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Noonum Week in Themes: Defense Spending, Travel, and Oil's Unstoppable Rise

Noonum Week in Themes: Defense Spending, Travel, and Oil's Unstoppable Rise

What happened?

Developments in Ukraine continue to reveal the fragile interconnectedness of the global economy. Though Russia and Ukraine together make up just 3% of global GDP, the war has had far-reaching implications for all major asset classes.

Led by NATO-members, foreign governments have levied new and harsher sanctions with each step of Russian escalation. The restrictions have crippled the Russian economy – while the Kremlin kept the domestic stock exchange closed the entire week, the Russian Ruble has lost over 30% of its value since the start of the year and global investment funds have exited Russian equities en masse.

The VanEck Russia ETF (RSX) dropped 63% last week and regulators halted several other funds that hold Russian ADRs (ERUS, FLRU).

The private sector has taken its own stance. Under heavy pressure from investors and government alike, oil majors BP and Shell both shed major investments in Russian producers (Rosneft and Gazprom), incurring heavy losses. Automakers, airlines, consumer product manufacturers, and a bevy of tech giants have ceased operation in Russia. Over the weekend, American Express, Mastercard, and Visa suspended operations in Russia – further squeezing the country’s financial system.
Amidst the turmoil in Eastern Europe, Fed Chair Jerome Powell weathered two days of congressional testimony featuring heavy scrutiny of the Fed’s plan to combat inflation and President Biden delivered the annual State of the Union.

Geopolitical instability had already lowered the probability of a 50 bps rate hike at the Fed’s March meeting, but the Fed’s plan was further cemented when Powell emphasized his support for a 25 bps increase when the Fed meets in two weeks. Less aggressive policy and a flight to safety pushed the 10-yr treasury to 1.74%, down from 1.84% a week prior.

Markets were choppy all week. Violent intraday rallies followed rumors of ceasefire negotiations, only to be quickly sold on a lack of true progress. The S&P 500 finished off 1.3% for the week, while stocks in Europe fared far worse, with the Vanguard Europe ETF plummeting 10.3%.

The S&P 500 is now down 9.75% for the year, a shade above correction territory and at Friday’s close of 4,328.87, it sits firmly below the 200-d moving average (4,466).

Themes in focus:

What worked?

Oil and gas

Noticeably absent from the sanctions list – Russian oil.

Still, that did little to stem oil’s march higher as crude closed at ~$116/barrel on Friday, good for a ~21% gain on the week.

In his weekly column for Barron’s, Jack Hough highlights why the U.S. isn’t the right producer to quickly drum up additional supply. The Strategic Reserve is woefully insufficient and U.S. producers have proven unwilling to invest in new projects.

New wells would take months to come online, and producers are quick to remind of the devastating impact supply gluts have had on their balance sheets in recent years. As a result, the response across the space has been to keep production growth and capital expenditures steady. Excess cash has instead been returned to investors through aggressive buybacks and dividend increases.

The S&P Oil and Gas ETF (XOP) notched a 12.6% gain last week, while the First Trust Natural Gas ETF (FCG) added 13.1%.

Find it with Noonum:

Noonum allows users to find companies that have the highest exposure to a given theme. We’ve used the platform to construct an array of thematic indices across a variety of different industries.

Two standouts in the Noonum Oil and Gas Index last week were Liberty Oilfield Services (LBRT, +19.2%) and New Fortress Energy (NFE, +34.1%).


One clear consequence of the crisis in Ukraine is that countries around the world seem destined to increase defense spending. From cyber warfare to missiles to military aircraft – defense stocks stand to benefit.

The difference this time is that it isn’t just the United States, China, or Russia poised to drive the surge. German Chancellor Olaf Schloz recently revealed plans to create a special €100 billion military fund and pledged to contribute 2% of the country’s GDP to its defense budget, up from 1.5%.

Aid and military supplies have also been flowing into Ukraine across NATO-members.

When geopolitical tensions boil over into war, inflows into defense contractors typically follow. Such was the case last week as the iShares U.S. Aerospace and Defense ETF (ITA) added 1.6% amidst a weak tape.

Find it with Noonum:

Using Noonum’s concept explorer to find companies with exposure to “defense spending, military equipment, and weapons systems” reveals a handful of surprising results, particularly for non-traditional defense plays.  

Maxar Techonlogies (MAXR) surged 15.1% last week.


It’s a communications company that provides high quality satellite imagery to governments and the media. If you’ve seen pictures of troop movements or the 40-mile long Russian convoy headed through Ukraine, there’s a good chance Maxar’s technology was involved.


Russia’s ability to export wheat has been greatly hindered by its invasion of Ukraine. Rising wheat and food costs haven’t hurt margins at the largest domestic grocers.

We highlighted the well positioned food and grocery industry in a newsletter a few weeks ago, and the gains for this group have only extended through earnings season.

This week it was Target (TGT) and Kroger (KR) that delivered massive earnings beats, leading to 12.5% and 26.9% gains, respectively.


This group saw inflows last week as part of a flight to safety but saw significant dispersion beneath the surface.

The iShares Healthcare Providers ETF (IHF) managed a 2.2% weekly gain, powered by strength in industry leader’s Cigna (CI, +3.8%) and United Health (UNH, +4.8%).

Medical devices and equipment manufacturers held up well as investors foresee a surge in elective procedures coming out of the pandemic. Amongst the best performers in the space was Intuitive Surgical which added 3%.

Meanwhile, biotech and genomic stocks continue to bleed lower with the rest of growth tech. Appetite for pandemic darling Moderna remains non-existent as it shed 9.8% last week and is down nearly 42% on the year.

Cathie Wood’s ARK Genomic ETF (ARKG) sank 9.8% while the iShare Biotech ETF lost 3%.

What struggled?


Revenues from increased trading and volatility did little to buffer bank stocks last week, which were notable underperformers as investors weighed disruptions to the global financial system and Russia exposure. A slower than expected rate hike trajectory also implies lower net interest margin growth for the group.

Pain was shared across the space – the S&P Regional Banking ETF (KRE) fell 5.2%, while the large-cap fund (KBE), dropped 5.3%.  

Emerging markets

The broad purge of Russian stocks by global asset managers has dealt a heavy blow to emerging market funds with Russian exposure.

Prior to last week, Russia had a 3.59% weighting in the iShares Emerging Market ETF (EEM) versus 5.62% in BKF.

EEM slid another 5.8% last week, while BKF declined 9.2%.

Continued pain for growth tech, coupled with the fall in Russia-exposed funds, led to an even worse decline for the Emerging Markets Internet and E-Commerce ETF (EMQQ, -11.7%).


Perhaps no theme has more moving parts to dissect in the current environment than travel stocks. The surging price of jet fuel directly eats into the profits of the airlines, which were hammered last week on rising costs and fears of a slowdown in international travel.

Cruise companies were also hit on rising oil, with Norwegian Cruise (NCLH, -11.5%) and Royal Caribbean (RCL, -16.9%) both nosediving.

The fate of the travel industry hinges on a much anticipated upcoming summer season. The crisis in Ukraine and rising travel costs could mean further trouble for the group, evidenced by a 10.6% meltdown in the ETFMG Travel and Tech ETF (AWAY) last week.