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Markets Are on a War Footing. Here’s a Worst-Case Scenario.


Russian President Vladimir Putin in Moscow on Feb. 21, 2022.

Sputnik/AFP via Getty Images

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Financial markets are on a war footing.

Russian President Vladimir Putin has taken Europe to the brink of conflict, deploying troops to two Moscow-backed separatist regions in eastern Ukraine late Monday. Just hours earlier, Russia formally recognized the regions’ independence.

Russia called it a peacekeeping mission. The U.S. described that as “nonsense,” while U.K. minister Sajid Javid said “the invasion of Ukraine has begun.”

It’s safe to say markets weren’t buying it either. U.S. stock futures pointed lower, led by

futures as the miserable start to 2022 looked set to get even worse. The MOEX, Russia’s benchmark stock index, has taken a hammering, plunging more than 20% in the past five days.

Unsurprisingly, oil prices surged, with Brent crude futures topping $99 a barrel and West Texas Intermediate futures rising above $95 at one point, as traders feared the crisis would disrupt supplies.

The $100 a barrel milestone is within touching distance but as Western leaders begin to impose sanctions on Russia, oil could conceivably climb much higher in the coming days.

Developments over the past 24 hours have dashed hopes of a diplomatic resolution, leaving markets to fear the worst.

But just how bad could it be?

Goldman Sachs

analysts said an outright conflict with punitive sanctions could send the

S&P 500
6% lower and the Nasdaq 10% lower from Friday’s close. That is based on recent market moves in relation to the ruble and calculations that the currency is still 10% off its maximum undervaluation level of the past two decades.

Their worst case scenario would see WTI climb 13% and the yield on the 10-year Treasury fall 27 basis points.

It’s worth noting how difficult it is to predict geopolitical-led market shifts. But markets are certainly unsettled.

Callum Keown

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U.S., European Allies Set to Announce Sanctions Against Russia

The U.S. and its European allies are set to announce tough new sanctions against Russia Tuesday, after Putin formally recognized two breakaway regions in eastern Ukraine, escalating fears of a Russian invasion of its Western neighbor.

Putin on Monday ordered troops to enter two Russia-backed breakaway republics in the Donetsk and Luhansk regions of eastern Ukraine, shortly after recognizing the areas as independent, drawing international condemnation.

The U.S. said that the deployment of what Russia called a “peacekeeping” operation is “nonsense” and Moscow’s recognition of breakaway regions as independent is part of its pretext for war. “The consequences of Russia’s actions will be dire–across Ukraine, across Europe, and across the globe,” U.S. Ambassador to the United Nations Linda Thomas-Greenfield told an emergency meeting of the U.N. Security Council on Monday night.

Earlier on Monday, President Joe Biden issued an executive order banning new investment, trade, and financing by U.S. entities in the two Moscow-backed breakaway territories of Ukraine. The White House said it would announce additional sanctions Tuesday, which would be only the first step, with further measures introduced if Russia invades Ukraine.

What’s Next: The U.S. won’t be the last country to levy tough economic sanctions on Russia, as world leaders race to condemn Putin and protect the sovereignty of Ukraine. Several Western nations, including the European Union, Canada, and the U.K. have already vowed to impose sanctions on Russia, while leaders from countries including Japan have signaled their intent to pursue punishment.

Lina Saigol


China Looks Ready to Regulate the Metaverse

Chinese regulators have turned their attention to the metaverse, warning over investment fraud linked to the emerging space focusing on platforms and technologies serving a future vision of virtual worlds. It could signal a new type of pressure on the country’s embattled tech sector.

One of China’s key financial regulators warned of a rise in illegal investment plans linked to the metaverse, in a statement on Friday, highlighting false metaverse projects, cryptocurrency-related frauds, and over-hyping of metaverse real estate.

Capitalizing on opportunities in the metaverse has become increasingly important for tech companies. The trend has taken investors by storm, inspiring social-media giant Facebook’s name change to

Meta Platforms

and now forming a key part of chip maker

growth prospects.

China’s tech giants are no different.




have expanded into the metaverse with projects spanning cloud-computing platforms, gaming, and social media. Both companies found themselves on the wrong side of Beijing in the past year amid a wide-ranging crackdown on the country’s tech sector.

What’s Next: Shares in Alibaba and Tencent have been in decline since Friday, and that looks to continue Tuesday. Pressure isn’t just coming from the metaverse warning: There are signs of a new wave of regulatory tightening on China’s tech sector, including an order for some platforms to slash fees.

Jack Denton


Pharmacies Say Filling Prescriptions for Covid-19 Pills Is Costly

Some pharmacies that fill prescriptions for Covid-19 pills are threatening to halt supplies if they don’t get enough funds to reimburse their costs for dispensing the drugs. That could reduce access to pills that have been shown to keep high-risk people from developing severe Covid-19 and requiring hospitalization.

The federal government paid billions for treatment courses of

Paxlovid, and


and Ridgeback Biotherapeutics’ molnupiravir, but left health insurers and pharmacy-benefit managers to figure out how much pharmacists should be paid for filling the prescriptions, The Wall Street Journal reported.

The National Community Pharmacists Association and the National Association of Chain Drug Stores, which represents pharmacies including



Walgreens Boots Alliance
have each recommended higher fees for pharmacies.

U.K. Prime Minister Boris Johnson announced the end of Covid-related restrictions, dropping a legal requirement for those who test positive to self-isolate as the country steps toward a “return to normality.” The move comes a day after Buckingham Palace announced Queen Elizabeth had contracted a mild case of Covid-19.


CEO Stephane Bancel told Barron’s the company is developing vaccines for herpes, shingles, and cancer as it spends its cash reserves from its Covid-19 vaccine to expand its pipeline of products. The company reports earnings on Thursday.

What’s Next: The Food and Drug Administration is weighing the possibility of authorizing a fourth dose of Covid-19 vaccines this fall, depending on ongoing studies that it could boost waning immunity after a third dose, the Journal reported. A fourth dose could be limited to vulnerable age groups.

Janet H. Cho


Berkshire Hathaway’s Annual Shareholder Letter Due This Week

Later this week,

Berkshire Hathaway
Warren Buffett publishes his annual letter to shareholders, usually a riff on the financial markets and the latest happenings at the conglomerate wrapped up in Buffett’s folksy wisdom on the state of U.S. business. Some wonder what he will say about the direction of Berkshire Hathaway.

Despite its $149 billion cash pile, Berkshire has made only one big recent acquisition, for aircraft-parts maker Precision Castparts in 2016. Sizable stock investments include



Bank of America

The market drop during the pandemic didn’t convert into a buying opportunity for Buffett. Since 2020, Berkshire has been a net seller of stocks, including the 8% stake in

Wells Fargo

at an estimated half the value of its current $56 price.

Early in the pandemic, Berkshire dumped its $4 billion combined stakes in

United Airlines

American Airlines

Southwest Airlines

Delta Air Lines
Late last year, Berkshire picked up $975 million of

Activision Blizzard
which agreed to be acquired by


in January.

Berkshire has been buying back more of its stock since mid-2020, snapping up about $40 billion, or 6% of its value. The company was a Barron’s top stock pick for 2022. The Class B shares are up 5% this year, compared with the S&P 500’s 8% drop.

What’s Next: Berkshire’s annual meeting on April 30 will be the first in-person gathering in Omaha, Neb., after two years of virtual events. Buffett and longtime lieutenant Charlie Munger usually hold court during the weekend event.

Liz Moyer and Andrew Bary


Icahn Starts Proxy Campaign at McDonald’s Over Pig Treatment

Carl Icahn is prodding


to make its pork suppliers change their treatment of pigs, launching a proxy fight to get two people of his choosing onto the fast-food chain’s board after holding discussions with it and the Humane Society.

Icahn is fighting the use of small crates to hold pregnant pigs. McDonald’s promised in 2012 to stop buying pork from suppliers that use them by 2022, and Icahn says it has fallen short. The activist owns 200 shares, or about $50,000 at Friday’s closing price.

McDonald’s said it buys 1% of U.S. pork, and has said that more than 60% comes from pigs that aren’t kept in gestation crates. It expects that figure to be 85% to 90% by the end of this year and 100% in 2024. It also said the pandemic pushed its timeline back.

McDonald’s also pointed out in a statement that Icahn owns shares in casing maker


but hasn’t publicly called on it to commit to the same standards for treating pigs. The Humane Society filed a shareholder proposal last fall urging McDonald’s to put an end to gestational crates.

Icahn has been pursuing this issue for a decade, getting involved at the behest of his daughter who worked at the Humane Society, The Wall Street Journal reported.

What’s Next: Icahn nominated Leslie Samuelrich, president of Green Century Capital Management, and Maisie Ganzler, chief strategy officer at Bon Appetit Management Co. McDonald’s said it would consider them as it does any other candidate. Shareholders could vote on them at the annual meeting this spring.

Liz Moyer


Be sure to join this month’s Barron’s Daily virtual stock exchange challenge and show us your stuff.

Each month, we’ll start a new challenge and invite newsletter readers–you!–to build a portfolio using virtual money and compete against the Barron’s and MarketWatch community.

Everyone will start with the same amount and can trade as often or as little as they choose. We’ll track the leaders and, at the end of the challenge, the winner whose portfolio has the most value will be announced in The Barron’s Daily newsletter.

Are you ready to compete? Join the challenge and pick your stocks here.

–Newsletter edited by Liz Moyer, Camilla Imperiali, Callum Keown, Rupert Steiner

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