Noonum Week in Themes: Cyber Strength, Energy Alternatives, and Surging Food Prices
What happened?
Last week’s column posed several scenarios for the escalating conflict at the Ukrainian border, with speculation about what the most severe option – a full fledged Russian invasion – might imply for equity markets.
Markets opened nervously to start the week, bleeding lower Tuesday and Wednesday before equity futures plummeted Wednesday night on news that the Russian invasion of Ukraine had commenced.
At its low on Thursday morning the Nasdaq had tumbled into bear market territory, measured by a 20% decline from its high, while the S&P 500 bottomed at 4,114.65, nearly 15% off its early January high.
Above all else, the market hates uncertainty.
Conflicting headlines, ambiguity around the scale of the planned Russian advance, looming U.S. and European sanctions, and crude oil eclipsing $100/barrel left investors in a frenzied panic.
President Biden announced a softer set of sanctions than possible in a Thursday afternoon press conference, sparking a vicious V-shaped rally that saw the S&P finish up 0.82% for the week. The Nasdaq’s 6.7% swing on Thursday, from down 3.3% to up 3.4%, was the most significant intraday move since 2008.
The long held wartime refrain calling for investors to “buy at the sound of cannons” seems to have prevailed once more, at least for now.
Themes in focus:
Thematic activity was driven by the Russia-Ukraine conflict and global response.
What worked?
Cybersecurity
Fears that President Putin would target Ukrainian infrastructure and authorize attacks on NATO-members with state-sponsored cyberattacks sparked a surge in stocks within the space.
This group hasn’t been immune to the dramatic growth selloff that started in mid-November, but is poised to benefit from increased spending on cyber defense by companies and government organizations.
The First Trust Cybersecurity ETF (CIBR) posted a 5.7% gain on the week, while the Global X Cyber ETF (BUG) notched a 6.6% rise.
The outperformance in BUG was driven in part by greater relative exposure to Palo Alto Networks, an industry mainstay that surged 18.2% last week on the back of blowout earnings.
Clean energy
One of the initial responses to the Russian invasion was an announcement from Germany halting certification of the recently constructed Nord Stream 2 pipeline, a much anticipated new channel for delivering natural gas to western Europe.
Energy stocks and commodities popped initially, but had a surprisingly tepid week – sluggish follow-through suggesting waning investor appetite for a sector that’s already had a massive move in recent months.
Still, the run-up in oil and gas prices in recent months has only further exposed the need to transition to more sustainable long-term energy solutions. Russian oil and natural gas exports have also been noticeably absent from the sanctions list – demonstrating how dependent much of Europe remains on these commodities.
Surging prices and geopolitical leverage have triggered renewed interest in renewable stocks – particularly wind, solar, hydrogen, and nuclear. Clean energy has been beaten up with the rest of growth tech, but the iShares Clean Energy ETF (ICLN) was amongst the best performing themes in the market last week, adding 7.2%.
Find it with Noonum:
Clean energy is a complicated “meta-theme”, an evolving industry where new terminology is frequently introduced.
Noonum provides users with a customized approach to understanding clean energy – an adjustable universe of 15-20 sub-themes, ranging from wind turbines to sustainable infrastructure.
When using Noonum’s concept explorer to identify the clean energy universe, two of the stocks that we surface with the highest exposure are:
- Clean Energy Fuels (CLNE): domestic supplier of clean and liquified natural gas, +13.2% last week
- Shoals Technology Group (SHLS): leading supplier of balance-of-systems components for solar panels, +14.6% last week
Noonum helps you quickly understand any custom universe and uncover hidden companies and relationships that often represent some of the best performing, but least known, stocks.
Wheat
Russia is one of the world’s largest exporters of wheat and vegetable oils.
Concerns of a global shortage in wheat as a result of the ongoing crisis in Ukraine drove prices up nearly 14% last week. Wheat has a 5.59% weighting in the Invesco DB Commodity Index and has been one of the core drivers of global food inflation.
Rising input costs could cause trouble for domestic food manufacturers like General Mills (GIS, -0.24% last week) depending on their ability to pass along higher prices to customers.
What struggled?
Cloud computing –
The tech sector saw significant rotation last week as investors continue to shed cloud stocks, despite months of multiple compression. The Global X Cloud Computing ETF (CLOU) was flat on the week, a notable underperformer amidst a 1.3% gain for the broader XLK tech ETF.
Many pandemic darlings have been hammered this earnings season as investors punish any company that lowers forward guidance. Such was the case with cloud security provider Zscaler, which finished down nearly 16% on Friday despite a revenue and earnings beat.
This is a big week for cloud earnings as we’ll get Zoom Communications (ZM) and Workday (WDAY) earnings tomorrow after the close, followed by Salesforce (CRM) on Tuesday, and Snowflake on Wednesday.
Anything Russian
Russian financial markets were already in peril before this weekend’s news that much of Europe and the United States were preparing to sever the country’s access to SWIFT, a critical international communications network.
The iShares MSCI Russia ETF (ERUS) lost nearly 33% last week, causing ripple effects across emerging markets. The iShares Emerging Markets ETF (EEM) sank 2.8% last week, while the iShare BRIC ETF (BKF) fared even worse, losing 5.1%.
Russia has a 3.59% in EEM versus 5.62% in BKF.
Funds with Tesla exposure
Tesla shares have lost roughly a third of their value since the start of the year, falling from an early January high of ~1,200 per share to a Friday close of 809.87.
A victim of the early 2022 momentum unwind, last week’s 5.5% loss was largely driven by reports that Elon Musk and his brother Kimball are facing an insider trading investigation regarding a Twitter poll and some timely stock sales in early November.
Tesla has a well publicized hand in many different industries so its weakness was felt broadly across the thematic world. The consumer discretionary sector ETF (XLY) has a ~16.6% allocation to Tesla and lost just over 2% last week on the back of the automaker’s weakness.
Find it with Noonum:
Noonum gives users the ability to look at thematic exposure on a company-specific basis. For cross-functional companies with diversified businesses, this is a great tool for identifying potential themes and related names that may have been impacted when a stock has a sizable move.
Tesla’s inclusion in funds ranges from autonomous driving (ETF - DRIV), to lithium and battery production (ETF - LIT), robotics and artificial intelligence (ETF - BOTZ).
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Disclaimer: all opinions expressed is the author’s own and nothing contained in this column is intended as financial advice