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Sanctions & Market Rally


U.S. stocks closed higher on Friday, 25th February 2022, adding to the strong rally we had on Thursday. 

Russia invaded Ukraine as expected and sanctions were immediately imposed on Russia from Europe and the U.S. The sanctions seem mostly symbolic and did nothing to deter Russia from moving more into Ukraine. 

With this, Ukraine’s government said it was discussing with Russia on the timing and location of potential peace talks.  

The Fed reiterated that it will soon be time to raise interest rates to counter high inflation as the U.S. job market continues to be strong. 

Regardless of the negative news, the market still managed to claw back from the lows seen earlier in the week as traders cover shorts placed before the invasion and readjust Fed expectations on the back of the conflict.  

Here are the closing levels on Friday, 25th February 2022: – 

 Last Change %Change 
Dow Jones 34,058.75. +834.92. +2.51% 
S&P 500 4,384.65 +95.95. +2.24% 
Nasdaq Comp 13,694.63 +221.05. +1.64% 
U.S. 10Y 1.96%   
VIX 27.59 -2.73 -9% 

“Sell the rumour and buy the fact”, this description seems to fit the rebound we are seeing in the stock market.  It also seems to suggest that there is little more the world can do to stop Russia. This means, there is no appetite for the world to send in troops to help defend Ukraine, as doing this would mean an all-out war with Russia, a nuclear superpower. 

Stronger sanctions may still be available, but the one that could make an impact is shutting Russia out of SWIFT, the global payment system used by financial institutions. 

“Western nations agreed to exclude some Russian banks from the SWIFT messaging system, used for trillions of dollars’ worth of transactions between banks around the world, further isolating Russia’s economy and financial system.” announced on Saturday, 26th February 2022. 

So, does this mean we ignore the war and continue to rally from here?  

It is probably too soon to assume that. After all, we are still below some technical levels, (S&P below 200 day moving average) and this rally could fade out as quickly as it came in. 

Also, other developments could arise, like Russian forces spilling into NATO territory or stronger economic sanctions being imposed. So there could be hedging for that and pressure markets. 

Lastly, we should not lose focus on the inflation situation and what the Fed needs to do to control it. Maybe the war has tapered Fed expectations, but it’s too soon to say. 

I guess, for now, we can be happy that we did not see a complete meltdown in stocks on the back of the invasion, and hope that it resolves without too much loss for Ukraine. 

Ultimately, some stability is needed. Otherwise, be prepared for more volatile days ahead. 

Source: CBOE, Bloomberg  

This commentary is written by James Gomes 
James has been in the finance industry for over 30 years and most recently worked for a large U.S. bank for more than 20 years. 

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