Tech stocks stage massive comeback amidst rising geopolitical risks from Russia-Ukraine crises

Stocks rose broadly on Thursday, staging a massive comeback from steep declines seen earlier in the day, as investors looked past Russia’s attack on Ukraine.

Tech stocks staged a massive comeback even as markets weighed the risks of the Russia – Ukraine crisis. The Nasdaq futures dropped 3.5% on Thursday as news of Russia’s invasion into its smaller neighbor hit the airwaves.

Moscow launched military action in Ukraine overnight Thursday. There were reports of explosions and missile strikes on several key Ukrainian cities including its capital, Kyiv. Russian President Vladimir Putin called the invasion “the demilitarization” of Ukraine and said Russia’s plans do not include the occupation of Ukrainian territories.

Panicked investors fled for the safety of fixed income assets as markets reacted to the worst-case geopolitical scenario on the back of the impact of sky-high inflation. However, the market pared earlier losses, with Nasdaq Composite erasing an 859-point decline as tech stocks led the rally. Investors bought the dip on some of the mega tech names during Thursday’s volatile session.

Amazon (AMZN:NASDAQ), Netflix (NFLX:NASDAQ), Alphabet (GOOG:NASDAQ) and Microsoft (MSFT: NASDAQ) all closed higher — erasing sharp declines from earlier in the day. Netflix rose 6.1%, and Microsoft added 5.1%. Alphabet and Meta Platforms (FB:NASDAQ) popped 4% and 4.6%, respectively. The rally from mega tech stocks pushed the Nasdaq Composite with the tech-laden index ending the session 3.3% higher at 13,473.59 basis points

One of the reasons for Thursday’s rally could be investors nibbling on the possibility of the Fed delaying its rate hike due to the Russia-Ukraine crisis. The price of commodities such as oil, aluminum, corn, and wheat spiked on news of the invasion. Rising commodity prices would put more fuel on sizzling hot inflation. Some strategists believe that this may make the Fed delay its proposed interest rate hikes scheduled to begin in March.

Tech stocks also appear cheap, at least when their levels are compared to other sectors. The Nasdaq closed in bear market territory on Wednesday, after dropping more than 20% from its record high in November.

The index is down 16%, an abysmal performance compared to other sectors such as energy which are already up by 20% year-to-date. This presents a lot of buying opportunities in tech stocks given their strong balance sheets and growth opportunities.

Two contrarian views can also be used to explain Thursday’s rally. The crisis presents opportunities for some tech sub-sectors to grow. Cybersecurity stocks look the most obvious beneficiaries from the crises given Russia’s antecedent of targeting its enemies through cyber attacks.

Secondly, the rally could be prompted by bears trying to cover their short positions in the market after being squeezed by the unexpected rally in the market. Bearish bets against US indexes have been on the increase following the Fed’s plans to hike rates which makes it bad for equities.

The Ukraine crisis also exacerbated the gloomy outlook for equities as investors took risk off the table in search of safe-haven assets such as bonds, gold, and commodities, and stacked bets against the market. With one side of the table taking advantage of cheap tech stocks, this could have ignited a wave of short coveting thereby fuelling the rally even more.

What remains to be seen is if the rally in tech stocks is sustainable. History shows that geopolitical risks do not have a lasting effect though they can create a whipsaw in the market. Macroeconomic factors tend to have a longer-lasting effect and determine how investors put their money to work in the long run. Based on this premise, the rally in tech stocks may be short-lived due to broader macroeconomic factors such as a hike in interest rates.