Stocks were up big this afternoon as tensions cooled between Russia and Ukraine. The Nasdaq Composite led the way while the S&P and Dow trailed closely behind. Treasury yields marched higher, too, but did little to stop a strong tech rally.
As we mentioned in yesterday’s commentary, the likelihood of a Russian invasion was vastly overblown by the mainstream media. Reports that Russian forces had moved into “attack formation” sent the market temporarily lower yesterday.
For weeks, the White House insisted that an attack was “imminent” as well. But Russia never invaded. And today, Russia claimed that it pulled some of its forces off the Ukrainian border.
Igor Konashenkov, a spokesman for the Russian Ministry of Defense, said that troops “have already begun loading onto rail and road transport and will begin moving to their military garrisons today.”
He continued, adding that additional troops engaged in military drills in Belarus (which also shares a border with Ukraine) would return to their bases on February 20th.
Ukrainian Foreign Minister Dmytro Kuleba then responded to Konashenkov’s announcement.
“We in Ukraine have a rule: we don’t believe what we hear, we believe what we see,” Kuleba said.
“If a real withdrawal follows these statements, we will believe in the beginning of a real de-escalation.”
Julianne Smith, Biden’s Ambassador to NATO, warned that Russia may simply be attempting to mislead NATO forces.
“We’ll have to verify that and take a look. You may remember, in late December, there were some similar claims that came out of Moscow that they were de-escalating and in fact, facts on the ground did not support that claim,” Smith said.
“This is something that we’ll have to look at closely and verify in the days ahead.”
And though NATO didn’t believe Konashenkov’s statement, investors certainly did. Stocks rallied on what was the first piece of good news in almost a week. Crude oil prices plummeted in response as well, only adding to the market’s gains.
If energy costs fall further, this will help slow the pace of inflation.
What won’t do it, however, is additional economic activity by way of tumbling Covid cases.
“De-escalating tensions between Russia and Ukraine are helping overall sentiment today, but that isn’t the only good news. US Covid cases are now down 80% from their January peak, another sign the reopening will be moving forward,” said LPL Financial’s Ryan Detrick.
If it were up to the Fed, though, the “reopening” would be put on hold indefinitely as rising demand has only made inflation worse. It’s gotten so bad that Fed officials are officially sounding the alarm on inflation in premarket interviews.
“I do think we need to front-load more of our planned removal of accommodation than we would have previously. We’ve been surprised to the upside on inflation. This is a lot of inflation,” said St. Louis Fed President Jim Bullard on CNBC’s Squawk Box yesterday.
Tomorrow, the Fed will release the minutes from its January FOMC meeting. Bullard’s comments suggest that the Fed believes it is behind the curve on raising rates. If the meeting minutes show that’s the case, additional selling should follow as the market prices in an even more aggressive rate hike schedule.
So, while today’s rally was a welcome sight, it doesn’t confirm that a larger upswing is on its way. There could easily be more pain in store for bulls tomorrow afternoon if the minutes release goes poorly, regardless of whether Russia continues pulling troops off the Ukrainian border or not.
