After four weeks of declining stocks, stock prices fell Monday as investors became more concerned that higher energy costs resulting from the Russia-Ukraine conflict could slow down the economy and increase inflation.
The Dow Jones Industrial Average fell 797.42 points to 32,817.38, due to a nearly 8 percent loss in American Express. The S&P 500 fell close to 3%, to 4,201.09 and is now in correction territory. The 500-stock average is now more than 12% away from its record close. The Nasdaq Composite lost 3.6%, to 12,830.96, and is now in bear market territory. This is more than 20% away from its all-time high.
Investors are closely monitoring the economic consequences of disruptions to the global energy supply as the Russia-Ukraine war continues.
Jim Paulsen (chief investment strategist at the Leuthold Group), stated that “stagflation” is quickly becoming the main focus of portfolio strategies. Investor fears and actions are driven by the preparation for slower growth and persistent inflation.
In the midst of ongoing conflict between Russia and Ukraine, U.S. oil prices soared to their highest levels since 2008. West Texas Intermediate crude oil futures. The U.S. benchmark oil price was $130 per barrel at one time. Before pulling back, WTI crude oil was up more than 3% at $119 per barrel in the last round. The international benchmark, Brent crude, jumped to $139.13 per barrel — its highest level since July 2008 — before dipping back to $123.
The price of oil soared with energy stocks. Baker Hughes increased 4.7%. Chevron increased 2.1%. Exxon Mobil rose 3.6%.
Bank stocks were among the worst losers on Monday, with Citigroup falling 1.8% and U.S. down 3.9%. Bancorp fell 3.9% due to investors growing concerned about slowing growth.
McDonald’s and Starbucks were all down Monday due to concerns about the impact $4 gas prices will have on consumers’ wallets. According to AAA, gasoline prices rose to $4.06 per gallon on Sunday. The same thing happened to airlines, cruise lines, and travel stocks.
Bed Bath & Beyond soared by 34.2% following GameStop Chairman Ryan Cohen’s disclosure that he owned a near 10% stake through his investment company RC Ventures.
Antony Blinken, Secretary of State, stated Sunday that the United States and its allies were considering banning Russian oil imports and natural gas imports as a response to Ukraine’s attack.
In a letter to Democratic colleagues, Nancy Pelosi, House Speaker, stated that the chamber is currently “exploring strong legislation to ban the importation of Russian oil” — a move that would “further isolate Russia”.
According to Kathy Bostjancic (chief U.S. economist, Oxford Economics), “The equity market is grappling with the large commodity supply shock, notably oil prices. And concerned that this could be turning into a stagflationary surprise instead of an inflation shock.” “Equities will be monitoring changes in oil prices as well as the prospect of an oil embargo coming from Russia.”
Forecasters predict that the U.S. will grow slower with higher inflation. Forecasters expect the U.S. to grow slower with higher inflation. Europe’s economy will slide into recession, and Russia’s GDP may experience a double-digit drop amid the geopolitical conflict.
The CNBC Rapid update shows that GDP is expected to rise by 3.2% in the US this year. This is a slight 0.3% decrease from February’s forecast.
Wall Street is already adapting to the slower growth. The geopolitical tensions have caused top strategists, including Evercore ISI, Yardeni Research, Citi and UBS to lower their U.S. equity outlook. The S&P 500 has seen a 16% drop to 4,000 in 2022, making Ed Yardeni a long-standing market bull.
The yields on government bonds rose despite the risk-averse trend. This indicates that there is less demand for safe-haven assets. Inflation worries had pushed the benchmark 10-year Treasury note up slightly to 1.77%.
Investors were not able to ignore concerns about the conflict between Russia and Ukraine despite the positive data from the U.S. Labor Department. The Bureau of Labor Statistics announced Friday that the economy had added 678,000 jobs for February. According to Dow Jones, economists expected a monthly job gain of 440,000. The unemployment rate fell to 3.8%.
The Dow and S&P 500 both fell 1.3% last week. The Dow suffered its fourth consecutive week of losses. The Nasdaq Composite lost 2.8%.
There are several economic data reports scheduled to be released over the next week. This includes the Consumer Price Index for February due Thursday. Inflation is expected to rise 7.8% compared to a year ago.
Federal Reserve officials are currently in a quiet phase ahead of next week’s policy meeting. The Federal Open Market Committee meets March 15-16 and is expected to approve a quarter point increase in its benchmark short-term borrowing rates.
