S&P 500 rebounds above 4450, up around 1.5% as Russia/Ukraine tensions ease, investors breath sigh of relief

The S&P 500 opened Tuesday trade sharply higher and currently trades to the north of the 4450 level, up about 1.5% on the day. Russia has confirmed it is moving troops away from the Ukrainian border, easing concerns about imminent military action, hence the rebound in not just US but global equities. But as NATO and Western leaders caution that Russia remains in a position where it could swiftly take military action against Ukraine and as Russia looks on the verge of recognising the independence of breakaway regions in Eastern Ukraine, tensions remain high.

Recognition of the independence of these regions, coupled with Russia’s talking up of how Ukraine is committing a “genocide” against Russian speakers in its East could form the pretext for a reignition of open hostilities, investors continue to fear. While there remains a huge amount of uncertainty as to how the geopolitical situation in Eastern Europe will unfold, one thing is for sure; for the time being, headlines pertaining to Russia/Ukraine will remain a key driver of equity market sentiment.

The seeming de-escalation of imminent war risk amid Russian troop withdrawal helped distract/shield US equities from some pretty ugly US economic data out prior to Tuesday’s open. The latest Producer Price Inflation report came in significantly hotter than expected, with both the MoM and YoY metrics coming in well above expectations for both the headline and core. With the Fed split over whether to go big with a 50bps rate hike in March, such data will strengthen the argument of the hawkish camp. NY Fed Manufacturing survey data for February also didn’t make for pretty reading, coming in significantly weaker than expected.

The data, despite putting upwards pressure on US bond yields, was not enough to dampen appetite for growth and big tech stocks, gains in which have helped propel the Nasdaq 100 index to a near 2.0% on-the-day gain. The tech-heavy index now trades back to the north of the 14.5K level, while the Dow has been able to recover back to 35K, up about 1.3% on the day. The CBOE S&P 500 Volatility Index, often referred to as the VIX, was down about 2.5 points to back below 26.00, a now more than 6.0 point drop from Monday’s highs above 32.0.