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Morning Brief: Markets Make History on Russian Invasion

Markets made history yesterday amid wild swings as the Russian invasion came to fruition. There has only been one other time in history where the S&P has hit a 6 month session low, was down -2%, and then finished up 1%. This index was not alone, as the NDX had even wilder swings, going from down over -3.5% , to rallying over 2%. Why did this happen?

Well there are a few things that took place. One, historically there has been a rebound after an invasion. This is usually because the market expects a greater risk from the rumors, and then buys the news as the impact to the U.S. market is a lot less. See the below chart.

So with Russia invading Ukraine, the impact is more to the whole of Europe, that actually any fiscal impact on the U.S.

Secondly, Biden spoke and the sanctions were a lot less than expected. Biden also said there will be no direct U.S. troop intervention but only a deterrence , as troops were sent to supporting NATO countries. This caused the market to continue to soar, rushing into huge bull upswing.

Third, with the looming war, the Fed is expected to be more dovish on interest rates. Wild swings, price uncertainty , and global geopolitical risks might take a preference over rising interest rates. Any increase in interest rates, could cause a market crash, which would cause even further pain to the average U.S. citizen. The Fed will likely not want to inflict more damage, especially with elections coming shortly and the democrats polling looking awful already. You might be like oh, the Fed is bipartisan.... well if you think that you are naive. It is definitely political and it leans towards the Democratic Party and liberal ideology.

Lastly, there was a giant Gamma squeeze in play, as heavy shorts came in over night and into the early market. Market Makers were forced to start trading out of positions, causing a bullish run as well.

All in all this caused the swing that we saw yesterday. There was a small chance this would happen again in history, but we keep seeing more and more historic events in recent times. With a WW3 like starting invasion, a giant COVID pandemic, and historic inflation. What is left for 2022? Time will only tell, but I will continue to grind out the trading around these times.


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