As The Dow Tumbles and Oil Rises, What Else Will Happen in Markets?
“Stocks were off their worst levels of the day Monday after news over the weekend that the U.S. is imposing new sanctions on Russia. Investors were awaiting the latest developments as officials from Russia and Ukraine met for talks.
By late morning, the Dow Jones Industrial Average DJIA-0.84% fell 109 points or 0.3%, after the index ended 834 points higher Friday. The S&P 500 SPX-0.67% rose 0.1%, with the Nasdaq Composite COMP-0.07% up 0.8%. The Dow was underperforming the Nasdaq as investors ditched the more economically-sensitive stocks and favored technology stocks.
Overall, “Global markets are experiencing heightened volatility as investors weigh the impact of Russia’s invasion of Ukraine, potential disruptions in the flow of commodities, and the ramping up of Western sanctions on Russia,” wrote Mark Haefele, chief investment officer of global wealth management at UBS.
Over the weekend, the U.S. moved to cut off Russian banks’ access from the SWIFT international payment system, making it it difficult for Russian banks to transact overseas.
That puts other banks and companies around the globe at risk. The SWIFT payment system makes for a more seamless transaction for banks and other businesses wiring money to each other for all types of transactions. Delayed transfers of cash between Russian and other European businesses, for example, could potentially create a liquidity issue for companies around the globe.
“Does that cause ripple effect?” asked Tom Essaye, founder of Sevens Report Research. “Counter-parties won’t be paid as quickly” in this scenario, he added.
Elsewhere, the European Union will fund Ukraine’s purchase of weapons, in a signal that war is continuing in the region.
If the conflict continues—or worsens—the U.S. could slap sanctions on Russian oil, restricting the global supply, lifting the price and creating more of the inflation that consumers have dealt with recently.
That’s why the price of WTI crude oil was up more than 4% to over $95 a barrel Monday. That’s near a multi-year closing high, and it lands the commodity at a gain of 27% for the year.
Investors were largely moving into safe assets Monday, to ride out the volatility in the stock market. The price of the 10-year Treasury bond rose, sending its yield down to 1.87% from a closing level of 1.97% Friday. The price of gold rose 1.5%.
The action in financial markets Monday is a reversal trade from Friday. Then, stock indexes soared, with the S&P 500 and Dow gaining more than 2%. The price of oil had dropped a bit as news had broken that Russia was interested in meeting with Ukraine and after President Joe Biden had refrained from imposing sanctions on Russian oil.
Russia and Ukraine did meet for cease-fire talks Monday, even though Russian troops continue to invade Kyiv and other Ukrainian cities. Stocks were above their lowest levels Sunday night and oil was below its highest level. Markets, though, are worried that those talks won’t mean much.”