The Dow Jones Industrial Average dropped more than 700 points, putting the blue-chip gauge on track to enter a correction, as surging oil prices deepened concerns about economic growth.
The Dow industrials were recently down 2.1%, or about 713 points, following four consecutive weeks of losses. At that level they would close in a correction, down at least 10% from their January high.
The S&P 500 dropped 2.7%, bringing its 2022 decline to almost 12%. The tech-heavy Nasdaq Composite lost 3.2% and is down nearly 18% year-to-date. The S&P 500 entered a correction on Feb. 22, while the Nasdaq Composite fell into correction on Jan. 19.
Monday’s losses were broad-based, with nine of the S&P 500’s 11 sectors down in recent trading. The energy group added to its gains for the year while the utilities segment also advanced. The consumer discretionary segment led the decliners, recently dropping more than 4%.
The war in Ukraine, now in its 12th day, has roiled commodity markets, increased tensions between Moscow and the West and led to Russia being unplugged from much of the global financial system. Investors are growing fearful that the consequences for financial markets could extend further than initially thought.
“The market’s on shaky ground,” said Hans Olsen, chief investment officer at Fiduciary Trust. “When you combine the price shocks that we’re seeing in the energy complex on one hand and the galloping inflation that we’re dealing with on the other hand, that’s a really tough mix for an equity market to hold valuations where we are right now.”
Attention focused on energy markets, where oil prices rose after Secretary of State Antony Blinken said Sunday that the US and European are discussing a ban on imports of Russian oil partners.
Global benchmark Brent crude topped $130, the highest level since July 2008, before easing from its highs. Brent advanced 4.3% Monday to $123.21 a barrel, its highest stable value since April 2012.
Equity investors are worried that sky-high oil prices will fuel inflation and that the war in Ukraine and ensuing sanctions on Russia could hurt businesses based in the US
“The rise in oil is destabilizing the market,” said Jay Hatfield, chief executive and portfolio manager at Infrastructure Capital Advisors. “The market is concerned about the war and its impact on US growth and US companies.”
Investors appear to be in classic flight-to-safety mode and stocks are suffering as a result, said Kelvin Tay, the Singapore-based regional chief investment officer for UBS.
Very high oil prices will function as “a tax on the global economy, and therefore global growth will actually have to slow,” he said.
The top-performing stocks in the S&P 500 were energy companies that stand to benefit from rising oil prices. Shares of Schlumberger NV jumped 8.8%, while Halliburton shares advanced 6.7%.
Among the worst performers, by contrast, were a number of travel-related companies that could be hurt by higher fuel prices and the possibility that consumers could cut back on travel because of geopolitical tensions. United Airlines shares dropped 15%, and Delta Air Lines shares fell 13%.
Occidental Petroleum shares fell 0.6% after activist investor Carl Icahn exited his position after years of campaigns. Bed Bath & Beyond rose 23% after billionaire investor Ryan Cohen disclosed a 9.8% stake in the retailer.
Higher commodity prices and the resulting accelerated inflation are complicating the next moves of major central banks, which were largely set to begin tightening monetary policy before the war began.
The European Central Bank is meeting this week, and investors will be watching for changes to its growth outlook and policy. In the US, Federal Reserve Chairman Jerome Powell said last week that he would propose raising interest rates by one-quarter of a percentage point at the central bank’s meeting later this month.
“This toxic cocktail poses a huge problem for central banks. Do they tighten monetary policy and risk pushing the world into a recession even quicker or do they allow inflation to rip higher, which would do the same thing? said Michael Hewson, chief markets analyst at CMC Markets.
Inflation concerns are weighing on the bond market, he added.
The yield on the benchmark 10-year US Treasury note edged up to 1.744% Monday from 1.722% Friday, reversing direction after posting the biggest one-week decline since March 2020 last week. Yields rise when prices fall. Bonds typically perform well in times of market stress or slower economic growth, but their fixed cash flows lose value in periods of rapidly rising prices.
Other safe-haven assets rallied. Gold rose 1.5% to $1993.90 per troy ounce, its highest stable value since August 2020. The greenback strengthened, with the WSJ Dollar Index rising 0.6%. The US dollar is seen as a haven asset because of its status as the world’s reserve currency.
The Russian ruble is seen and traded during the day at a record low of more than 150 rubles to $1. Russia’s stock market is closed and will remain so until at least Tuesday, according to Russia’s central bank. It hasn’t traded normally since Feb. 25.
Overseas, the pan-continental Stoxx Europe 600 fell 1.1% Monday. Surging oil and gas prices are spurring concerns that Europe, an energy importer dependent on Russia, could fall into recession.
Stock benchmarks in the Asia-Pacific region fell sharply, with South Korea’s Kospi Composite declining more than 2% and Japan’s Nikkei 225 shedding 2.9%, to close at its lowest since November 2020. The mainland Chinese CSI 300 and Hong Kong’s Hang Seng Index both fell more than 3%.
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