S&P 500
Escalating tensions between Russia and Ukraine roiled financial markets on Tuesday, with stocks on Wall Street falling and oil prices rising as investors tried to gauge the risk of a larger conflict in the region.
The S&P 500 fell more than 1.5 percent in afternoon trading, while the Nasdaq composite fell more than 1.8 percent, turmoil that came as several countries announced economic responses after Russia’s president, Vladimir V. Putin, ordered troops into two breakaway regions in eastern Ukraine.
Tuesday’s declines put the S&P 500 more than 10 percent off its most recent peak, from Jan. 3, a drop that is known on Wall Street as a correction. It’s the kind of big round number that helps crystallize the view that the mood in markets has substantially shifted, and it doesn’t happen often. The last time stocks fell more than 10 percent was February 2020, when investors were in a panic over the emerging coronavirus pandemic.
The measures against Russia included Germany’s decision to halt certification of the Nord Stream 2 natural gas pipeline that would link the country with Russia and Britain’s decision to sanction five Russian banks and three individuals. President Biden also was expected to announce sanctions later on Tuesday.
But Tuesday’s trading included some indications that investors were hopeful the conflict, and its economic ramifications, could be contained. Stocks in Europe recovered from an early swoon and ended slightly higher. The MOEX, Russia’s benchmark stock index, gained about 1.6 percent, reversing a decline of more than 9 percent.
Oil prices also settled, somewhat. After climbing to nearly $100 a barrel, Brent crude, the international benchmark, was trading near $97 a barrel, up more than 1 percent increase.
It might have calmed nerves that Russia’s measures, and the response to them, fell far short of the full-scale invasion some have worried about, said Caroline Simmons, the U.K. chief investment officer at UBS Global Wealth Management.
“I suspect it’s a sort of hope that this move has been made, some sanctions will be applied, but obviously not the full scale of sanctions,” she said. “But if it continues to escalate, then obviously that would be very bad for the markets,” she added.
A war between Ukraine and Russia would likely disrupt global supply chains of commodities, causing food and energy costs to rise and increasing the risk of a prolonged period of faster inflation. Russia is the world’s largest supplier of wheat and is a critical source of energy for Europe, providing nearly 40 percent of the continent’s natural gas and 25 percent of its oil. An extended conflict could worsen Europe’s already high energy bills.
Asian stock markets closed lower. The Hang Seng Index in Hong Kong fell 2.7 percent, its worst day since July, and the Nikkei 225 in Japan dropped 1.7 percent.
“All in all, market reaction still remains disciplined even though more volatility can be expected as the political and military situation evolves and potentially escalates,” Gregor Hirt of Allianz Global Investors wrote in a note.
The potential global economic ramifications of the conflict in Ukraine had encouraged traders to seek the safety of Treasuries, which pulled down yields for the benchmark U.S. bonds. But investors have another concern on their minds: how far and how quickly the Federal Reserve will raise interest rates to tackle inflation.
About a week ago, yields were at their highest since mid-2019 as traders prepared for the rate increases. UBS Global Wealth Management predicts there will be six increases of 25 basis points this year.
