This article first appeared in the Morning Brief. Get the Morning Brief sent directly to your inbox every Monday to Friday by 6:30 a.m. ET. Subscribe

Tuesday, February 15, 2022

The inflation-rate hike apocalypse has been canceled — for now

Just days ago, reactive markets were convulsed by fears of spiraling prices, and the prospect of a Federal Reserve making up for lost time with aggressive rate hikes to cool things down.

But one day is practically a lifetime in financial markets. This week, rising fears of a Russia-Ukraine conflict are putting inflation and the Fed on the back burner.

As risk assets sell off again, a flight to quality has made selling bonds an old and busted trade. The new hotness is a geopolitical conflict that runs the risk of engulfing Europe, worsening global supply bottlenecks, and potentially inflation, as Yahoo Finance’s Rick Newman noted on Monday.

“Markets do not like uncertainty, and this is causing a lot of uncertainty,” Meera Pandit, JPMorgan Asset Management’s global market strategist told Yahoo Finance Live on Monday.

“In the overall context of somewhat of a fragile market when it comes to sentiment … one of the biggest transmission mechanisms here is within the energy market, seeing higher oil prices,” Pandit said, something the Morning Brief warned was in the offing last week.

“This could be a bit of a headwind with global growth and a global consumer,” she added.

With that in mind, there are a few themes investors should monitor as geopolitics momentarily overwhelms economic fundamentals, and a hawkish Fed. The latter still very much dominates the outlook, but markets can no longer afford to minimize the former.

Sell (almost) everything risk-related

With a revanchist Russia undermining sentiment — and Dwayne “The Rock” Johnson’s impressive biceps aside — almost all risk-sensitive assets are in jeopardy of suffering more near-term losses. Yahoo Finance’s Brian Sozzi wrote on Monday why ditching stocks at this juncture would be “the wrong move,” and even the threat of World War III shall eventually pass.

CFRA analyst Sam Stoval believes that “equity markets are more at risk from the fallout from the war on inflation than on a potential invasion of Ukraine,” he wrote on Monday, adding that as “history reminds investors that surprise military and terrorist activities have traditionally been short-lived and represented an attractive buying opportunity.”

In the longer-run, that is certainly accurate — and we have TKer’s Sam Ro to remind us of his eternal refrain: Stocks usually go up. Yet for now, the market is selling risk first and asking questions later. And with all due respect to the bitcoin (BTC-USD) maximalists among us, the leading digital coin — back to trading nearly lock-step with stocks — isn’t behaving like anything that remotely approaches a safe-haven. Speaking of which...