While markets can prove remarkably sanguine about geopolitical turmoil over the long term. the initial impact of such events can be tumultuous for traders and ivnestors allike.
Real Money Columnist Jonathan Heller recently deconstructed the markets' action on the day Vladimir Putin's invasion of Ukraine began.
The trading on Thursday, Feb. 24 "was like a 400-level college course on volatility, investor psychology, and what can happen when there is great uncertainty all within a single trading day,” Heller wrote recently on Real money. “Against the backdrop of Russia's invasion of Ukraine, the S&P 500 opened down about 1.7%, and at its lowest point was down 2.6%. It closed up 1.5%, a 4.2% gap between the low and close.”
As one might expect, the trading ride was even wilder in small-cap securities. The Russell 2000 was down 2.3% five minutes after opening, and closed up about 2.7%. The spread between the daily low and close was about 5.4%.
The Nasdaq embarked on an even bigger roller coaster ride, opening down 3.3%, and closed up 3.4%. The spread between the low and close was 6.9%.
“However, it was the ride of many individual names that presented the most-stark representation about what can happen during the course of a single trading day, in uncertain times,” Heller said.
Heller used some names he currently holds and some he doesn’t as examples.
“Retailer Fossil Group (FOSL) opened down 4.1%, and closed up 4.4%, with a 9.8% spread between its low and close,” Heller noted. “Weber (WEBR) opened down 4.3%, closed up 4%, and ended the day with a 13.6% spread between the low and close. eBay (EBAY) opened the day down 8%, closed up 1.6%, and had a 12% spread between low and close.”
Some assets went the other way, Heller noted, especially those seen as hedges against uncertainty. For example, the Sprott Physical Silver Trust (PSLV) opened up 3.3%, as silver approached a 1-month high, and closed down 1.4%.
Heller offered some questions he’d be seeking answers to in a potential bargain situation in tumultuous times:
- Is XYC company really worth X% less today than it was yesterday, or is it the innocent victim of a market that has overly punished it?
- What is it about this company that the market is missing?
- What else can go wrong from a company specific perspective?
- What is my time horizon?
- How much more punishment am I willing to take?
“As usual of late, buckle up,” Heller said.
