Market Snapshot: S&P 500 flirts with positive territory as investors assess Russia-Ukraine tensions, Fed rate-hike path

What’s driving markets?

Worries over Ukraine eased somewhat Monday after Russian Foreign Minister Sergei Lavrov, in what appeared to be a scripted meeting with Russian President Vladimir Putin, suggested continuing talks with the U.S. and its allies over security issues. Putin responded affirmatively.

On Friday, stocks tumbled and investors piled into traditional havens, including Treasurys and gold after Jake Sullivan, the White House national security adviser, warned that a Russian invasion of Ukraine could occur “any day now.”

German Chancellor Olaf Scholz was visiting Ukraine and Russia on Monday. Over the weekend, U.S. President Joe Biden and Putin held a phone conversation, with no tangible progress. Ukraine has requested a meeting with Russia.

Investors should be aware that “markets have a habit of confounding expectations at times of crisis,” said David Kelly, chief global strategist at JP Morgan Funds, in a note. He recalled that the S&P 500 rose by 3% between Iraq’s invasion of Kuwait in August 1990 and the allied victory the following February, while falling 1% between the start of the second Gulf War in March 2003 and the fall of Baghdad less than a month later.

“History really doesn’t give us a guide as to how markets will react to any particular conflict. However, history does teach us that wars are is easier to get into than out of and that they usually have unpredictable consequences,” he said, which means “investors would be well advised to maintain a defensive and well-diversified stance.”

Read: What a Russian invasion of Ukraine would mean for markets as Biden warns Putin of ‘severe costs’

Meanwhile, “equity markets are more at risk from the fallout from the war on inflation than on a potential invasion of Ukraine,” said Sam Stovall, chief investment strategist at CFRA, in a note.

See: Inflation and armed global conflict have investors worried about Jay Powell’s trigger finger

St. Louis Fed President James Bullard last week spooked financial markets with a call for 100 basis points worth of rate increases by July 1, including a possible 50 basis point hike in March, in the wake of data showing inflation running 7.5% year-over-year. On Monday, he reiterated his call for the Fed to “front load” rate increases in the face of persistently high inflation.

Bullard, in an interview with CNBC, said he didn’t think the Fed’s rate moves would sink the economy or deeply unsettle financial markets.

See: Inflation and armed global conflict have investors worried about Jay Powell’s trigger finger

Kansas City Fed President Esther George, in an interview with The Wall Street Journal published Monday, said she wasn’t convinced of the need for a 50-basis-point rate increase in March, while reiterating her call for the Fed to begin selling assets from its nearly $9 trillion balance sheet to help fight inflation. George, like Bullard, is a 2022 voting member of the rate-setting Federal Open Market Committee.

“If we get to March and the data says we should be talking about [a half-point rate increase], I’m sure that will be in play, but I’m not sure that is the answer, per se, to how we get there,” George said.

Over the weekend, Goldman Sachs updated its S&P 500 year-end forecast, dropping it to 4,900 from 5,100, which is still 11% higher than where prices closed Friday.

Need to Know: Goldman Sachs sees three paths for the S&P 500 —and one would leave stocks nearly 20% lower

Earnings season is moving into its final stretch. Of the 358 companies in the S&P 500 that had reported earnings through Friday, 78.2% reported earnings that came in above analyst expectations, while 18.2% missed forecasts, according to Refinitiv.

Which companies are in focus?

• Cisco Systems Inc. CSCO, -0.76% made a $20 billion offer for software maker Splunk Inc. SPLK, +8.15%, The Wall Street Journal reported Friday, citing people familiar with the matter. The offer was made recently, the people said. It isn’t clear where things currently stand, according to the report. Splunk shares rose 8.8%, while Cisco shares fell 1.4%.
• According to a filing with the Securities and Exchange Commission on Friday, the investment fund ran by billionaire George Soros bought nearly 20 million shares of electric-vehicle maker Rivian Automotive Inc. RIVN, +8.54% last quarter, worth about $2 billion at the time. As of Friday’s close, however, the stake was worth about half that — roughly $1.17 billion. Shares were up 8.8% on Monday.
• Eli Lilly & Co. LLY, -0.03% said late Friday that the U.S. Food and Drug Administration issued an emergency-use authorization for bebtelovimab, the pharma company’s antibody treatment for COVID-19. Shares were down 1%.

What are other assets doing?

• Treasury yields, which had pulled back on Friday as investors sought safety in traditional havens amid fears of a potentially imminent Russian invasion of Ukraine, rebounded Monday. The yield on the 10-year Treasury note BX:TMUBMUSD10Y rose 6.7 basis points to 2.014%. Yields and debt prices move opposite each other.
• The ICE U.S. Dollar Index DXY, +0.17%, which tracks the currency against a basket of six major rivals, rose 0.3%.
• Oil futures rose, with the U.S. benchmark CL.1, +1.01% up 0.9% at $93.95 a barrel after ending Friday at more-than-seven-year high. Gold futures GC00, +1.42% rose 1.3%.
• The Stoxx Europe 600 SXXP, -1.83% fell 1.9%, while London’s FTSE 100 UKX, -1.69% fell 1.7%.
• The Shanghai Composite SHCOMP, -0.98% ended 1% lower, while the Hang Seng Index HSI, -1.41% fell 1.4% in Hong Kong and Japan’s Nikkei 225 NIK, -2.23% dropped 2.2%.