U.S. stock indexes traded sharply lower Monday, with the Russian invasion of Ukraine in its 12th day as investors weigh the implications of possible bans on oil imports out of Moscow, which could exacerbate inflationary pressures.
What’s happening
- The Dow Jones Industrial Average DJIA, -1.81% fell 567 points, or 1.7%, to 33,049. If the index closes below 33,119.69, it will have finished in correction territory for the first time since 2020.
- The S&P 500 SPX, -1.98% dropped 77 points, or 1.8%, to 4,250.
- The Nasdaq Composite Index COMP, -2.09% declined 1.8%, or 240 points, to around 13,053.
Last week, the Dow industrials and the S&P 500 each fell 1.3%, and the tech-heavy Nasdaq Composite dropped 2.8%. Meanwhile, the S&P GSCI SPGSCI, -3.79% index, which tracks 24 exchange-traded futures contracts across five physical commodities sectors, saw its biggest weekly surge in more than 50 years.
What’s driving markets
Markets were trading sharply lower on Monday, with losses mounting in consumer discretionary, SP500.25, -2.63% communication services SP500.50, -2.26%, and financials SP400.40, -1.98%, all down by at least 2%.
One of the few bright spots in the market was the energy sector, after U.S. Secretary of State Antony Blinken said the U.S. and its allies were considering a ban on Russian oil imports as the invasion of Ukraine continued. So far, sanctions aimed at Russia have excluded the energy sector, as the country provides about 45% of European Union gas imports, according to International Energy Agency data.
Discussion of a possible detente briefly helped to moderate the severity of the pullback on Monday.
Recent reports had indicate that Russia is willing to halt military operations “in a moment” if Ukraine meets a list of conditions, including ceasing military action, changing its constitution to enshrine neutrality, acknowledging Crimea as Russian territory and recognizing Donetsk and Lugansk as independent regions within Ukraine, Reuters reported, citing remarks from Kremlin spokesman Dmitry Peskov.
It isn’t clear that Kyiv would entertain those demands. Ukraine on Monday rejected an offer to open a humanitarian corridor to let civilians cross into Russia and Belarus.
Grain prices also were surging, with wheat W00, +7.03% futures jumping 7%, continuing a march toward all-time highs as the war shuts down exports from the Black Sea region, a crucial global breadbasket.
“The galloping commodity prices will naturally put downward pressure on the economy and increase operational volatility for many companies already struggling with inflationary pressures,” said Peter Garnry, head of equity strategy at Saxo Bank.
Chris Larkin, managing director of trading at E-Trade said “intrepid traders may be taking a closer look at the commodities markets in the weeks ahead.”
A key inflation report, the consumer-price index, is due on Thursday, with investors already fretting about the higher costs of goods and services during the COVID-19 pandemic.
Strategists at Citi cut their year-end S&P 500 target to 4,700 from 5,100. “We expect that a higher geopolitical risk premium will hurt broader market expected valuations,” said strategists led by Scott Chronert. “Implicitly, we see upside to US equities from here as the market narrative moves past the current perfect storm of headwinds, but to a level implying a flattish, to slightly down full-year return.”
See: Wall Street is beginning to cut S&P 500 forecasts as oil prices surge
Which companies were in focus?
- Airline companies were facing severe selling, with Delta Air Lines Inc. DAL, -7.76%, United Airlines Holdings Inc. UAL, -8.92% and Southwest Airlines LUV, -6.02% all trading sharply lower and the exchange-traded fund U.S. Global Jets ETF JETS, -7.06%, a popular way to garner exposure to the airline industry, down almost 7% on Monday.
- Shares of Bed Bath & Beyond BBBY, +26.79% surged after GameStop. Corp. GME, -9.33% Chairman Ryan Cohen took a big stake in the home-goods retailer and urged it to explore strategic alternatives, including a full sale of the company. Its stock was up 42%.
- Shares of Apple Inc. AAPL, -0.45% were flat ahead of an event on Tuesday, where the technology firm was set to roll out new products, including a cheaper iPhone.
How are other assets faring?
- The yield on the 10-year Treasury note TMUBMUSD10Y rose 4.6 basis points Friday to around 1.77%. Yields move opposite to debt prices.
- The ICE U.S. Dollar Index DXY, a measure of the currency against a basket of six major rivals, was up 0.5% at around 99, a nearly two-year peak.
- Gold futures GC00 rose 1.8% Monday to $1,981 an ounce, briefly surpassing $2,000 over night.
- Bitcoin BTCUSD was down less than 1% at $39,320.
- In European equities, the Stoxx Europe 600 SXXP closed 0.9% lower Monday. London’s FTSE 100 UKX fell 0.2%.
- In Asia, the Shanghai Composite SHCOMP closed down 2.2% overnight Monday. The Hang Seng Index HSI tumbled 3.9% in Hong Kong. Japan’s Nikkei 225 NIK gave up 2.9%.
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