Barron’s Weekend Summary: The biggest implication for the U.S. of the Russia-Ukraine military conflict may not actually be what happens in the region.
Cover Story:
-The biggest implication for the U.S. of the Russia-Ukraine military conflict may not actually be what happens in the region. Rather, it is likely to be whether the U.S.’s response to the conflict emboldens bigger economic rivals, namely China, and what that means for the long-term investment landscape.
Tech Trader:
-In 2020, the sharp and short bear market turned out to be a spectacular buying opportunity, as the Federal Reserve and other central banks flooded the market with cash and interest rates dropped effectively to zero. The result sent high-growth tech stocks to dizzying heights. That was then; this is now. The Fed is getting ready to shut the money spigot, telegraphing multiple rate increases in 2022. The concern is that we’re overheating. But it isn’t hard to see why the bears lost their grip on Thursday, and cash flooded in.
The Trader:
-Energy is at the crux of the Russia-Ukraine conflict. Oil prices rose sharply when the invasion began, with Brent crude rising as high as $105 a barrel on Thursday morning, the highest level since 2014. European natural-gas prices jumped 60%. But global supply will stay relatively high as Robert Yawger, director of energy futures at Mizuho Securities, called President Joe Biden’s response “soft.”
-oth gold and Bitcoin are perceived as a “store or value” against inflation. Each benefits from scarcity. If governments depreciate their currencies by running up debts and printing money, the story goes, Bitcoin could serve as a bulwark against inflation and loss of purchasing power—even taking some of gold’s market share. Yet Bitcoin’s high volatility and ailing price make it increasingly hard to accept it as more than a speculative bet. It tumbled 10% on the day that Russia invaded Ukraine.
-Lowe’s and Home Depot each delivered better-than-expected quarterly results, but Home Depot offered a more cautious tone about the year ahead. Lowe’s, in contrast, raised its guidance a couple of months after providing its initial full-year outlook. Home Depot traded lower, while Lowe’s climbed.
Features:
-Russia’s credit rating was cut to junk by S&P Global Ratings, part of a wide review by all major rating agencies to grade the soundness of the gas-exporting giant’s financial health after the country’s invasion of Ukraine.
Moody’s Investors Service, meanwhile, said late Friday it has placed Russia’s and Ukraine’s credit ratings on review for possible downgrades, again to speculative, or junk, ratings for Russia.
-Berkshire Hathaway will host an in-person shareholder meeting in Omaha this spring following two years of virtual events—but only shareholders vaccinated against Covid-19 will be allowed to attend, the company said Saturday. The announcement marks a return to the pre-Covid revelry that earned the three-day event the nickname Woodstock for Capitalists. The meeting will take place at CHI Health Center in Omaha on April 30 and will be streamed on CNBC.
European Trader:
-The popularity of streaming sources had many worried that movie theatres would be relegated to history. Those fears proved unfounded, and the ranks of movie theaters are actually growing again. New builds in the Middle East and China could increase the number of global screens to 240,000 from 200,000, according to Berenberg analyst Trion Reid, citing Barco management in a December note. Barco has up to a 60% market share in Chinese cinemas. That should boost earnings. In a February note, Reid forecasted that revenue for the first half of 2022 could increase 20%.
-Russia’s Ukraine incursion is going to have a serious effect on our economy and the economies in Europe. Energy, currencies, trade, and the global central banks’ response to this may be radically different than what was thought yesterday. Countries will be scrambling to respond to the invasion, and mistakes will be made. One looming question: Will the invasion be contained to Ukraine, or will it spread to other Eastern European countries, as Russia tries to reassemble the U.S.S.R.?
Emerging Markets:
-Historically, geopolitical tensions have been bearish for risky assets, including emerging markets. Yet today, as Russia wages war on Ukraine, investors should resist the urge to sell. Emerging markets such as Brazil, Indonesia, and India are much stronger financially than they have been in many years, and much cheaper versus the U.S. than they have been in a couple of decades. As a result, they could offer a relatively decent refuge in a widening storm.
Russia’s attack complicates what had been the most promising backdrop for developing countries in years. But it doesn’t derail the argument for these markets and, in some cases, strengthens it further.
Commodities:
Many investors were already getting nervous before the Russian invasion of Ukraine. Rising inflation, the near-certainty of higher interest rates, and the expectation that corporate profits would pull back all pointed to dramatically lower stock and bond returns than investors had grown accustomed to. The members of Barron’s Roundtable, which met this year on Jan. 10, forecasted S&P 500 index returns ranging from double-digit losses to a gain of just 8%. And that was before war broke out in Europe, causing energy prices to rise and leading to even higher inflation. Geopolitical crises, however, tend to limit the Federal Reserve’s ability to raise interest rates; rising inflation and a slowing economy can lead to pernicious stagflation, not seen since the oil crisis of the 1970s.
Streetwise:
Jack Hough asked two market strategists whether U.S. investors should buy stocks here despite the pall of war in Ukraine. One says definitely, and the other says to hold off. Both are convincing. This is why he recommends using an odd number of investment advisors. If there’s a cheerful sign now, it’s that investors are gloomy, says Ed Yardeni, president of Yardeni Research, which sells market analysis to money managers. A measure called the Investors Intelligence bulls and bears ratio fell this past week, to 1.04, from 1.32 two weeks prior. That means there are roughly as many bears as bulls, which is unusual, and which Yardeni has found to signal a good buying opportunity.