Stocks rose Monday to kick off an important week, as oil prices fell sharply and traders monitored the latest developments from the Ukraine-Russia war.
The Dow Jones Industrial Average gained 400 points, or more than 1%, while the S&P 500 climbed 0.9%. The Nasdaq Composite added about 0.3%.
Those moves came as commodity prices, which had been surging recently amid the conflict, cooled off.
U.S. crude futures slid nearly 8% to $100.69 per barrel, while the international Brent benchmark fell 7.4% to $104.34 per barrel. West Texas Intermediate briefly dipped below $100, trading below that level for the first time since Feb. 24.
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Gold futures slipped 1.4% to $1,957.60 per ounce. Palladium dropped 15.7% to $2,357.50 per ounce and was on pace for its worst day since March 2020.
“The recent moves in a range of commodity prices are extreme, and if these moves hold for a prolonged period of time, the economic damage would be significant, but we still do not believe recession needs to be the base outcome, and do not see equities falling from current levels,” JPMorgan strategist Mislav Matejka said in a note.
Shares of energy companies fell with oil prices. Devon Energy dropped nearly 10%, while Occidental Petroleum lost more than 7% and Diamondback Energy fell 5%. The Energy Select Sector SPDR Fund was lower by 3.8%.
Wall Street also kept an eye on the Ukraine-Russia war, as the two countries resumed talks. A Ukrainian official said the country’s objectives were to secure a ceasefire and an immediate withdrawal of Russian troops, along with other security guarantees.
Fighting has intensified around Ukraine’s capital, Kyiv, while Russian forces bombard cities across the country, killing civilians who are unable to escape. The financial fallout of stiff Russian sanctions will come into sharper focus in the coming days ahead of a scheduled sovereign bond payment.
“The escalation in natural resources is taking another break today as risk markets are digesting the next steps of the Russia-Ukraine war and the direction that the Federal Reserve will take with their rhetoric on Wednesday,” said Keith Buchanan, portfolio manager at Globalt Investments.
Fed rate hike expected
The Fed is expected to raise its target fed funds rate by a quarter percentage point from zero at the end of its two-day meeting Wednesday. Investors are also looking to the central bank for its new forecasts for rates, inflation and the economy, given the uncertainty from the escalated geopolitical tensions.
“At the moment, the Fed is expected to be cautious when it comes to interest rate policy in 2022, given the conflict in Ukraine,” Lindsey Bell, chief markets and money strategist at Ally. “The conflict is adding complexity to the Fed’s already difficult job. The central bank will likely remain data-dependent as it makes rate decisions throughout the year.”
Traders are also monitoring a Covid-19 spike in China that led Shenzhen — a major city in a key manufacturing hub — to shut down all nonessential businesses and impose city-wide testing.
American Express and Visa led the Dow higher, adding 3.3% and 2.9%, respectively. Financials were the best performing sector in the S&P 500. Moderna shares jumped 16%, while Pfizer gained about 3%. Both led the health-care sector higher by more than 1%.
The moves in financials came as U.S. Treasurys sold off, pushing yields sharply higher. The benchmark 10-year yield jumped more than 8 basis points to 2.092%. Earlier in the day it hit its highest level since July 2019 at 2.106%. The 2-year rate climbed 7 basis points to 1.82%. One basis point equals 0.01 percentage points.
