Russia-Ukraine Tensions Mount and Fed Tightening Weighs. There’s Only 1 Certainty for Markets.

The unwelcome visitor that is future rate increases remains etched in the minds of investors, but events on the Russia-Ukraine border are making things worse.

The Dow Jones Industrial Average suffered its worst day of 2022 on Thursday, dropping 622 points, or 1.8%. It has been a volatile year up to now, so that is saying something. The index is on course to register a 2% or more fall in each of the first two months of the year for the first time since 2009. In fact, so are the S&P 500 and the Nasdaq composite too.

There is a slither of good news for history watchers. A bad January and February has typically been followed by a solid March for all three major benchmark indexes over the past 20 years.

Stocks had been propped up by de-escalation hopes for much of the week, following Russia’s claims it was starting to pull back troops from near the Ukraine border and as Russian President Vladimir Putin said he doesn’t want war in Europe. Both the Biden administration and the North Atlantic Treaty Organization have since cast doubt on the withdrawal claims.

Markets suddenly woke up to the risks Thursday, after President Joe Biden warned the threat of a Russian invasion in the coming days was “very high.”

Diplomacy may still win out but the risks aren’t going away soon—the only certainty for investors is continued volatility.

—Callum Keown

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Tensions Remain Over Russian Troops Outside Ukraine

Tensions rose as shelling increased along the border of Ukraine and Russia on Thursday, as Biden called the threat of a Russian invasion within the next several days “very high,” and Secretary of State Antony Blinken invited Russian foreign minister Sergei Lavrov to meet in Europe next week.

• Biden said there is reason to believe Russia is conducting a “false-flag operation” to create a pretext for an attack. “Every indication we have is that they’re prepared to go into Ukraine, attack Ukraine,” he told reporters.
• Blinken spoke to the United Nations Security Council, disputing Russia’s claims they were pulling forces back from the border. Russia expelled the deputy chief of the U.S. diplomatic mission in Moscow, and Blinken said an attack could involve cyberattacks on Ukrainian targets, especially in the capital city, Kyiv.
• Russia filed a report with the U.N. claiming that Ukraine’s military has committed “crimes” against residents of the eastern Donbas region and claiming the “genocide of the Russian-speaking population of Donbas,” according to The Wall Street Journal.
• The Dow Jones Industrial Average dropped 622 points, or 1.8%, on Thursday, its biggest one-day loss this year. The S&P 500 fell 2.1%, and the Nasdaq shed 2.9%. Gasoline prices rose 4 cents to $3.52 a gallon from last week, according to GasBuddy.

What’s Next: Vice President Kamala Harris will lead the U.S. delegation at the Munich Security Conference today, where she will meet with heads of state, NATO Secretary-General Jens Stoltenberg, and Ukraine President Volodymyr Zelensky.

—Janet H. Cho

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Tesla Facing Scrutiny for ‘Phantom Braking,’ CEO Tweet

Tesla faces increased scrutiny, with the National Highway Traffic Safety Administration saying it is investigating reports of “phantom braking” in the electric-vehicle maker’s driver-assisted vehicles, though no crashes, injuries, or deaths have been reported.

• NHTSA is examining 354 complaints affecting Tesla 2021 and 2022 Model 3 and Model Y vehicles. Many new vehicles offer automatic braking, along with lane-keeping assistance and adaptive cruise control. Tesla didn’t respond to a request for comment from Barron’s.
• Tesla has fixed several other recalls and run-ins with software updates. NHTSA recently investigated Tesla over its feature letting occupants play videogames on its large touch screens while the car was moving, which Tesla disabled so it would only work when cars are parked.
• Separately, Tesla lawyers said the Securities and Exchange Commission was harassing CEO Elon Musk over a 2018 settlement about his use of social media. They said the SEC hasn’t distributed $40 million in fines to shareholders from that settlement, which centered on Musk’s tweet about taking Tesla private.
• Musk tweeted earlier Thursday a post with an image of Adolf Hitler, reading, “Stop comparing me to Justin Trudeau. I had a budget,” in reference to efforts to sanction those tied to funding the Canadian truck protest. The tweet was deleted. Tesla didn’t respond to a request for comment.

What’s Next: Tesla fell seven spots on Consumer Reports’ 2022 automotive brand rankings that was out Thursday, just below Ford Motor . “The difficult-to-use yoke steering wheel the auto maker added to its Model S and Model X vehicles,” was the reason. Tesla scored well on owner satisfaction.

—Al Root and Janet H. Cho

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Walmart’s Better-Than-Expected Results Set Tone for Retailers

Walmart ’s better-than-expected fourth-quarter earnings and revenue and its dividend increase may set the tone for retail earnings yet to come. Walmart told analysts it expects to meet its 2023 financial targets despite facing supply-chain and other challenges.

• Walmart’s stores were better stocked and saw more foot traffic, especially from groceries and pharmacy sales. But Walmart also saw more than $400 million in Omicron-variant-related costs for paid leave and said it would stop giving workers paid time off for Covid-19 in March.
• The earnings beat puts pressure on Target , which is slated to report its own holiday-quarter results on March 1. Target was also a pandemic winner, but unlike in years past, the retailer didn’t provide a holiday update ahead of fiscal fourth-quarter results.
• Online grocery shopping remains a pandemic trend. Nearly three-quarters of shoppers ordered groceries online in the past 90 days, according to data from digital marketing firm Chicory. More than one-third named Walmart as their e-commerce retailer of choice, something that could challenge grocery rivals such as Kroger and Amazon.com .
• Walmart’s expectations that consumers will be “pretty healthy this year” could bode well for discount retailers Dollar General and Dollar Tree , which are likely to see more cash-strapped customers, said Stephens analyst Ben Bienvenu.

What’s Next: Home-improvement retailers also saw a surge in business during the pandemic. Home Depot
and Lowe’s are expected to report growth in revenue and profit next week, though their results may be tough to compare to a blockbuster 2020.

—Teresa Rivas and Janet H. Cho

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Roku Misses on Revenue, Sees Pressure From Supply Chain

Roku missed revenue expectations for the fourth quarter and warned that ongoing supply-chain disruptions will affect the broader consumer electronics space, with overall TV unit sales likely to remain below levels reached before the pandemic. That could affect active account growth for the streaming-device maker.

• Revenue of $865.3 million for the period fell short of Wall Street’s estimate for $894 million, though earnings per share of 17 cents beat the 5-cent a share estimate. Roku shares fell 9% after-hours after falling 10% Thursday.
• Active accounts hit 60.1 million, up 17% year over year, while average revenue per user rose 43% to $41.03. Streaming hours increased 15% year over year to 19.5 billion.
• Users streamed 19.5 billion hours of content during the fourth quarter, up from 18.0 billion hours in the third quarter. Analysts were expecting streaming hours of 19.7 billion.

What’s Next: Roku forecast $720 million in first-quarter net revenue, up 25% from the same period last year, but analysts expected $751 million in revenue for the quarter, according to FactSet.

—Liz Moyer and Connor Smith

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Intel Can Be ‘Next Great Growth Story,’ CEO Says

Intel Corp. CEO Pat Gelsinger said Thursday that the chip maker can be the stock market’s “next great growth story.”

• The comments came at an analyst meeting in San Francisco, where Intel said it expects to increase its annual revenue growth to reach the 10% to 12% range by 2025. The company’s revenue fell 4% in 2021.
• Gelsinger said that Intel expects low single-digit overall revenue growth this year, accelerating into the mid-to-high single-digits in the 2023/2024 period, reaching the low double-digit range in 2025 and 2026.
• Gelsinger laid out a broadly bullish view across the company’s six business units. He wants Intel to double earnings over time, while driving a doubling in the company’s price/earnings multiple, a potential “double-double” four times return on the stock.

What’s Next: CFO David Zinsner provided additional detail in a subsequent session, forecasting 2022 revenue of $76 billion, with profit of $3.50 a share, gross margin of 52%, negative free cash flow of $1 billion to $2 billion, and $27 billion in capital spending.

—Eric J. Savitz

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Do you remember this week’s news? Take our quiz below about this week’s news. Tell us how you did in an email to [email protected].

1. This year’s Super Bowl featured more than a dozen first-time advertisers, including:

a. Rakuten Rewards
b. Caesars Sportsbook
c. Coinbase Global
d. All of the above

2. Who is the billionaire that donated $5.7 billion of his company’s stock to charity last year, making him one of last year’s top philanthropists?

a. Mark Zuckerberg
b. Elon Musk
c. Warren Buffett
d. Jamsetji Tata

3. ViacomCBS changed its name this week to reflect its focus on its streaming services. What is the company’s new name?

a. Paramount Global
b. Showtime Global
c. Paramount+
d. None of the above

4. Ticket sales for Virgin Galactic’s space flights opened to the general public for the first time as the company moves closer to spaceflight commercialization. The 90-minute flight comes with a price tag of:

a. $650,000
b. $550,000
c. $450,000
d. $350,000

5. Retail sales posted their strongest monthly gain since last March as Omicron cases dropped. How much were sales up on a seasonally-adjusted basis from December?

a. 2.5%
b. 2.8%
c. 3.5%
d. 3.8%

Answers: 1(d); 2(b); 3(a); 4(c); 5(d)

—Barron’s Staff

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—Newsletter edited by Liz Moyer, Camilla Imperiali, Steve Goldstein, Rupert Steiner