Fears of a Russian Invasion on Ukraine Cause the Dow and Nasdaq to Fall 500 Points and Over 2 Percent, Respectively
A rise in hostilities between Ukraine and Russia pushed up the price of oil, prompting investors to sell risky assets such as equities, sending stocks tumbling on Friday.
Stocks were fairly flat throughout the day until news about Ukraine dominated the afternoon trading session, prompting traders to sell stocks and purchase Treasury bonds.
The Nasdaq Composite Index, which is heavily weighted toward technology, sank 2.78 percent to 13,791.15, while the S& P 500 Index fell 1.9 percent to 4,418.64. A drop of 503.53 points, or 1.43 percent, sent the Dow Jones Industrial Average to 34,738.06, a new low for the year.
Stocks fell substantially in afternoon trade following a spike in oil prices that looked to be linked to growing concerns that Russia may launch a military operation against Ukraine.
When there were about 2 hours left in the trading day, US National Security Advisor Jake Sullivan said at a White House briefing that there were signs of Russian escalation at the Ukraine border and that it was possible that an invasion could take place during the Olympics, despite speculation to the contrary. Sullivan was speaking at a White House briefing when there were about 2 hours left in the trading day.
Both the United States and the United Kingdom Have Urged Their People to Leave Ukraine as Quickly as Possible.
Russian President Vladimir Putin has not made a final decision on whether or not to attack Ukraine, according to US Secretary of State John Kerry. “However, it is possible that it will happen soon,” he remarked. Following Sullivan’s comment, stocks recovered from their lows while oil and bond prices fell from their highs for the trading day, which was a modest reversal of an earlier report that had sent markets into a tailspin.
According to Art Cashin of UBS, the headlines about Ukraine had “a little bit” to do with the stock market sell-off. He predicted that some traders will take advantage of the news ahead of the weekend. “I believe it is primarily due to the fact that the Federal Reserve does not appear to have a plan.”
Cashin is skeptical of an invasion, saying, “I don’t think it’s going to happen.” In the absence of any supporting evidence, gossip will find a way to spread.”
Following the breaking news from Ukraine, some military stocks rose in price. The stock of Northrop Grumman increased by 4.5 percent. Lockheed Martin increased their share price by 2.8 percent.
Oil prices have risen, with West Texas Intermediate futures up 4 percent, as Russia, a major supplier of oil and natural gas has increased production. With the rise in the price of oil, energy stocks have followed suit, with Diamondback Energy gaining over 4 percent and Devon Energy climbing by 3.6 percent this week alone. Exxon Mobil and ConocoPhillips both saw their stock prices rise by 2.5 percent and 2.3 percent, respectively.
The value of travel-related stocks, such as airlines, has plummeted. American Airlines’ stock price dropped by roughly 6%. Expedia’s stock fell more than 2 percent in late trading after the company reported better-than-expected fourth-quarter earnings, which boosted the stock in early trading.
According to the analysts, “it is possible that equities will experience another fall in the 10.0 percent area as investors sell first and ask questions later.” However, while we believe that growth and defensives will dominate in the short term, we believe that value and cyclical will be the best positioned for the global cyclical recovery,” said John Lynch, chief investment officer at Comerica Wealth Management. When the market is volatile in the short term, we recommend investors stick to a long-term strategy.
Treasury yields fell as a result of the news out of Ukraine in the bond market. The yield on the 10-year Treasury note, which had risen above 2 percent on Thursday for the first time since 2019, slipped back to approximately 1.92 percent on Friday, the lowest level since early 2019. Yields move in the opposite direction of the price.
Inflation data released on Thursday was higher than expected, prompting St. Louis Fed President James Bullard to urge for a faster pace of rate hike, including a full percentage point increase by the beginning of July.
However, according to Fed sources, a 50-basis-point rate hike in March is not seen to be necessary. A basis point is equivalent to 0.01 percent, and the Federal Reserve normally raises interest rates in increments of 25 basis points. The presidents of the Federal Reserve Banks of Atlanta, Richmond, and San Francisco expressed opposition to the idea of a double rise.
According to Goldman Sachs, the Federal Reserve will raise interest rates seven times this year in an effort to cool down an economy that has generated inflation that has been far more persistent than officials had predicted in the first place.
“The Federal Reserve is clearly behind the times… DoubleLine CEO Jeffrey Gundlach stated Friday on the Federal Reserve will have to hike interest rates by a larger margin than the market currently anticipates. “My guess is that they will continue to raise rates until something breaks, which always happens.”
In the semiconductor sector, equities have been erratic in part due to supply chain concerns caused by Covid. Semiconductor stocks were among the worst performers on Friday. Advanced Micro Devices and Xilinx both saw their stock prices drop by 10%.
The stock of Newell Brands increased by 11 percent on Friday after the firm reported results that exceeded expectations on both the top and bottom lines for the fourth quarter. Following the release of Under Armour’s quarterly report, which highlighted supply chain difficulties, the sportswear company’s stock price plunged by more than 12 percent.
The VanEck Russia ETF plunged by more than 7%, indicating that the sell-off in U.S. markets may expand to international companies next week, according to the fund. In addition, the Russian Ruble fell in value against the US dollar.
On the economic front, there was again another negative for market mood. The preliminary consumer confidence reading for February from the University of Michigan came in at 61.7, down from 67.2 the previous month and below forecasts.
With Friday’s decline, the three major U.S. indices completed the week with negative performance.