Stocks cut losses, even as West prepares sanctions against Russia
Escalating tensions between Russia and Ukraine pushed stocks lower on Tuesday, adding to the turmoil this year and leaving the S&P 500 more than 10% below its January peak.
Such a large drop is known on Wall Street as a correction. It’s the kind of big, round number that crystallizes the idea that the mood of the markets has changed dramatically, and it doesn’t happen often – the last time was in February 2020, when investors were freaking out. in the face of the emerging coronavirus pandemic.
The S&P 500 fell 1% on Tuesday after several countries reacted to Russian President Vladimir V. Putin’s decision to send troops to two breakaway regions in eastern Ukraine.
Measures against Russia included Germany’s decision to suspend certification of the Nord Stream 2 gas pipeline, which would create a new link between the country and Russia, and Britain’s decision to impose sanctions on five banks Russians and three people.
President Biden also announced a “first tranche” of sanctions against two of Russia’s largest financial institutions and Russia’s sale of government debt on international markets.
“It means we have cut off the Russian government from Western finance,” he said. “He can no longer raise money from the West.”
Tuesday’s trading included indications that investors hoped the dispute and its economic ramifications could be contained. Stocks in Europe recovered from an early slump and ended slightly higher, and the S&P 500 rebounded from its lowest point of the day, when it was down nearly 1.9%, after Mr. Biden’s speech. The MOEX, Russia’s benchmark stock index, gained about 1.6%, reversing a decline of more than 9%.
Oil prices have also stabilized somewhat. After climbing to nearly $100 a barrel, Brent, the international benchmark, settled at 96.84 a barrel, up 1.5%.
It might have soothed the nerves that Russia’s measures, and response to them, fell well short of the full-scale invasion some worried about, said Caroline Simmons, director of UK investments at UBS Global. WealthManagement.
“I suspect it’s kind of a hope that this decision has been made, some sanctions will be applied, but obviously not the full scale of sanctions,” she said. “But if it continues to get worse, then obviously that would be very bad for the markets,” she added.
A war between Ukraine and Russia is likely to disrupt global commodity supply chains, driving up food and energy prices and increasing the risk of a prolonged period of faster inflation. Russia is the world’s largest supplier of wheat and supplies almost 40% of Europe’s natural gas and 25% of its oil. Protracted conflict could worsen Europe’s already high energy bills.
The high price of oil and gas on world markets could also be a problem for Americans. Gas prices rose sharply in the United States, averaging $3.53 per gallon according to AAA.
High fuel prices could weigh on consumer spending on other goods and services, as families spend more of their monthly budget on energy. If the potential for war makes consumers uncertain about the future or drives stock prices down, it could weigh on demand as nervous buyers pull back.
“The Federal Reserve is paying very close attention to geopolitical events, and this one in particular because it’s the most important at this point,” Fed Governor Michelle Bowman said Monday.
Ms Bowman noted that the United States has minor banking, financial and trade interests with Russia, and that “we don’t think it would have a significant impact” on the economy given the small size of those relationships.
“But we recognize that there are significant opportunities for potential impacts on energy markets as we move forward, should things go downhill,” Ms Bowman added. “Obviously we will continue to monitor this, and if we think it could have some influence on the global economy, we will take this into account in our meetings and discuss the economy more broadly.
The potential global economic ramifications of the conflict in Ukraine encouraged traders to seek the safety of Treasuries, pushing yields on benchmark US bonds lower. But investors have another concern on their minds: how much and how quickly the Fed will raise interest rates, which are close to zero, to fight inflation. Higher interest rates could slow the economy by discouraging spending and investment.
About a week ago, 10-year Treasury yields rose above 2%, their highest level since mid-2019, as traders braced for rate increases. On Tuesday, the yield hovered around 1.93%. When the price of bonds goes up, their yield goes down.
The potential for higher rates, which could begin as early as March, has made owning risky assets, like tech stocks, unattractive for investors. The tech-heavy Nasdaq composite is down more than 17% since its peak in November.
Shares of Meta, Facebook’s parent company, have fallen around 40% since the start of the year, while Microsoft is down almost 15% and Alphabet, Google’s parent company, is down almost 11%. %.
Coral Murphy Marcos and Jeanna Smialek contributed report.