US stocks opened lower on Thursday as Russia invaded Ukraine. However, the statements made by US President Joe Biden about the conflict in his speech in the afternoon somewhat relieved the concerns of the investors.
At least 40 people have been killed and dozens injured in explosions in major cities, including the capital, Kyiv, and the cities of Kharkov and Odessa, since Russian troops invaded Ukraine late Wednesday night.
Joe Biden reiterated his statement that “our forces have not and will not engage in a conflict with Russia in Ukraine”, adding that US troops will be “sent to other parts of Europe to protect NATO”. In his televised speech, Biden said G7 leaders are limiting Russia’s ability to do business in Dollars, Euros, Pounds and Yen, in addition to other sanctions.
Along with the announcements, Dow Jones, S&P 500 and NASDAQ Indices, which had dropped more than 2% overall, recovered and closed the day higher.
The NASDAQ index, which is dominated by technology stocks, closed with 436 points on Thursday with an increase of 3.34%, which is the highest of the three indexes. The S&P 500 closed up 63 points (1.5%) while the Dow Jones Industrial Average rose 92 points (0.28%).
Crude oil, on the other hand, traded above $105 per barrel for a short time on Thursday, closing the day below $100. It was noteworthy that the increase in oil prices was the highest level recorded since 2014.
Gold prices rise as Bitcoin falls
Gold futures closed 0.8% higher, reaching the highest levels recorded since September 2020 during trading hours, as investors timid due to the war took a more traditional route, choosing to buy gold instead of Bitcoin.
Like gold, Bitcoin is seen as a reliable asset to hedge against inflation and stock market volatility, but Bitcoin prices rose more than 3% around 4:00 p.m., despite falling more than 3% at around 1:15 PM CET on Thursday. In the past five days, the cryptocurrency has lost more than 4%.
Should you sell your shares because of the Ukrainian occupation?
While some stocks may seem plausible to sell at the moment, market analysts warn that stocks could lose more value, noting that investors should act with caution.
Keith Lerner, chief investment officer at Truist Advisory Services, said: “While the headlines are troubling from an investment perspective, we encourage investors not to make hasty decisions. Panic selling is not usually a winning strategy,” he commented.
Aside from tensions with Russia, the Fed is considering whether to raise interest rates aggressively to curb inflation, which has reached a 40-year high. A rise in interest rates could lead to further declines in stocks, as higher interest rates mean companies and consumers have to make higher payments to pay off their debt, and automatically lower corporate profits.
Still, analysts highlight the importance of long-term thinking in situations like these. Lerner commented, “It is necessary to take into account that the markets tend to eventually recover following geopolitical events and the reversals from corrections tend to be very sharp.”
What shares should be bought during the occupation of Russia?
US-based investment company Wedbush Securities analysts Daniel Ives and John Katsingris stated that it is a good time to consider buying technology shares, “Even though each geopolitical shock event is different and unique, our strategy since 2000 is a technology company that is oversold due to panic in times of global chaos. It was in the direction of buying its shares,” he said.
Ives and Katsingris urged attention to cyber stocks.
“With cyberattacks that are sure to increase on the horizon, we believe that the growth potential and well-positioned companies in the cybersecurity sector should be at the forefront for technology stock investors.”
Will the Fed step back from raising interest rates?
At its last meeting, the Fed announced that it plans to raise interest rates, which are currently close to zero, at least three times this year. The first hike will take effect next month. However, the economic risks posed by the Russia problem for the USA may cause the Fed to reconsider when to raise interest rates and how much the increase should be.
“The effects of the Ukraine crisis on the medium-term economic outlook in the United States will also be instrumental in determining the appropriate pace for monetary policy,” Cleveland Fed President Loretta Mester said on Thursday.
Bill Adams, chief economist at Comerica Bank, said the crisis would not cause the Fed to make a total 180-degree turn in raising interest rates. Stating that the occupation made it “much less likely” for the Fed to increase interest rates by 50 basis points, Adams said, “Inflation in the USA is well above the target. Interest rates are likely to increase by a quarter point with the acceleration in demand and strong employment growth.
If the US goes to a policy of increasing domestic oil production, there is a possibility that inflation could slow even without Fed measures. Brad McMillan, chief investment officer of the Commonwealth Financial Network, said such a policy would both limit the rise in oil prices and contribute to US economic growth.
Translation: Cem Cinginguc