Oil prices soared and investors shifted more money from equities into ultra-safe US Treasuries as Russia intensified its war against Ukraine
Oil prices soared and investors shifted more money from equities into ultra-safe US Treasuries as Russia intensified its war against Ukraine
Oil prices rose and Wall Street stocks fell on Tuesday as investors switched more money into ultra-safe US Treasuries in response to Russia’s escalating war with Ukraine.
Another day of volatile trading sent stocks broadly lower as investors sought to gauge how the conflict will affect the global economy. The S&P 500 index fell 1.5%. The Dow Jones Industrial Average fell 1.8% and the Nasdaq Composite fell 1.6%. The declines add to the market’s losses after a two-month slide in the S&P 500.
The larger movements came from the oil, soft commodities and government bond markets. Oil has been a major concern as Russia is one of the world’s largest energy producers. The recent price surge is adding pressure to persistently high inflation threatening households around the world.
U.S. benchmark crude oil rose 8% to $103.41 a barrel. It’s the biggest daily jump since May 2020 and the highest price since 2014. Brent crude, the international standard, rose 7.1% to $104.97.
The crisis in Ukraine prompted an extraordinary meeting of the International Energy Agency’s Executive Board that resulted in all 31 member countries agreeing to release 60 million barrels of oil from their strategic reserves.
Russia’s invasion of Ukraine has also put further pressure on agricultural commodity prices, which are also already being pushed higher by rising inflation. Wheat and corn prices are up more than 5% a bushel and are already up more than 20% this year. Ukraine is a major exporter of both crops.
“A whole range of factors are affecting the markets,” said Bill Northey, senior investment director at US Bank Wealth Management. “We are seeing this being manifested not only in the (stock) markets at the moment, which have certainly been more volatile over the past two weeks since the invasion of Ukraine, but we are now seeing it across the interest rate complex as well as the commodity complex.”
Investors continued to put money into bonds, pushing yields lower. The yield on the 10-year government bond fell sharply, falling to 1.73% from 1.83% late Monday. Now it’s back to where it was in January. In February, it had risen above 2% for the first time in over two years. The 10-year Treasury yield is used to set interest rates on mortgages and many other types of credit.
The sharp drop in bond yields weighed on banks. JPMorgan Chase fell 3.8% and Bank of America fell 3.9%.
More than 70% of stocks in the S&P 500 closed lower, with technology, industrials and communications companies among the top detractors from the benchmark index. Only the energy sector was able to grow. Occidental Petroleum rose 7%.
Overall, the S&P 500 fell 67.68 points to 4,306.26. The Dow, down 763 points, closed down 597.65 points at 33,294.95. The Nasdaq slipped 218.94 points to 13,532.46.
Small company stocks underperformed the broader market. The Russell 2000 Index fell 39.58 points, or 1.9%, to 2,008.51.
The conflict in Ukraine has rattled markets around the world, adding to concerns about economic growth amid rising inflation and central bank plans to raise interest rates. The US and its allies are putting significant pressure on the Russian financial system as that nation continues its push into Ukraine and its key cities.
The value of the Russian ruble fell to a record low on Monday after western countries sought to ban some Russian banks from a major global payments system. Also on Monday, the US Treasury announced further sanctions against Russia’s central bank.
Various companies have announced plans to reduce or exit their holdings in Russia or to cease operations in Ukraine due to the conflict. The Russian central bank has also raised interest rates from 9.5% to 20% in a desperate attempt to shore up the falling ruble and stave off a bank run. The Russian stock exchange remained closed on Tuesday.
Investors are keeping a close eye on developments in Ukraine as they await the latest economic news from the Fed and US government. Fed Chair Jerome Powell is due to testify before Congress later this week and that could provide clues on the way forward for rate hikes.
“Investors will certainly be looking for clues as to whether the Fed chair is emphasizing his responsibility to fight inflation and then also balancing that with the potential impact this military conflict could have on inflation,” Mr. Northey said.
Meanwhile, a report on Friday will also show whether US jobs market strength continued in February, giving the Fed more room to hike rates.
Several stocks made big gain moves. Target rose 9.8% for the biggest gain in the S&P 500 after it reported strong fourth-quarter financial results and said it would invest up to $5 billion in physical stores, remodels and other initiatives this year. Workday rose 4.9% after reporting encouraging earnings.
