Weekly Market Update

Ukraine and the Federal Reserve continue to dominate market sentiment and stocks moved lower heading into a three-day weekend (markets are closed Monday for Presidents’ Day) hallmarked by significant headline risk of a potential Russian invasion. However, recent geopolitical events such as the assassination of Iran’s General Soleimani in 2020 or Russia’s annexation of Crimea in 2014 were largely non-events for markets, so why have headlines around Ukraine garnered so much attention from investors?

In a nutshell, markets are very worried that a conflict between Russia and Ukraine could cause energy prices to surge and exacerbate US inflation that is already at forty-year highs and keeping the Federal Reserve awake at night. Russia is a major energy supplier, particularly to Western Europe, and with the US and its allies threatening a variety of sanctions in response to any Russian incursion, it is very possible that Russian President Vladimir Putin seeks to weaponize energy at a time where oil prices are at their highest levels since 2014. Thus far, oil prices have largely resisted this week’s Ukrainian headlines after peaking around the middle of February, but this could change very quickly with headlines of Russian boots on the ground.

Chart of the Day

Quickly piggybacking off oil prices, recently we saw an eye-opening chart that we wanted to share. In 2020 during the heart of the pandemic, stocks that enabled people to work-from-home (WFH) thrived while energy companies were left for dead, as economic lockdowns caused demand for fossil fuels to plummet. However, that trade has since reversed in an incredible way as energy prices have rebounded and demand for WFH solutions has moderated. Below Zoom Video (ZM), one of the work-from-home darlings, is charted against energy giant Exxon Mobil (XOM) in terms of market cap. After passing Exxon Mobil in market value during 2020, Zoom has since seen a spectacular fall and is now almost 1/10th of the size of Exxon!

Ian G. Browning, CFA
Managing Director, Investment Strategies | Shareholder