Stocks close lower as oil prices rise

US stocks fell and oil prices climbed on Wednesday as concerns over rising commodity prices and uncertain progress in ceasefire talks between Russia and Ukraine weighed on markets .

With a day to go, stocks remained on track to lose ground in the first quarter of 2022, but were on course to end March with solid gains after rallying in recent weeks.

As the month draws to a close, investors are still grappling with war in Ukraine, soaring inflation and a Federal Reserve that has begun raising interest rates for the first time since 2018. Still, traders continued to pile on US stocks, with the S&P 500 up 5.2. % for the month.

Wednesday’s trading trimmed that gain slightly. The S&P fell 29.15 points, or 0.6%, to close at 4602.45, while the technology-focused Nasdaq composite index lost 177.36 points, or 1.2%, to end at 14442.27. The Dow Jones Industrial Average fell 65.38 points, or 0.2%, to 35,228.81. Small cap stocks fared less well, with the Russell 2000 Index falling 2%.

Strategists and investors say the recent rebound is fragile, especially as hopes for a quick end to the war remain dim.

“It looks like the markets are still trying to digest the recovery they’ve had since Russia invaded Ukraine,” said Jake Manoukian, U.S. head of investment strategy for JP Morgan Private Bank.

Big swings in everything from oil prices to Treasuries have weighed on sentiment at times this month. On Wednesday, rising oil prices helped push stocks lower. Brent crude, the international benchmark for oil prices, rose 2.9% to $113.45 a barrel. In Europe, often volatile natural gas prices jumped after Germany indicated it was preparing for a possible cut in Russian gas supplies.

Oil and gas were already getting more expensive even before Russian tanks crossed the Ukrainian border last month as the recovery from the Covid-19 pandemic fueled increased demand. Today, some investors fear that rising fuel costs and energy market volatility will weigh on consumer and business budgets, clouding prospects for economic growth.

“Sudden movements in oil prices can really drive up the cost at the pump and keep us from spending on other items,” said Luke Tilley, chief economist at Wilmington Trust Investment Advisors.

Investors were also digesting growing skepticism about peace talks in Eastern Europe on Wednesday. Kremlin spokesman Dmitry Peskov said talks with Ukrainian negotiators in Istanbul had not brought the two countries closer to a deal that would end the Russian invasion.

“I think those hopes have faded,” said Susannah Streeter, senior investment and market analyst at Hargreaves Lansdown.

Energy stocks, among the best performers in the market so far this year, traded higher. Valero Energy added $3.82, or 4%, ending the day at $100.50. Phillips 66 gained $3.97, or 4.8%, to end at $87.44. The S&P 500 energy sector rose 1.2%.

Meanwhile, shares of Lululemon Athletica climbed $32.95, or 10%, to $376.92 after the company posted higher fourth-quarter revenue and profit. Robinhood fell $1.35, or 8.5%, to end at $14.56, giving up some of the strong gains that came on Tuesday after the brokerage app said it was extending the hours users could trade .

Several meme stocks also fell. Bed Bath & Beyond was down $4.48, or 16%, ending the day at $22.75. Cinema chain AMC Entertainment and GameStop, a video game retailer, also fell.

In the bond market, traders carefully watched the spread between short-term and long-term interest rates. When they converge, it is often seen as a sign of pessimism about economic growth. On Tuesday, those rates briefly reversed, with yields on two-year U.S. Treasuries outpacing those on the benchmark 10-year note for the first time since 2019. Some investors view this pattern, known as the yield curve reversed, as a signal of an upcoming recession. .

An inversion in the US Treasury yield curve has been seen for decades as a harbinger of recession, and it looks like it’s about to reignite. The WSJ’s Dion Rabouin explains why an inverted yield curve can be so reliable in predicting recession and why market watchers are talking about it now. Illustration: Ryan Trefes

On Wednesday, the yield on the 10-year treasury was once again trading higher than the yield on the two-year. The 10-year settled at 2.357%, down from 2.399% on Tuesday, according to Tradeweb. The two-year yield stood at 2.326%, down from 2.349% on Tuesday. Yields fall when prices rise.

“The yield curve tells you that the bond market thinks the Fed tightening that’s built in is enough to cause slower growth,” Manoukian said.

Bond yields have risen this year as markets brace for a widely anticipated series of interest rate hikes by the Fed. Strong hiring and high inflation set the stage for the central bank to end some of its pandemic-era support for the economy. On Wednesday, ADP data showed the private sector added 455,000 jobs in March, slightly ahead of economists’ forecasts, a Wall Street Journal poll showed.

Fund managers say the risk of recession is higher in Europe than in the United States, in part because of the continent’s relative dependence on Russian exports. Russia supplies around 40% of the European Union’s natural gas.

A European recession is “in our baseline scenario,” said Seema Shah, chief strategist at Principal Global Investors. In addition to the continent’s dependence on Russia for gas and other goods, Europe also faces significant inflation, she said. On Wednesday, new data showed consumer prices in Germany for March were up 7.3% year-on-year.

Traders worked on the floor of the New York Stock Exchange on Tuesday.


Photo:

Courtney Crow/Associated Press

In Europe, the pancontinental Stoxx Europe 600 index fell 0.4%, ending a three-game winning streak. The German DAX index fell 1.5%.

The euro climbed 0.7% to $1.12, its third consecutive daily gain. The WSJ Dollar Index, which tracks the currency against a basket of others, fell 0.5%. The Japanese yen rebounded from its recent slide, climbing 0.9% against the dollar after the Bank of Japan stepped up its bond buying operations.

In Hong Kong, the Hang Seng gained 1.4%, while in mainland China, the Shanghai Composite Index rose 2%. Japan’s Nikkei 225, on the other hand, fell 0.8%.

Write to Matt Grossman at matt.grossman@wsj.com and Caitlin McCabe at caitlin.mccabe@wsj.com

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Felix J. Dixon