Dow Jones futures fell solidly Monday morning, along with S&P 500 futures and Nasdaq futures, but were well off overnight lows. Russia's ongoing Ukraine invasion and growing Western sanctions are in focus. Defense stocks were early winners, continuing to build on last week's gains.
The stock market plunged to fresh lows last week but then rebounded powerfully.
Ukraine continues to resist Russia's advance, notably near the capital Kyiv and second-city Kharkiv. Russia continues to bring more troops and weapons to bear, however, gaining key ground Sunday. The U.S. and other allies are enacting stiff new sanctions on Russia, while Europe is up-ending decades of security policy literally overnight.
Putin ordered Russian nuclear deterrent forces on alert on Sunday.
Russia-Ukraine talks are underway, but at present it doesn't appear that either side is backing down.
'Swift' Punishment For Russia
The stock market rebounded late last week in large part on relief that Western sanctions weren't as harsh as feared. But on Saturday, the U.S., European Union, U.K. and Canada agreeing to suspend some Russian banks from the Swift payments system and target Russia's central bank.
Swift, or the Society for Worldwide Interbank Financial Telecommunication, connects all the world banks in a network, handling trillions of dollars' worth of payments. Without Swift access, banks won't honor payments or transfers from Russia. President Biden did not take that step last week, amid opposition from several European nations. But in a sign of just how swiftly positions are moving, those European countries are now in favor of far-more serious sanctions.
Ursula von der Leyen, president of the European Commission, said Western nations will bar a "certain number" of Russian banks from the Swift network. The restrictions do not include payments on energy, including Europe's purchases of natural gas. On Sunday, Jen Psaki, White House press secretary, said that "energy sanctions remain on the table."
Many Western banks could choose to "self-sanction," refusing to deal with any Russian financial institutions, officially targeted or not.
Separately, the West will target Russia's central bank, essentially freezing its overseas reserves. These actions will put enormous strain on the Russia's financial system and economy. The U.S. and Europe also moved to suspend any transactions with the central bank.
Japan said Sunday that it will also impose similar sanctions on Russian banks, as well as sanctions vs. President Vladimir Putin.
Switzerland's president Sunday said that it's "very probable" that his country, a financial giant, will impose similar measures vs. Russian banks on Monday.
The White House also said America and allies will "launch a multilateral Transatlantic task force to identify, hunt down, and freeze the assets of sanctioned Russian companies and oligarchs – their yachts, their mansions, and any other ill-gotten gains."
Russia could retaliate by cutting off gas to Europe or limiting exports of crude oil or other key raw materials. That may be unlikely for now. But just the possibility could send commodity prices soaring further.
Bank runs were already beginning as Russians scrambled to pull money out of ATMs for fear that withdrawals will be halted.
European Defense Policy
On Saturday, Germany ended its long-standing opposition to arming Ukraine, freeing up several other countries to deliver arms as well. On Sunday, Chancellor Olaf Scholz said defense spending will be increased to above 2% of GDP, the official NATO minimum that Germany has long undercut.
Scholz also announced support for new LNG import terminals, greater natural gas storage, other energy independence measures. There are even reports that the German coalition government is mulling a rollback of its nuclear plant phaseout.
The European Union agreed to finance the purchase and delivery of arms, for the first ever, on behalf of Ukraine. Several member nations will even supply Ukraine with fighter jets with EU funding, according to a high-ranking EU official.
Sweden, breaking a longstanding tradition, will send 5,000 AT4 anti-tank weapons to Ukraine, along with body armor, helmets and more.
The EU, U.K. and Canada closed their airspace to Russia-registered planes. The EU shut down pro-Kremlin media outlets. It'll also will extend its Russia sanctions to Belarus, which is taking part in the Ukraine invasion.
The U.S. and French governments separately encouraged their citizens to leave Russia.
Stocks Setting Up
For now, the market is in a correction, with the Nasdaq briefly reaching the 20% down bear threshold. But a new market rally attempt is underway. Investors should still be cautious until there's a confirmed uptrend, but they should be building up their watchlists.
Apple stock, Microsoft, Regeneron Pharmaceuticals, J.B. Hunt Transportation and Arista Networks are not in buy range right now. But Apple and these other names are setting up close to buy points and could be actionable if the rally attempt builds momentum.
Meanwhile Tesla rebounded from a six-month low of 700 intraday Thursday. But Tesla stock still fell 5.5% to 809.87 for the week, ending below its 200-day line. Getting above that 200-day line is critical for the EV giant. But TSLA stock is a long way from having even an early entry.
Tesla stock and Microsoft are on IBD Leaderboard. Microsoft stock also is on IBD Long-Term Leaders.
Defense Stocks
Lockheed Martin, General Dynamics, Northrop Grumman and Javelin-maker Raytheon all jumped Monday after big gains Friday.
The likelihood of a protracted Ukraine conflict, with Western nations replenishing Ukrainian arms is a near-term boost to defense stocks. Longer term, Germany and other European nations are likely to see a big boost in defense spending, while the U.S. could spend more on weaponry.
Dow Jones Futures Today
Dow Jones futures fell 1.2% vs. fair value. S&P 500 futures lost 1.3% and Nasdaq 100 futures sank 1.25%. Those are all off overnight lows, especially Nasdaq futures, but they are slipping again.
The 10-year Treasury yield tumbled 7 basis points to 1.92%.
U.S. crude oil futures jumped 4%, but off overnight highs. Brent crude is back above $100 a barrel. Gold popped 1%. Wheat futures soared, with Ukraine a major wheat exporter. Corn and soybean futures also rose solidly.
Energy, gold and agricultural stocks will continue to have a tailwind.
The dollar rose vs. most currencies, including the euro. The ruble, which had already fallen significantly last week, tumbled 15% amid the intense Russian sanctions. The currency initially crashed overnight, but the central bank hiked domestic interest rates to 20% from 9.5%.
Russia's stock market did not open Monday. Foreigners will be blocked from selling Russian securities, temporarily.
Remember: Overnight action in Dow futures and elsewhere doesn't necessarily translate into actual trading in the next regular stock market session.
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Stock Market Rally
The stock market rally bounced back late in the week after tumbling to multimonth lows.
The Dow Jones Industrial Average edged down 0.1% in last week's stock market trading. The S&P 500 index rose 0.8%. The Nasdaq composite climbed 1.1%. The small-cap Russell 2000 gained 1.5%.
Among the best ETFs, the Innovator IBD 50 ETF advanced 1.1% last week, while the Innovator IBD Breakout Opportunities ETF edged up 0.3%. The iShares Expanded Tech-Software Sector ETF jumped 3.4%, with MSFT stock a major SMH component. The VanEck Vectors Semiconductor ETF climbed 2%.
SPDR S&P Metals & Mining ETF leapt 4.8% last week, hitting a new high. The Global X U.S. Infrastructure Development ETF rose 0.7%. U.S. Global Jets ETF closed up 0.7%. SPDR S&P Homebuilders ETF dipped 0.3%. The Energy Select SPDR ETF rose 1.2% and the Financial Select SPDR ETF edged down 0.3%. The Health Care Select Sector SPDR Fund popped 2.7%.
Reflecting more-speculative story stocks, ARK Innovation ETF rebounded 4.7% last week and ARK Genomics ETF 4.5%. Both hit 20-month lows during the week. Tesla stock remains the No. 1 holding across Ark Invest's ETFs.
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Stocks To Watch
While some stocks are flashing buy signals already, the current market conditions and Ukraine invasion headlines still make new positions risky. Apple, Microsoft, Arista Networks, Regeneron and JBHT stock are worth watching because they could trigger buy signals if the market rally attempt continues to build strength.
Apple stock fell 1.5% last week to 164.85, but came way off Thursday's lows of 152, when it touched the 200-day line. No longer a cup-with-handle base, AAPL stock is a consolidation with a 183.04 buy point. Investors could view the Apple chart as a double-bottom pattern, giving it a 176.75 entry. That would definitely serve as at least an early entry. An even-earlier entry would come if Apple stock reclaims the 50-day line, which would also coincide with a trendline break.
The relative strength line for AAPL stock remains near record highs. The RS line, the blue line in the charts provided, tracks a stock's performance vs. the S&P 500 index.
Microsoft stock rose 3.3% last week to 297.31 after hitting an eight-month low intraday Thursday. Shares are coming up to their 200-day line. Moving above that level, as well as a trendline, would offer an entry as a Long-Term Leader. The 50-day line, which roughly coincides with February highs, also is an important area. The traditional buy point is 349.77, according to MarketSmith analysis.
ANET stock fell 1.9% to 123.50 last week, but rebounded from near its 200-day line. Shares are still below their 50-day line. Arista Networks stock has a 148.67 buy point. Investors could use the Feb. 17 high of 138.87 + 10 cents as an early entry. Arista earnings and sales growth accelerated modestly in the latest quarter. Its price-to-earnings ratio isn't extreme.
REGN stock edged up 0.6% to 618.66, finding support at its rising 200-day line and closing just below its 50-day line. The official buy point for Regeneron stock is 673.96 from a flat base next to another base. Investors could use the recent high of 645 + 10 cents as an entry, or even a trendline for a slightly lower entry. Regeneron boomed in 2021 from Covid treatments, but earnings are expected to fall in 2022, though remain well above pre-2021 level. The P-E ratio is in the single digits.
JBHT stock popped 4.1% to 196.90 last week, coming right up to its 50-day line. J.B. Hunt stock has a 208.97 flat-base buy point. But investors could use 199.42, just above the Feb. 15 intraday high, as an early entry.
Market Rally Analysis
The stock market rally is dead. Long live the stock market rally (attempt). The stock market fell back into correction on Wednesday as the major indexes broke below their Jan. 24 lows, putting a long-suffering confirmed uptrend out of its misery. On Thursday morning, the Nasdaq was down more than 20% from its November peak, hitting bear market territory. But the major indexes rebounded on Thursday and Friday, closing near session highs both days.
Friday was day 2 of a stock market rally attempt. One or two good days in a market correction aren't that meaningful. That's why it's important to look for a follow-through day to confirm the stock market rally. Of course, as recent events showed, confirmed rallies don't always work.
The market remains driven by Russia-Ukraine headlines and is prone to big, quick swings. The positive swings are fun, the negative reversals not so much. The Federal Reserve will start raising rates in a few weeks, with Russia's invasion and Western sanctions complicating policymakers' task at reining in inflation without sinking the economy.
On a technical basis, even a confirmed rally would face numerous hurdles. The major indexes remain below key moving averages, their February peaks and all-time highs.
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What To Do Now
Aggressive investors could start nibbling at stocks or broad-market ETFs, but with this big caveat. If you're going to jump in early, you have to be willing to get out just as fast, or faster. Any new positions should be small.
There's a strong case that investors should wait for a follow-through day to start adding exposure, and even then cautiously. By then, stocks such as Apple, Regeneron and ANET stock might be flashing buy signals. But they may not pan out.
It's definitely a time to be working on your watchlists. A large number of stocks like Microsoft from a variety of sectors are setting up to set up, if they get a few good days.
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