Russia threatens Ukraine, worries about Fed rate hike could create a tumultuous week in markets

The stock market faces another volatile week, as investors monitor the situation in Ukraine and continue to adjust their portfolios before the Federal Reserve raises interest rates.

Stocks have been rocking in both directions over the past week, with Dow Jones Industrial Average see it worst day of the year Thursday. The three major averages fell on Friday afternoon, and all three are on track to drop more than 1% for the week. Energy, media services and financials were the worst performing sectors for the week.

Several Fed speakers will schedule the next four-day week, including Cleveland Fed President Loretta Mester and Fed Governor Christopher Waller on Thursday. Earnings continue to grow, including reports from retailers Macy’s and Home Depot. There are also several economic reports, including durable goods data, consumer spending and inflation.

“Probably the biggest problem [for the market] Jim Paulsen, chief investment strategist at The Leuthold Group, said next week is technical.

The market continued to fluctuate with developments surrounding Russia’s threat to invade Ukraine and its military buildup along the Ukrainian border.

“The problem with Russia, what’s the end game? It could go on forever… When you look ahead, what’s going to change this is if they go in or have a total retreat, and what would lead to a retreat any Paulsen said.

He said stocks look set to break higher before Russia’s threat to Ukraine begins to weigh on the market. About two weeks ago, the S&P 500 attempted a retest of 4,600 after hitting a low of 4,222 on January 24.

“They did it despite all the Fed stuff and inflation,” Paulsen said. “The market was fine with that. Russia took it all down. Now you’re in a situation where if we break enough of it.” low, we have to break that low,” Paulsen said.

On Friday, Russia prepares to conduct more military exercises near Ukraine borderwhile the US continues to press for a diplomatic solution.

“As an investor, that leaves you hanging there, and technically you have to wonder if we’re testing that low,” Paulsen said. “I don’t know about the next 60 days, but the next six months will be good.”

Chart analysis is not guaranteed to predict the direction of the market, but many investors target the key technical levels because so many traders react to them and the algorithms are programmed around them. They also become a guide when the fundamentals are very uncertain.

View the charts

Scott Redler, chief strategy officer at T3Live.com, tracks short-term technical indicators. He sees a good chance the S&P 500 will retest the January low in a retest.

“The story for this year is inflation and the Fed eliminating accommodation,” Redler said. “We could get a nasty reaction on the Russia-Ukraine situation.” He said even if the threat from Russia goes away, the market could still face volatility when the Fed proceeds to raise interest rates starting in March.

“That doesn’t solve the problem of four to seven rate hikes this year and balance sheet flows,” he said, adding that the market has reacted negatively to the Fed tightening. tight in the past. “In 2018, the S&P is down 20% and the Nasdaq is down 24%. So why doesn’t the S&P test the 4,222 area?”

Redler and other technical analysts are watching a bearish pattern on the S&P 500 chart that suggests the index could form. “head and shoulders” pattern, which can bring more volatility.

“It’s a distributive model, that’s what the market has been doing over the past month as it builds into the right role,” said Redler. He said the neckline on the chart would be between 4,220 and 4,280. “After it forms, you will get a lower price if the neckline is broken.” In that case, he said the broad market index could drop to 3,900, he added.

Redler is also tracking the chart of Big Tech stock. “Apple used to be an island where it’s not particularly active, but it’s not broken. If Apple starts breaking out of the 166-ish area, that will help lower the S&P faster,” he said. “Apple has managed to stay in the $165 to $170 area, which keeps it somewhat constructive.”

Shares of Microsoft are also rising. “Apple and Microsoft make up such a high percentage of the S&P and Dow,” he said. “For the bears to really growl, they’re going to have to split the two, alongside the high-growth names,” he said.

Flight to safety

In the bond market, investors are weighing a Federal Reserve rate hike on worries about a Russian invasion of Ukraine. The 10-year Treasury yield was 1.93% on Friday. Yields move inversely to price. Investors have been looking for 10 years as a safe haven against possible weekend developments in Ukraine.

A week earlier, the market was worried about the possibility that the Fed would more drastic with interest rate increase. The market has priced in only about a quarter of Friday’s gains.

Fed President St. Louis James Bullard raised expectations for a larger rally, and he reiterate that view on Monday on CNBC’s”Box of Squaw. ” Then the minutes of the Fed’s last meeting were release wednesday. They turned out to be less belligerent than expected, with no indication that Federal Open Market Committee members were in favor of a larger rate hike.

“I think based on what we’ve heard from this minute and everyone except Bullard, it doesn’t seem like anyone is really in favor of a 50 rally,” said Ben Jeffery, rating strategist at BMO Capital Markets. base point.

As for economic data next week, there are a few key reports including durable goods and consumer sentiment on Friday.

Personal consumption spending data is also expected on Friday. Investors will focus on reading inflation in that report, which is closely watched by the Federal Reserve.

John Briggs of NatWest Markets said: “We have a pretty good guide that’s going to exceed expectations. This is probably the highlight of the week, as the data shows.”

Boiling oil

Tensions with Moscow have sent oil prices higher due to concerns that any retaliatory sanctions from the US could limit Russian oil on the market. West Texas Intermediate oil futures rose above $95 a barrel over the past week for the first time in seven years. But by Friday, the price had dropped to around $91.

On Friday, the market reacted more to reports that US and Iran look close to reaching a deal on Friday to revive a nuclear deal. If the deal is restored, Iran will be able to release its crude to the global market.

John Kilduff said: “There’s been a lot of positive commentary around this. It seems to have come to an end in the market. It’s a marriage of convenience. The market needs the crates. The government. Biden needs the barrels and the Iranians need the money,” in partnership with Again Capital.

Kilduff said traders are looking at earnings reports from oil companies for the next week, with the most important being Mysterious Oil. EOG . Resources, NRG, Chesapeake Energy and Coterra Energy Will also post the results.

With the number of US rigs growing, Kilduff said investors are watching to see if companies report plans to increase drill.

“What their investment plans will look like is a hot topic of discussion,” he said.

Week-by-week calendar

Monday

President’s Day

Market is closed

11:15 a.m., Fed Governor Michelle Bowman

Tuesday

Income: Home Depot, Macy’s, Brothers collect fees, Caesars EntertainmentPublic Memory, Agilent, Palo Alto Network, Mosaic, virgin galaxy, Texas Roadhouse, TrueCar, Anglogold Ashanti, KBR, Sealy, Cracker Barrels, Krispy Kreme, Fluor, Expeditors International, Medtronic, Norsk Hydro, HSBC

9:00 am S&P / Case-Shiller house prices

9:00 am FHFA house prices

9:45 am Manufacturing PMI

9:45 am Services PMI

10:00 am Consumer confidence

3:00 pm Dallas Fed Interim President Meredith Black

3:30 p.m. Atlanta Fed President Raphael Bostic

Wednesday

Income: Booking Holdings, Barclays, eBay, Bausch Health, Brink’s, Travel + Entertainment, Dana, Molson Coors Brewing, Sleep Number, IMAX, Tupperware, TJX Cos, Allbirds, Bath & Body Works, Petrobras, Lowe’sIamgold, Hertz Global, Extra space memory, Sturm Roger, Chesapeake, Coterra

Thursday

Income: Anheuser-Busch, Alibaba, Daimler, AXA, Moderna, WPP, Iron Mountain, Gannett, SeaWorld, Coinbase, Etsy, Morningstar, Dell Technologies, Besides meat, Ambac Financial, Cushman & Wakefield, Allscripts Healthcare, Keurig Dr. Pepper, NetEase, NRG Energy, Planet Fitness, VMWareSouthwestern Energy, Steve Madden, Wayfair, American Tower, Discover, Mysterious Oil

8:30 a.m. Initial Jobless Claims

8:30 a.m. Q4 2nd Reading on Real GDP

9:00 am, Richmond Fed President Tom Barkin

10:00 am New home for sale

11:00 am at the Fed’s Daly in San Francisco

11:10 am at Atlanta Fed’s Bostic

12:00 am Richmond Fed’s Barkin

12:00 noon Cleveland Fed President Loretta Mester

3:30 p.m. San Francisco Fed President Mary Daly

8 p.m. Fed Governor Christopher Waller

Friday

Income: Royal Bank of Canada, footboard, Sempra Energy, Liberty Broadband, Liberty Media, Cinemark

8:30 a.m. Durable goods

8:30 a.m. Personal income/expenditure

8:30 am PCE deflator

10:00 am Home sale pending

10:00 am Consumer sentiment

Saturday

Income: Berkshire Hathaway