Wall Street is feeling the brunt of the ongoing Russia-Ukraine war. The Dow Jones Industrial Average declined 0.3% on Mar 3. The S&P 500 and the Nasdaq Composite also lost 0.5% and 1.6%, respectively, on the same day.
As the world has entered into the second week of the war, Moscow continues to attack Maripol and Kharkiv with heavy shelling. Meanwhile, Ukraine continues to strongly defend its capital, Kyiv. The second round of negotiation talks also could not result in any concrete conclusion. The United States, meanwhile, has imposed new sanctions on certain wealthy Russian nationals.
The piling economic sanctions on Russia might weigh on its economy. JPMorgan expects that Russia’s economic growth may be hurt by 35% at an annualized rate in the second quarter (as stated in a CNBC article).
In this regard, Scott Wren, senior global market strategist at Wells Fargo Investment Institute, said that “The situation is very fluid on the ground in Ukraine. ... We don’t know where the ultimate bottom in the market may be, but we continue to believe the U.S. economy will have above-average growth this year,” per a CNBC article.
The Fed Chairman Jerome Powell has currently proposed a quarter-point hike in March to the Senate Banking Committee in order to control the red-hot inflation levels.
Let’s take a look at some ETF areas that investors will like to consider amid the war between Russia and Ukraine in March:
Investors are paying great attention to cybersecurity stocks as these have been rallying amid the rising panic of cyberattacks. Market experts have warned about the possibility of cyberattacks by Russia in retaliation to Western sanctions. The West has been continuing to isolate Moscow by imposing several sanctions on Russian banks, its sovereign debt along with Russian President Vladimir Putin and Foreign Minister Sergey Lavrov. Notably, cyberattacks can be part of Russia’s war strategy. Several Ukrainian entities were hacked last week. Also, the increasing adoption of revolutionary technologies is exposing businesses, governments and organizations to cyber risks.
Investors seeking to tap the boom in the cyber security market could consider the following ETFs:
ETFMG Prime Cyber Security ETF ( HACK Quick Quote HACK - Free Report) , First Trust NASDAQ Cybersecurity ETF ( CIBR Quick Quote CIBR - Free Report) , Global X Cybersecurity ETF (BUG) and iShares Cybersecurity and Tech ETF (IHAK) (read: Why Cybersecurity ETFs are Rising amid Russia-Ukraine Crisis). Cryptocurrency
The world’s largest cryptocurrency, bitcoin, has decoupled from traditional markets and risk-on assets amid the Russia-Ukraine conflict. This has particularly supported the idea of looking at the digital currency as the best safe-haven asset as well as a store of value. Crypto enthusiasts see the Russia-Ukraine war as a game-changer for cryptocurrencies. During the ongoing war times, cryptocurrencies have acted as a store of value as well as allowed to conduct rapid and cost-efficient digital transactions. These distressed times have highlighted the shortcomings of the traditional financial system and cryptocurrencies role as a remedy to them.
Against this backdrop, let’s take a look at some cryptocurrency ETFs that have been rallying since Moscow’s invasion of Ukraine:
ProShares Bitcoin Strategy ETF ( BITO Quick Quote BITO - Free Report) , VanEck Bitcoin Strategy ETF ( XBTF Quick Quote XBTF - Free Report) and Amplify Transformational Data Sharing ETF (BLOK) (read: Cryptocurrency ETFs Rally Amid Russia-Ukraine War: Here's Why). Commodity
There is no denying that Russia and Ukraine hold important positions as producers in the global commodities market. Thus, the escalation in tensions has sparked a rally in a broad range of commodities.
The latest developments can also slow down production activities and impact the export of commodities and goods. This is true as the tensions have led to supply-disruption fears in an already-tight commodity market.
It is important to note that commodity ETFs mostly hold futures and there could be roll costs or yields involved. Therefore, these ETFs are more suitable for short-term trading or hedging activities.
Following are some commodity ETFs that investors can keep track of as the geopolitical crisis worsens:
Teucrium Wheat Fund ( WEAT Quick Quote WEAT - Free Report) , United States Commodity Index Fund ( USCI Quick Quote USCI - Free Report) , WisdomTree Enhanced Commodity Strategy Fund (GCC), Invesco DB Commodity Index Tracking Fund (DBC) and Invesco DB Base Metals Fund (DBB) (read: Oil Rallies Amid Russia-Ukraine Crisis: ETFs to Bet on). Banking ETFs
The Federal Reserve has already started tapering bond purchases, which it expects to complete by March this year. The Fed is expected to begin raising its benchmark interest rate in March. The shift toward a tighter monetary policy will push yields higher, thereby helping the financial sector. This is because rising rates will help in boosting profits for banks, insurance companies, discount brokerage firms and asset managers. The steepening of the yield curve (the difference between short and long-term interest rates) is likely to support banks’ net interest margins. As a result, net interest income, which constitutes a chunk of banks’ revenues, is likely to receive support from the steepening of the yield curve and a modest rise in loan demand. Notably, as the economy starts operating in full swing, the banking space will be able to generate more business.
Let’s take a look at some banking ETFs that can gain from the current environment:
First Trust Nasdaq Bank ETF ( FTXO Quick Quote FTXO - Free Report) , Invesco KBW Bank ETF ( KBWB Quick Quote KBWB - Free Report) , Invesco KBW Regional Banking ETF (KBWR), iShares U.S. Regional Banks ETF (IAT) and SPDR S&P Regional Banking ETF (KRE) (read: Warren Buffett Wins in 2022: ETF Lessons to Learn From). Insurance ETFs
Insurance industry makes up a considerable size of the financial sector. A reduction in bond buying can push bond prices down. This may increase the yield to maturity of bonds. Higher bond yields might raise the market's risk-free returns. A hike in risk-free market interest rate can raise the cost of funds, enabling the financial companies to widen the spread between longer-term assets, such as loans, with shorter-term liabilities, thus boosting the financial sector’s profits margin.
Insurance providers are generally compelled to hold several long-term safe bonds to back the policies written. A higher interest rate will benefit insurance companies. The spread between the longer-term assets and shorter-term liabilities will increase the spread of insurers. Moreover, the insurance industry's profitability has risen historically during the period of rising interest rates.
SPDR S&P Insurance ETF ( KIE Quick Quote KIE - Free Report) and iShares U.S. Insurance ETF ( IAK Quick Quote IAK - Free Report) are good options for investors to consider (read: Insurance ETFs to Rally on Solid Q4 Earnings).