Volatility Continues To Be Sky High

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In his Daily Market Notes report to investors, while commenting on the market volatility, Louis Navellier wrote:

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Sky High Volatility

Russia/ Ukraine remains the headline. Volatility continues to be sky high with the Friday “relief” rally - the best day for the year for the Dow, and the rest of the equity Indexes were also well into the green.  It wasn’t really clear what elements drove stocks so strongly given the far-from-resolved situation in Ukraine.

Thursday and Friday, which was definitely filled by short-covering was good for a whole year. But anytime you go up with that kind of magnitude, you're going to have to pull back. 

I'm encouraged that a lot of small-cap stocks are very resilient. I'm also encouraged that a lot of energy and green energy stocks are doing well.

Swept in Chaos

Although not everyone. There are stocks that are being swept up in the chaos. EPAM Systems (EPAM) has employees and programmers in Ukraine and they've suspended guidance.

Over the weekend, the fighting in Ukraine did not go as lopsided as the Russians had hoped while at the same time the rest of the world ramped up the sanctions against Russian and Putin personally, including barring transactions with Russia on the important SWIFT interbank system as well as limiting transactions with the Russian central bank.  The impact has been immediate in Russia with the key interest rate gapping up to 20%, the Ruble crashing 30%, and the Russian stock ETF down 23% pre-market.

Today, the US stock market opened in the red by over 1% but is clawing its way backInterest rates are down sharply, with the 10-year Treasury down 11 basis points and the 2-year Treasury down a huge 13 basis points.

The downward adjustment in rates seems to reflect the belief that the US Fed will choose to lighten up their resolve to raise rates and plans to start running off their balance sheet until the impact of the battle in Ukraine, the sanctions on Russia, and even the lifting of most pandemic rules have played themselves out. In the short term, a more dovish monetary policy will be good for the stock market, particularly high valuation tech stocks.

The good news is all those fears of higher rates are gone, and now it's just inflation. 

Teetering on Stagflation

Obviously, energy prices are going to be up. There is a risk of stagflation where we have hideous inflation and no economic growth. We're teetering on that right now in America, and Europe probably even more. Russia is clearly going into recession.

I'm not worried because the US is an oasis. The money is going to flow here and the dollar is going to be strong. The stock market is a place where you can profit from inflation because our companies can raise their prices.

The market is much more fundamentally focused now. There was froth and speculation in the market but those bubbles have all been pricked.

I do expect the first half of March to be bumpy, and then the second half of March will be much better because we'll be in the midst of quarter-end window dressing when the institutional investors tend to buy our stocks.

Coffee Beans

While Russia's currency is facing an uncertain future, the ruble’s role in global financial markets was insignificant even before the latest escalation. According to data published by SWIFT, the Russian currency was used in just 0.2 percent of all payments processed on SWIFT in December 2021 based on total transaction value. That puts the ruble 20th among global currencies, behind the Danish krone, the Polish złoty, and the South African rand. Source: Statista. See the full story here.