DOW FALLS 700 POINTS AS MARKET CONTINUES TO SELL OFF ON THE FEAR THAT THE RUSSIA-UKRAINE WILL SLOW ECONOMY
Stocks drops again on Monday, following four straight weeks of declines, as investors getting more worried higher energy prices that comes from the Russia-Ukraine conflict would slow the economy while increasing inflation. The Dow Jones Industrial Average lost about 720 points, or 2.1%. The S&P 500 declined 2.6%, dropping deeper into correction territory. The 500-stock average sits nearly 12% from its record close. The Nasdaq Composite lost 3%, and not sits 19% from its all-time close.
While the Russia-Ukraine war carries on, investors are now observing the potential economic consequences of the disruptions in the global supply of energy. “Consequently, ‘stagflation’ is rapidly becoming the central focus in portfolio strategies,” said Jim Paulsen, chief investment strategist for the Leuthold Group. “Preparing for slower growth and more persistent inflation is driving investor fears and actions”.
On Sunday, U.S. oil prices hit their highest level since 2008 in the midst of an ongoing war between Russia and Ukraine. West Texas Intermediate crude futures, the U.S. oil benchmark hit $130 per barrel at one point before pulling back. WTI Crude were last up about 1.5% around $117 per barrel. The international benchmark, Brent crude, spiked $139.13 per barrel, its highest since July 2008 before pulling back to around $121. Energy stocks rose along with the price of oil. Baker Hughes added 5%. Chevron added 1.4%. Exxon Mobil rose 2%.
For the moment, bank stocks were amidst the biggest loser, on Monday with Citigroup down 1.4% and U.S. Bancorp down 3% as investors grew worried about the slowing economy growth. McDonald’s, Starbucks and Nike dropped on Monday on concern about $4 gas prices striking consumers’ wallets. On Sunday. Gas prices increased to their highest levels since 2008, with the national average striking $4.06 a gallon, on the report of AAA. Airlines, cruise lines and travel stocks falls for the same reason.
Bed, Bath & Beyond rose 26% after GameStop Chairman Ryan Cohen showed he had an almost 10% stake in the retailer, through his investment company RC Ventures. Secretary of State Antony Blinken said on Sunday that the U.S. and its allies are taking into consideration whether to ban Russian oil and natural gas imports in reply to the country’s attack on Ukraine. House Speaker Nancy Pelosi also stated in a letter to Democratic colleagues that the chamber is “exploring strong legislation” to ban the import of Russian oil, a move which would “further isolate Russia from the global economy.”
“The equity market is wrestling with the large commodity supply shock, including notably oil prices, and concerned that this could be morphing into a stagflationary shock instead of just an inflation shock,” said Kathy Bostjancic, chief U.S. economist at Oxford Economics. “Equities will be keying off changes in oil prices and the prospects of an oil embargo from Russia.”
Forecasters anticipate that U.S. would grow more slowly with higher inflation, Europe’s economy will toggle near recession and Russia’s GDP will encounter a double-digit decline in the midst of the geopolitical conflict. The CNBC Rapid Update, the average of 14 forecasts for the U.S. economy, sees GDP soaring by 3.2% this year, a modest 0.3% markdown from the February forecast.
Wall Street is already reshaping for the slower growth. Top strategists from Citi to UBS, Yardeni Research and Evercore ISI have dropped their U.S. equity outlook amidst the geopolitical tensions. Long-time market bull Ed Yardeni has revolved into one of the biggest bears on Wall Street, seeing the S&P 500 suffer a 16% decline in 2022 to end at 4,000. In spite of the move away from risk, government bond yields rose, showing less demand for safe-haven assets. The benchmark 10-year Treasury note was most recently at 1.77%, up nearly 4 basis points on the session as inflation worries pushed yields up.
Positive data from the U.S. Labor Department weren’t enough for investors to drop the concerns about the war between Russia and Ukraine. On Friday, the Bureau of Labor Statistics reported the economy added 678,000 jobs in February The monthly jobs gain topped economists’ expectations of 440,000 as gauged by Dow Jones. The unemployment rate fell to 3.8%.
Last week, the Dow and S&P 500 dropped about 1.3%. The Dow marked its fourth losing week and the S&P 500 closed in correction territory on Friday, down more than 10% from its record close. The Nasdaq Composite lost roughly 2.8% and is also in a technical correction. Several economic data reports are arranged to be released throughout the coming week, including the Consumer Price Index for February, due Thursday. The key indicator is expected to reveal inflation rose 7.8% from a year ago.
Federal Reserve officials are in the quiet period ahead of next week’s policy meeting. The Federal Open Market Committee gathers March 15-16, when it is anticipated to approve a quarter-point increase for its benchmark short-term borrowing rate.