The S&P 500 was little changed, while the Nasdaq 100 edged higher after a holiday Monday.
U.S. stocks drifted on Tuesday as investors weighed the potential damage of sanctions on Russia after President Vladimir Putin recognized two breakaway republics in eastern Ukraine and ordered the dispatch of troops.
The S&P 500 was little changed while the Nasdaq 100 rose slightly after a holiday Monday. The Stoxx 600 index fell as much as 2% before paring losses to trade higher. And the flight to safe havens eased, as yields on benchmark Treasuries rose to trade at 1.95%.
The European Union has proposed a first package of sanctions aimed at Moscow in response to Putin’s decision to recognize the separatist regions. This follows weeks of warnings from the United States and its partners that Russia may be considering invading Ukraine, which he has repeatedly denied.
The threat of additional sanctions and supply disruptions kept energy prices high, with West Texas Intermediate crude trading near $93 a barrel. German Chancellor Olaf Scholz has said he will halt certification of the Nord Stream 2 gas pipeline, pushing European natural gas futures up 10%. The question now is what the United States and its allies would define as an invasion, and what would trigger greater sanctions.
“The stock market is right to worry about the ongoing tensions between Russia and Ukraine, which could exacerbate the difficult inflation backdrop that many investors and companies expect to improve in the second half of 2022,” wrote Lori Calvasina of RBC Capital Markets. . “The bad news is that the investment community still appears to be in the early days of understanding the potential implications of this conflict.”
Nonetheless, sentiment was more positive in Europe as traders were betting that the current scenario had already been priced into stocks. Russian stocks made up for earlier declines and the MOEX Russia index traded up 2.0%. If the situation calms down, a quick 5% rally in US stock markets is possible, according to strategists at Morgan Stanley.
“Any positive news could reverse the bearish action and lead to sudden jumps in the prices of risky assets,” wrote Ipek Ozkardeskaya, senior analyst at Swissquote, in a note.
Meanwhile, investors continue to watch comments on the trajectory of US monetary policy. Fed Governor Michelle Bowman has suggested that a half-percentage-point hike in interest rates could be on the table next month if incoming inflation readings are too high. Manufacturing and services PMI data from Markit beat estimates, suggesting that recent growth worries have been fueled by the omicron variant. However, US consumer confidence is at its lowest since September.
Geopolitical risks have already led investors to bet on how aggressively the Federal Reserve might tighten monetary policy this year to fight inflation. Still, John Stoltzfus, chief investment strategist at Oppenheimer, said the current headwinds “should prove beneficial to both traders looking for short-term stocks and investors looking to hit targets.” long-term”.
“Based on our nearly 40 years’ experience in the market – if any – the current high level of multi-level global uncertainty has the potential to prove, in hindsight, to have been beneficial to sophisticated investors willing to stay the course and even profit from ‘sold’ stocks,’ he said.
Here are some events to watch for this week:
- New Zealand Rate Decision Wednesday
- BOE Governor Andrew Bailey appears before the Treasury Committee on Wednesday
- Bank of Korea policy decision on Thursday
- EIA Crude Oil Inventory Report Thursday
- Fed officials Loretta Mester and Raphael Bostic speak on Thursday
- US new home sales, GDP, first jobless claims Thursday
- US Consumer Income, US Durable Goods, PCE Deflator, University of Michigan Consumer Sentiment Friday
Some of the major movements in the markets:
- The S&P 500 was little changed at 10:17 a.m. PT
- The Nasdaq 100 rose 0.3%
- The Dow Jones Industrial Average fell 0.4%
- The Stoxx Europe 600 rose 0.4%
- The MSCI World index fell 0.1%
- The Bloomberg Dollar Spot Index was little changed
- The euro rose 0.3% to $1.1343
- The British pound fell 0.4% to $1.3554
- The Japanese yen fell 0.4% to 115.21 per dollar
- The yield on 10-year Treasury bills rose two basis points to 1.95%
- Germany’s 10-year yield rose seven basis points to 0.27%
- The UK 10-year yield rose seven basis points to 1.48%
- West Texas Intermediate crude rose 1.8% to $92.69 a barrel
- Gold futures are little changed
–With assistance from Andreea Papuc, Emily Barrett and Michael G. Wilson.