Russia’s “Concerning and Destabilizing” Situation Rattles Stocks

Stocks were hanging on to their morning gains today as traders responded to the latest inflation news and looked ahead to upcoming economic reports.

The Dow Jones Industrial Average had gained a modest 11 points. The S&P 500 saw a rise of 0.4%, while the Nasdaq Composite increased by 0.6%.

After hitting its highest point of 2024 yesterday, the 10-year Treasury yield dropped to 4.259%.

Following yesterday’s sell-off in response to the Consumer Price Index (CPI), stocks made a slight recovery. The likelihood that the Federal Reserve will maintain current interest rates through the next two meetings fell to 60.7% today, down from 65.5% yesterday according to the CME Group’s FedWatch tool. Just a week ago, this probability was much lower at 36.3%.

Today, the market’s fear index, the CBOE Volatility Index, decreased by 4.5% to 15.13. For the first time since Nov. 9, the VIX ended the day above 15 yesterday.

However, the VIX might begin to rise again following news that rattled traders around noon today. The head of the House Intelligence Committee has been cautioning this week that Ukraine is running out of time in its conflict against Russia as the decision on Ukraine aid remains pending.

Earlier today, House Intel Committee Chair Mike Turner made a statement:

“Today, the House Permanent Select Committee on Intelligence has made available to all Members of Congress information concerning a serious national security threat.”

Turner added in his statement:

“I am requesting that President Biden declassify all information relating to this threat so that Congress, the Administration, and our allies can openly discuss the actions necessary to respond to this threat.”

National Security Advisor Jake Sullivan reassured Americans in a press conference that there was no need for panic, calling the situation a “significant and enduring concern.” The stock market saw an uptick following his comments.

Then, Haley Britzky, a Pentagon correspondent for CNN, reported from sources that Russian capabilities are “highly concerning and destabilizing.”

It seems the truth may be somewhere in the middle. For the markets, though, this uncertainty arrives at an inconvenient time. Stocks are down slightly, yes, but if yesterday’s lows fail to hold, massive knee-jerk selling could easily follow. Panic-buying drove the VIX significantly higher yesterday, and investors may have to endure another VIX burst if stocks head lower.

This would, in turn, accelerate the market’s losses as traders once again scramble to buy downside protection with VIX call options, which were tough to buy yesterday with prices rising so quickly and spreads widening significantly.

We’ll find out what’s going on with Russia (or at least the version of the information we’re allowed to hear) soon. Until then, expect continued choppiness from markets.


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