Wall Street had been anticipating the Russian invasion of Ukraine for weeks, and during the period leading up to the war, the whole equity market was drifting lower. The moment the war finally started on Wednesday night this week, the market initially showed a big drop in overnight futures, but since then screamed higher and never looked back. Over Thursday and Wednesday, the S&P 500 gained 1.50% and 2.24% respectively, despite opening Thursday's trading down 2.5%. 

How do you explain this action? Is Wall Street heartless? Are they a bunch of sociopaths who press the buy button when they see bullets fly? 

No, that's actually not the way this business works. What Wall Street wants is for the war to be over, regardless of who wins, because there is one thing that the market loves and that is certainty. Unfortunately, this is a very one-sided war, in which the end result is not in doubt, because Putin has the overwhelming force. In the market's eyes, there is very little chance the Ukrainian army can withstand an army that is more than 10 times bigger. So once the bullets start flying, the situation became more, not less certain. Throwing in an overwhelmingly oversold market leading up to the war, we had all the ingredients to make a spectacular rally. 

In line with our previous commentary that we wanted to be ready to buy the stocks of high-quality companies that were beaten down — despite no direct impact from the conflict — we stepped in on Thursday morning to do some buying. As records reflected below, we put money in the most-beaten down stocks of Morgan Stanley, Wells Fargo, Boeing, Ford. 

While we could never have anticipated such a sharp intraday turnaround, this week provided yet another example of being rewarded for sticking to our discipline and not letting our emotions get the better of us. We have no control over market swings. What we could control was when to step in and buy — as painful as it may have felt at the time — once our predetermined levels were hit. By determining these levels ahead of time and waiting for the shares to “come to us” (not chasing them and paying whatever the market was asking) we were able to act without emotion. We wrote a great piece on that just a couple days earlier, we encourage you to check it out (here). 

We are not out of the woods yet. Russia is still in Ukraine. The event may have given pre-text for China to make a move on Taiwan. And if you have not forgotten, the main theatrics that drove the market down before this Russia-Ukraine conflict was the uncertainty that we are still on the verge of a monetary tightening cycle that puts all high-valuation stocks — high p/e or sales-based valuations — at risk.

Given these risks, just as our discipline dictated that we buy beaten-down stocks once they hit our levels, we also used spikes higher to raise cash and replenish our dry powder. We sold some Chevron (CVX) as it pushed to a new 52-week high on Thursday to help fund purchases. 

The markets

Under the hood, the healthcare and real estate sectors led to the upside, advancing over 2% for the week. They were followed by the utilities, while consumer discretionary, financials and consumer staples were the only three sectors that lost value.

Here’s a quick look at some of the broader market measures we like to keep an eye on: The U.S. dollar index stands at around 96 level. Gold is holding just under the $1,900s region. WTI crude prices are holding around the $90s per barrel level after making a run at $100 following the invasion news. The yield on the 10-year Treasury stands at around the 2.0% level.

Rapid-Fire Update On Portfolio Stocks

Consider this commentary as complimentary to our portfolio ratings, which require some nuance during times when stocks are very volatile. As much as we like certain stocks for the long term, we need to be tactical and sensitive to price - what we call actively managing the positions.

1. Apple (AAPL) — The stock is not down enough from its high and the forward P/E multiple is still high compared to historical levels.

2. Advanced Micro Devices (AMD) — It was up big Thursday and Friday, so we wouldn’t chase it, but we would like to add on a pullback, because you would be buying alongside the company in their $8 billion share repurchase program.

3. Boeing (BA) — We think shares are at support at this level, but since we bought on Thursday at $192, we would not be buying until the $170s.

4. Costco (COST) — We think it’s a great company but waiting for more of a pullback because of its high multiple.

5. Cisco Systems (CSCO) — This is a few company that recently reported great earnings yet still trade at a comfortably low multiple, therefore we endorse buying this name. However, per our portfolio-management discipline, we would only be buying if it is more than 5% below our cost basis of $57.22/share.

6. Chevron (CVX) — It’s still more of a sell than a buy.

7. Danaher (DHR) — Our cost basis is at $271 per share, so nothing to do. But this is a great stock to own in an economic slowdown because life sciences is a secular growth area.

8. Devon Energy (DVN) — under $50 per share would be very interesting to us because the dividend yield would be 8%.

9. Ford (F) — It’s absolutely a buy at this level because it is back to a historically low multiple below 10x, having a solid dividend yield and a very exciting period ahead with regards to the roll out of the F-150 Lightning. We will write more about this name in the coming days. Absolutely a buy here.

10. Facebook-parent Meta Platforms (FB) — Under $200 per share would be very interesting.

11. Eli Lilly (LLY) — Also a life-science stock that is a secular growth area. Shares are at our cost-basis here so nothing to do.

12. Morgan Stanley (MS) — We bought shares on Thursday in the high $80s when the stock was ~10% down from our cost basis, so it proved to be a great buy for us. With shares now at $94, only 4% below our cost basis, we would not be buying here, and in fact would not be buying until it gets to the low $80 (buy lower than our Thursday purchase). However, for subscribers, if you don't have a position you can absolutely buy MS here.

13. Microsoft (MSFT) —Would buy on a pullback since it was up huge during the past 2 days.

14. Nucor (NUE) — Still more of a seller than a buyer at $120 per share.

15. Salesforce (CRM) — Still not comfortable buying because of its high P/E multiple, and the known market hatred towards high-multiple stocks. It reports next week, should watch out.

16. Wells Fargo (WFC) —  The case for WFC is very similar to Morgan Stanley (MS). We also added WFC on Thursday in the low $50. with shares now being above our cost basis, it's either a trim or a wait-and-see, not a buy for us. However, subscribers without WFC can definitely buy here.