Russia's invasion of Ukraine is expected to create a sudden shortage of key products in the U.S. that in turn, will aggravate already high inflation rates. A hard pressed Federal Reserve will now have to prevent consumer prices from rising out of control while lowering their rate hikes in the face of geopolitical turmoil.
The risk of disruption to a U.S. economic recovery that's already been hampered by new variants of Covid-19 is real.
There may be a silver lining for investors in several areas however, as rising prices mean an increase in select underlying securities. While Russia accounts for only 0.1% of sales to companies in the S&P 500, the country controls big segments of the commodity markets which are already experiencing low inventories worldwide.
DAILY CHART OF PALLADIUM SHARES ETF (PALL)
To begin, the country dominates the market in the mining of platinum and palladium and both metals are used extensively in the automobile as well as other industrial markets. One of the largest ETF's is shown above and PALL has pulled back to its upward trending 21-day moving average with both its RSI and MACD in positive territory.
Platinum and palladium prices have rallied since the start of this year and their steep rise in price would be expected to continue should the Ukraine situation get worse.
DAILY CHART OF ALCOA CORP. (AA)
Russia accounted for 6% of global aluminum and 5% of nickel supply in 2021 and last week, aluminum prices hit an all-time high while nickel reached a decade-plus high. According to JPMorgan, inventories of these base metals are already extremely low, which leaves "very little additional cushion for further supply disruptions".
Alcoa (AA) produces and sells aluminum products globally with their primary customers in the transportation, construction and packaging markets. The company reported Q4 results that were 23% above estimates with management anticipating continued growth into the remainder of this year. AA is moving back into an overbought position and can be bought on a pullback.
DAILY CHART OF PIONEER NATURAL RESOURCES CO. (PXD)
Russia is the third largest producer of oil in the world and any disruption to their production volumes will continue to impact already high oil prices. Energy stocks which had already been on the rise due to increased oil demand, remain in an uptrend.
Pioneer Natural Resources (PXD) produces oil and gas in the Midland Basin in West Texas and is among the fastest growing companies based on their most recent quarterly earnings and sales results. PXD also offers a 2.5% yield and recently increased their share repurchase program due to high free cash flow and low debt.
The stock is among several Oil companies that were added to the Suggested Holdings List of my MEM Edge Report in January. PXD has gained 17% while the S&P 500 is down 8% during that time. I intend to add an additional Energy stock to this twice weekly report on Sunday that you won't want to miss. as well Detailed analysis of the broader markets will also be included.
It's been a turbulent period for the markets and you'll want expert guidance during these trying times. Use this link here to trial my MEM Edge Report for 4 weeks at a nominal fee.
Warmly,
Mary Ellen McGonagle, MEM Investment Research
