Dow skids 500 points, oil prices rise as Ukraine fears escalate
By market close, the tech-heavy Nasdaq had plunged nearly 2.8%, or 394.49 points, to 13,791.15 The broader S&P 500 index was down 1.9%, or 85.44 points , to settle at 4,418.64 The Dow Jones Industrial Average fell 1.4%, or 503.53 points, to close at 34,737.
“Tensions between Russia and Ukraine have hovered over already fragile investor sentiment,” said John Lynch, chief investment officer of Comerica Wealth Management. “Investors were counting on a diplomatic resolution, but recent developments indicate that this may be wishful thinking and therefore not fully priced into the markets.”
Lynch said investors could face a tough time if Russia carries out an invasion.
“We expect a significant supply in US Treasuries, putting demand for yield in direct conflict with Fed intentions,” he said. “Commodity prices could also accelerate, driven by oil and gold. The dollar could also enter a safe haven offer, accelerating commodity inflation. The degree and extent of the conflict will also determine the intensity of the Fed’s tightening plans.
On Friday, West Texas Intermediate crude, the US oil benchmark, jumped 4.4% to nearly $94 a barrel. Brent crude, the global benchmark, climbed nearly 4.1% above $95. Analysts said the Russian-Ukrainian conflict has the potential to drive prices above $100 per barrel.
Bond yields also jumped as investors priced in rate hikes, with the yield on the 10-year U.S. Treasury rising above 2% to hit a multi-year high, before falling slightly to 1.955%.
The week started on a high note, but investor sentiment soured on Thursday after the Labor Department reported the biggest annual inflation spike since February 1982, fueling speculation that the Federal Reserve could act more aggressively than expected to raise interest rates.
Such action is the Fed’s best tool for lowering prices, but the tangle of pressures surrounding and influencing inflation – exploding demand, a chaotic supply chain, a topsy-turvy labor market – will not be immediately resolved by changes in monetary policy. Meanwhile, rising rates will limit corporate activity, which often hits stocks hard, especially those of high-flying companies.
“The market volatility from January has not ended and we expect continued turmoil as investors weigh the prospect of a more aggressive Federal Reserve on rising inflation,” Richard said on Friday. Saperstein, chief investment officer of Treasury Partners, in comments emailed to The Poster.
All three major U.S. indices remain in negative territory for 2022: The Nasdaq, which took a hit as investors shunned expensive tech stocks, is down nearly 12% year-to-date according to MarketWatch. The S&P 500 has erased over 7% this year and the Dow Jones over 4%.
Cboe’s VIX, dubbed Wall Street’s fear gauge, has jumped 33% in the past month.
Consumer confidence fell 8.2% from December to January, according to University of Michigan Consumer Confidence index, with households facing the burden of inflation everywhere. Soaring costs for food, electricity and housing helped push up inflation last month, with furnishings, clothing and medical care becoming more expensive, while the costs of used cars continued to climb, although at a slower pace than in previous months. Soaring costs have all but wiped out the wage gains that many employers have offered in a tight labor market.
“Inflation remains consumers’ biggest concern,” Jim Baird, chief investment officer at Plante Moran Financial Advisors, said in comments emailed to The Post on Friday. “Understandably, as upward pressure on prices across a wide range of goods and services has shown little sign of easing.”
Sentiments had improved ahead of the inflation report, as investors gauged the likelihood of more rate hikes and dealt with a slew of economic data suggesting omicron was casting less of a shadow over the economy than many believed. feared. Now, the searing inflation report has given Wall Street a lot more reason to worry. Stocks, especially those in the tech sector, tend to benefit from lower rates as some investors look beyond higher upfront costs to the likelihood of big profits down the line.
“Markets aren’t erring on the side of hope and are pricing in plenty more bullishness in the second half of the year, believing central banks will once again be overly optimistic,” said Craig Erlam, senior economics analyst. at OANDA. in comments emailed to The Post. “While this could lead to much more volatility in stock markets over the next two months, it could become a useful tailwind in the second half if inflation drops significantly.”
Corporate earnings have been at the center of recent swings as investors searched for signs of inflation weighing on earnings, with the performance of big names triggering selloffs and big rallies. A disappointing earnings report from Meta Platforms last week sparked a selloff that wiped out around $230 billion in market value, a record for a US company. A day later, Amazon’s value swelled by $191 billion, also a record, after announcing blockbuster fourth-quarter earnings, lifting technology and other sectors alongside it. (Amazon founder Jeff Bezos owns The Washington Post.)
Zillow shares soared more than 13% in midday trading, even after the company said it lost $881 million on its shuttered home flipping business last year. Revenue from its core segment rose 30%, Zillow said, boosted by the demands of a fiery real estate market.