February 24, 2022
As we discussed yesterday, markets don't like confusion. Will Russia invade? Is it an invasion, or isn't it? Will there be a bigger, more draconian response from the West, or is it mostly tough talk?
Now we have some answers. Invasion: check. Tougher response: no.
With that, we get two triggers for buying stocks today: 1) some clarity, and 2) the potential for a slower exit of global emergency monetary policies.
On the latter, the events of the past 24 hours have the market now locked in on just a quarter point rate hike, to come from the Fed next month — instead of half a point. And in Europe, members of the European Central Bank were suggesting today that the Ukraine conflict may delay an exit from the pandemic-induced stimulus policies.
So, markets like a more cautious path on rates, especially if the risks of economic disruption are rising. On that note, don't underestimate the appetite for politicians to leverage crisis. This should be no secret to anyone that has paid attention over the past two years.
As of early this morning, we're already hearing talk about cyber attack threats. On the one hand, the Biden administration has warned of cyber attack risks to U.S. banks and utilities, and on the other hand, the administration seems happy to stoke these threats, by publicly discussing options to launch cyber attacks against Russia.
If such economic disruptions unfold, we can be sure that the democrat-led Congress will quickly resurrect the "Build Back Better" plan to be rubber-stamped. "Never let a crisis go to waste."