Financial stocks tumbled Thursday as investors parsed through intensifying Western sanctions after Russia’s invasion of Ukraine. Beyond bank stocks, commodities, technology and defense are among market segments likely to feel the biggest impact.
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Countries across the world — excluding China — condemned the attack. They threatened to hit Russia’s financial and political elite with, in the words of U.S. President Joe Biden, “severe sanctions” holding it accountable for what the West sees as an unprovoked invasion.
That will include choking the access of Russian banks to U.S. and European financial markets. It also will include a ban on investment in Russian gas projects and potentially on transfer of key technologies, to weaken Russia’s capacity to grow and modernize.
The idea behind the economic sanctions is to make the Kremlin pay so stiff a price — without waging actual war — that it will be forced to reverse course.
But sanctions tend to hit both ways, beyond the expected tit-for-tat response from Moscow. Countries imposing such measures are likely to see spillover effects. For example, U.S. banks face higher costs and complexity from enforcing the new restrictions.
However, the impact on international trade could be limited because Russia and Ukraine together account for well under 1% of U.S. imports and exports, according to a note put out by Goldman Sachs Feb. 23. The firm added that the impact on energy prices should also be limited in the U.S., which unlike Europe is a net exporter of oil and natural gas. Europe relies heavily on Russia for natural gas.
Bank Stocks, Payment Providers
Two key Russian banks likely to be targeted are state-owned Sberbank and VTB, which hold more than half the country’s assets. The U.S. has already imposed sanctions on state-owned Vnesheconombank (VEB) and Promsvyazbank (PSB), which are crucial to the country’s ability to fund large-scale development projects and its defense sector, respectively.
But financial institutions in the West are likely to feel the pain as well, as the primary enforcers of sanctions.
Bank of America (BAC), JPMorgan Chase (JPM), Citigroup (C) and Wells Fargo (WFC) lost roughly 4% each on the stock market today. Foreign banks ING (ING), Banco Bradesco (BBD) and Itau Unibanco (ITUB) got hammered on Russia sanctions and global economy fears. Each sustained losses from approximately 7% to 11%.
Payment stock Mastercard (MA) turned higher, while Visa (V) and American Express (AXP) pared losses Thursday.
But even regional banks were big losers, reflecting broader concerns about the U.S. and global economy from Russia’s Ukraine invasion and the West’s sanctions.
The administration has mulled targeting Russia’s access to SWIFT, widely used by thousands of banks and financial institutions in hundreds of countries for international money transfers. Such a move could hurt Russian banks but is also likely to ripple through the global payments system, making it harder to get back money from Russian borrowers.
As a result, some in the U.S. financial and payments industry have opposed ousting Russia from SWIFT. On Thursday, Germany also warned against a SWIFT ban, even as the U.K. pushed for banning Russia from the payment provider.
Biden did not announce a SWIFT ban in Thursday’s address.
Commodity Prices, Gold Stocks
Prices of key commodities surged broadly Thursday amid fears of supply disruptions as the West considers additional sanctions against Russia. The U.S. has already imposed sanctions against the owner of the Nord Stream 2 pipeline, connecting Russia and Germany. Germany on Tuesday suspended certifying the pipeline, for now.
Russia is a leading producer and exporter of oil and gas, as well as metals and grains. Ukraine is a major wheat producer.
West Texas Intermediate futures, the U.S. benchmark, reached as high as $100 per barrel overnight, trading up 3.5% to $95.35 a barrel intraday Thursday. Brent crude, the international benchmark, topped $105.
Aluminum prices rose more than 3% to hit an all-time high $3,450 per ton. Nickel reached a decade-plus high around $25,000 per ton.
Inventories of base metals are already extremely low, JPMorgan said in a note to clients. That leaves “very little additional cushion for further supply disruptions — either from Russia directly or via higher-for-longer gas and power prices,” the firm’s analysts added.
Meanwhile, investors looking for safe havens drove gold prices higher. Gold hit a 1.5-year high, above $1,970 an ounce, and silver a seven-month high, according to the metals experts at Kitco.com. But both pared gains substantially.
Newmont Mining (NEM), one of the biggest gold miners in the world, reversed lower for a 1.1% decline, halting a big run. But NEM stock’s relative strength line has been hitting multimonth highs.
Oil major Chevron (CVX) also sank as much as 3% after initially rallying. CVX stock remains near highs.
As gold rallied, cryptocurrencies tumbled. Investors worrying about how long the Ukraine conflict could last hit already battered cryptos — which some call the ultimate risk asset — especially hard. Cryptocurrencies, which Russia potentially could use to circumvent various financial and payment restrictions, aren’t seeing a bid.
Bitcoin, the world’s largest cryptocurrency, sank 4% vs. 24 hours earlier to $36,462, according to CoinDesk. It earlier made one-month lows under $35,000. Ethereum retreated nearly 6%.
Chip Stocks, Technology
New measures to stop Russian President Vladimir Putin’s aggression could include denying access to key technologies such as semiconductors.
Chips are everywhere in the modern age. They power everything from smartphones and laptop computers to automobiles, power plants and fighter jets.
But fears that the next round of sanctions could target Russia’s access to semiconductors, while forbidding hardware and software sales to the country, have been weighing on the technology sector.
Such measures could directly affect U.S. technology and chip giants including Apple (AAPL), Microsoft (MSFT), Nvidia (NVDA), AMD (AMD), Qualcomm (QCOM) and GlobalFoundries (GFS). But even Europe’s STMicroelectronics (STM) and ASML Holdings (ASML), as well as Asia’s Taiwan Semiconductor Manufacturing (TSM) and Samsung, could be prohibited from doing business with Russia involving any products made on U.S. soil or in other markets imposing sanctions against that country.
In addition, Russia and Ukraine are major suppliers of minerals, metals and noble gases, such as neon and palladium, used in chipmaking. Any supply disruptions would be a further aggravation for tech companies that source materials or sell products around the world, after a year-plus shortage of semiconductor chips.
Apple stock dipped 0.2% Thursday, extending a five-session losing streak and hitting its lowest level since November 2021. Shares did rebound from just above the 200-day line. The RS line for AAPL stock remains close to record highs.
Many tech stocks, including Microsoft and Nvidia, rebounded higher Thursday as the Nasdaq erased steep losses.
Defense Stocks, Aerospace, Cybersecurity
One sector should, almost inevitably, benefit from Russia’s invasion of Ukraine: defense and aerospace.
Shares of some defense contractors rallied Thursday on hopes of higher military spending. But defense and aerospace stocks were broadly mixed, amid lingering uncertainties and expectations for a hit to travel.
Northrop Grumman (NOC) rose 1.7% and Lockheed Martin (LMT) added 0.4%. That compared to losses ranging from nearly 1% to 4% for Raytheon Technologies (RTX), General Dynamics (GD), Textron (TXT), General Electric (GE) and Boeing (BA).
Meanwhile, the U.S. braced for cyberattacks with the Russia conflict escalating. The U.S. also blamed Russia for a cyberattack against Ukraine earlier this week.
Cybersecurity stocks sizzled Thursday. Palo Alto Networks (PANW) popped 11%, reclaiming its 50-day line. Fortinet (FTNT) jumped 10% and CyberArk (CYBR) 9%. Datadog (DDOG) rebounded 5%.
Find Aparna Narayanan on Twitter at @IBD_Aparna.
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