US and European stocks rise as traders weigh effect of sanctions on global economy

US and European stocks rallied on Friday as war in Ukraine raged, with investors watching for signs that the conflict with Russia would be contained to the two countries.

The S&P 500 stock index, which had swung wildly on Thursday, advanced 2.2 per cent.

The Wall Street benchmark had dropped as much as 2.6 per cent on Thursday before closing 1.5 per cent higher, as hedge funds unwound earlier bets that stocks would fall. Traders said that many investors had sought to reduce their positions given the uncertainty in the market and an uptick in volatility.

The technology-focused Nasdaq Composite gained 1.6 per cent on Friday. Both Wall Street indices eked out moderate advances for the week.

As Russian troops advanced on Kyiv, the US and EU imposed a range of sanctions on Moscow that stopped short of curbing energy exports, calming market jitters that a rising oil price would exacerbate already high levels of global inflation.

Line chart of Week-to-date performance (%) showing US stocks register weekly gains despite volatility

“The news on sanctions yesterday was not as aggressive as perhaps some in the markets had feared,” said Sebastian Mackay, a multi-asset fund manager at Invesco.

On Thursday, the White House explicitly excluded Russian oil and gas companies from a number of new sanctions announced against Moscow. The news helped reverse most of a rally that had pushed crude to almost $106 a barrel after the invasion of Ukraine.

“I will do everything in my power to limit the pain the American people are feeling at the gas pump. This is critical to me,” said Joe Biden, US president.

The decision to spare Russia’s energy trade “was a sigh of relief for markets”, said Mona Mahajan, senior investment strategist at Edward Jones.

Brent crude fell 1.2 per cent to settle at $97.98 a barrel on Friday, while West Texas Intermediate, the US marker, was down 1.3 per cent.

“We continue to expect volatility in the near term,” said Mahajan, “but over time, we would expect oil prices to moderate back down into the $70-$80 range”. 

In Europe, the regional Stoxx 600 share index gained 3.3 per cent, after dropping 3.3 per cent in the previous session and briefly entering a technical correction.

Meanwhile, London’s FTSE 100 closed 3.9 per cent higher — recovering the previous day’s declines in its biggest single-day advance since November 2020. Russian stocks also rebounded after falling dramatically on Thursday.

Maria Municchi, lead manager of a portfolio of multi-asset funds at M&G Investments, said investors would now also be seeking out bargains in heavily sold-off stock market sectors.

“When you have these big moves in a very short period of time it is often exaggerated,” she said.

Demand for haven assets also weakened on Friday. The yield on the 10-year US Treasury note ended the day unchanged at 1.96 per cent. Germany’s 10-year Bund yield rose 0.06 percentage points to 0.23 per cent, reflecting a sharp drop in price of the benchmark European debt instrument.

Spot gold lost 0.8 per cent to $1,889 a troy ounce. The dollar index, which measures the greenback against competing currencies and tends to rise in times of market stress, fell 0.6 per cent.

Tancredi Cordero, founder of investment advisory boutique Kuros Associates, argued that a sustained equity market rally was unlikely, at least for the next few weeks.

“Equity valuations are not as high as they were a couple of months ago but they are still high,” he said, noting that the Federal Reserve was readying to raise interest rates.

“We’re on the edge of the cliff,” he added, estimating that the S&P 500 stock index “could fall another 5 to 10 per cent from here”.

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