA estimates that as much as $700 billion flowed into equity-focused ETFs alone in 2021.

With their lower fees and relative ease of trading, it's no surprise that crypto-curious investors are eagerly awaiting the approval of a spot bitcoin ETF, but so far have had to settle for a handful that track futures , .

Meanwhile, institutional-investor focused digital asset management firm Arca thinks a next iteration of funds could involve the integration of blockchain technology - a "blockchain transferred fund" (BTF).

A BTF would issue its shares on a blockchain instead of a regular exchange. In a white paper published on Monday, Arca says this would allow for lower fees, the ability to transfer peer-to-peer, real-time settlement and potentially higher liquidity.

Arca already offers the Arca U.S. Treasury Fund, a BTF which tracks U.S. Treasuries. It issues digital assets called ArCoins where an ETF would issue traditional shares.

Still, there are roadblocks, particularly until the Securities and Exchange Commission's rules around digital assets, which still need to be ironed out. Until these rules are settled, "the utility in a market sense is not there yet," Arca CEO Rayne Steinberg says.

He also notes that some of the benefits of BTFs, most notably in how blockchain-based funds could drive down costs, will really kick in once such products are able to be offered at scale. This may take some time, given the regulatory outlook.

Meanwhile, Steinberg says Arca has seen interest from both bigger institutions as well as retail traders around their existing BTF.

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UNCERTAINTY LIKELY TO FEED VOLATILITY (1235 EST/1735 GMT)

The Russian invasion of Ukraine has intensified risk-off action.

Indeed, according to Bob Doll, chief investment officer at Crossmark Global Investments, the market outlook is highly uncertain, and volatility in both directions appears likely.

In any event, in his latest "Deliberations," Doll says that U.S. economic prospects are "quite upbeat" and are unlikely to be derailed by events in Ukraine.

He outpoints that from the early January peak to last week's low, U.S. stocks tumbled nearly 15%. Meanwhile, he says that the P/E ratio has fallen from 22x to 19x.

While Doll does not yet see this as "cheap" he believes selective additions to equity holdings are warranted given Crossmark's year end S&P 500 (.SPX) target remains 4,500, or a little more than 3% above current levels.

In conclusion, Doll does not expect Ukrainian developments to produce a meaningful hit to global growth and thus he anticipates that the cyclical outlook will remain bond-bearish and equity-neutral.

However, he believes equity markets became oversold and made a significant low last week.

(Terence Gabriel)

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THE FOURTH QUARTER IN PROFIT MARGINS (1105 EST/1605 GMT)

With fourth quarter earnings in for 95% of S&P 500 companies, DataTrek Research co-founder Nicholas Colas is out with a note looking at the profit trend.

"The overall story here is very good," wrote Colas who notes that benchmark S&P 500 as a whole reported net (after tax) margins of 12.4% for Q4 up from 11% a year ago.

But under the hood points to "distinct winners and losers" with six of the 11 industry sectors seeing increasing profit margins and five seeing their margins decrease.

On the winning side:

Energy: Q4 2021 9% net margin vs a Q4 2020 net loss

Industrials: 7.8% vs 4.5% year-ago

Materials: 12.9% vs 10.2%

Consumer discretionary: 7.6% vs 5.7%

Technology: 26% vs 24.1%

Health care: 10.6% vs 9.4%

On the losing side:

Utilities: 10.0% vs 11.9%

Real Estate: 34.2% vs 34.7%

Financials: 18.3% vs 18.7%

Communication Services: 12.3% vs 12.4%

Consumer Staples: 6.4% vs 6.5%

But overall, Colas' takeaway is that US large caps have on average coped well with surging domestic inflation because economic growth has been strong.

(Sinéad Carew)

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U.S. STOCKS SLIDE AS SANCTIONS GET MORE SERIOUS (1000 EST/1500 GMT)

Wall Street's main indexes are sliding in early trade on Monday as investors assessed the fallout from a new set of sanctions imposed by Western countries on Russia over its invasion of Ukraine.

World stocks are lower, oil prices are higher and Russia's rouble collapsed to record lows after Western allies blocked Russian banks off the SWIFT financial network and limited Moscow's ability to deploy its $630 billion foreign reserves. read more

All major S&P 500 (.SPX) sectors fell into the red initially with financials (.SPSY) taking the biggest hit. Banks (.SPXBK) are especially weak. This, with the U.S. 10-Year Treasury yield plunging back below 1.90%.

Energy (.SPNY) is moving back to positive territory. This, as tensions with Russia heat up, and NYMEX crude futures pop more than 3%.

Here is your early trade snapshot:

earlytrade02282022

(Terence Gabriel)

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KEEP CALM AND REMAIN OVERWEIGHT (0911 EST/1411 GMT)

That is, in a nutshell, what Bernstein is telling its equity clients after the invasion of Ukraine by Russia this month boosted volatility to multi-month highs and set European stocks for their worst month since October 2020.

"Despite near-term volatility and increased geopolitical risk, real yields are still very low, earnings momentum is strong, and we remain very much in an inflationary environment. All of these factors mean that investors need to keep or increase exposure to equities on a strategic horizon," say strategists at the U.S. investment house.

And even though in the near term they believe more caution is deserved, they are also "cautiously" keeping their tactical overweight of Europe versus U.S. equities.

"Recent events in the Ukraine clearly challenge this view. The possibility of further sanctions could lead to even higher energy prices leading to slowing growth in the region. In this scenario, we would reduce exposure to Europe," they note.

"However, we think it is too early to make a call on this, as there are too many unknowns at this point around future sanctions, government reactions in terms of fiscal support, etc. Fundamentally, the earnings picture for Europe is strong, buybacks are supportive and the equity yield gap v the US is widening," they argue.

(Danilo Masoni)

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S&P 500 INDEX ATTEMPTS TO HAMMER OUT A LOW (0900 EST/1400 GMT)

The S&P 500 index (.SPX) mounted an impressive snap back off its low last week. With this, the benchmark index formed a hammer candle pattern on the weekly charts, suggesting potential for a greater price reversal to the upside:

SPX02282022

After sliding more than 5% at one point last week, bringing its decline from its early-January peak to nearly 15%, the SPX then recovered, and ended the week with a gain of nearly 1%. read more

A classic hammer candlestick formed in which the lower shadow of the pattern was more than twice the height of the real body, as in the market is "hammering out" a base, and attempting to find a bottom.

That said, traders may want to see confirmation, that is, for the price to quickly follow-through to the upside to add confidence in this pattern. So far on Monday, however, CME e-mini S&P 500 futures , although off their overnight lows, are still posting a loss of around 1.4%, suggesting a sharply lower downside open for the cash index.

Of note, a strong snapback in late-January, which formed a clear hammer in the futures, did lead to several weeks of upside follow-through.

However, the SPX failed to end a week above its descending 10-week moving average. This moving average has capped strength on a weekly closing basis since the SPX broke down in mid-January.

Therefore, traders may look for an SPX weekly close above the moving average to add confidence that the index has established a more solid floor.

The candle's low at 4,114.65 is now seen as important support.

(Terence Gabriel)

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FOR MONDAY'S LIVE MARKETS' POSTS PRIOR TO 0900 EST/1400 GMT - CLICK HERE: read more

Terence Gabriel is a Reuters market analyst. The views expressed are his own

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