All three major U.S. stock indexes ended more than 1% lower on Wednesday as oil prices jumped and Western leaders began gathering in Brussels to plan more measures to pressure Russia to halt its conflict in Ukraine. The TSX snapped a six-day winning streak, falling from a record high, with both financials and tech stocks seeing sharp declines.
Responding to Western sanctions that have hit Russia’s economy hard, President Vladimir Putin said Moscow will seek payment in roubles for natural gas sales from “unfriendly” countries, while its forces bombed areas of the Ukrainian capital Kyiv a month into their assault.
Oil prices rallied 5% to over US$121 a barrel and natural gas futures in New York also jumped. While higher oil prices benefit energy shares, they are a negative for consumers and many businesses. The S&P 500 energy sector rose 1.7% and utilities gained 0.2%, while all of the other major S&P 500 sectors were lower on the day.
“These geopolitical problems are sort of hanging over the market,” said Stephen Massocca, senior vice president at Wedbush Securities in San Francisco.
“The resurgence of oil prices is giving people pause,” he said, adding, “There needs to be a resolution with Russia. That’s going to hold the market back.”
The day’s decline follows a recent string of gains on Wall Street as the market recovered from lows hit amid the conflict and increased worries about inflation and higher interest rates.
The Toronto Stock Exchange’s S&P/TSX composite index ended down 142.17 points, or 0.64%, at 21,932.18, its first lower close since March 14.
The index climbed to fresh record highs in recent days as investors placed bets on beaten-down technology stocks and higher metal and oil prices boosted commodity-linked sectors.
“I think part of the good performance was the market scrambling to get out of bonds, given how much they have fallen recently, and they moved into equities almost as a default kind of hedge,” said Stuart Cole, head macro economist at Equiti Capital.
“But the current climate is not really positive for equities either, which is why we are seeing the swings we are seeing.”
The TSX technology group fell 2.3%, tracking weakness in the U.S tech-heavy Nasdaq index, while financials ended nearly 2% lower.
The TSX energy sector advanced 1.9% to notch a two-week high as disruptions to Russian and Kazakh crude exports via the Caspian Pipeline Consortium pipeline added to worries over tight global supplies.
U.S. crude oil futures settled 5.2% higher at US$114.93 a barrel, while gold was up 1.3% at about $1,946 per ounce as investors turned to bullion to shield themselves from soaring inflation and the uncertainty caused by the Ukraine crisis.
The TSX materials group, which includes precious and base metals miners and fertilizer companies, added 1.4%.
In the U.S., the Dow Jones Industrial Average fell 448.96 points, or 1.29%, to 34,358.5, the S&P 500 lost 55.37 points, or 1.23%, to 4,456.24 and the Nasdaq Composite dropped 186.21 points, or 1.32%, to 13,922.60.
Among the day’s biggest drags, Adobe Inc’s stock slid 9.3% after the Photoshop maker late Tuesday forecast downbeat second-quarter revenue and profit and sees an impact on fiscal 2022 revenue due to the Russia-Ukraine crisis.
Investors continued to assess the outlook for U.S. interest rates. San Francisco Federal Reserve Bank President Mary Daly said on Wednesday she is open to raising rates by 50 basis points in May, joining other policymakers in saying so.
Last week, the U.S. central bank raised interest rates for the first time since 2018.
“Although there is widespread criticism, it’s too early to take the view that the Fed won’t be able to negotiate the fine line of reducing inflation without derailing growth,” said Mark Haefele, Chief Investment Officer, UBS Global Wealth Management.
“Given a higher degree of uncertainty, rather than make a directional play on stocks moving higher, we prefer selected overweight and underweight positions, yielding an overall neutral allocation to equities.”
The most eye-catching moves recently have been in the bond market, although there was some reversal on Wednesday. The two-year U.S. Treasury yield, which typically moves in step with interest rate expectations, was down 3.9 basis points at 2.115%. The yield on 10-year Treasury notes was down 5.5 basis points to 2.323%.
The sharp rise in short-dated yields has flattened the gap between two- and 10-year U.S. yields to its lowest levels since the coronavirus pandemic hit global markets in March 2020. An inverted yield curve is widely seen as a predictor of future U.S. recessions.
JPMorgan market strategists wrote in a recent note that markets have rebounded recently because investors are “looking through the hawkish Fed and ominous signal” from the rates curve flattening.
“We believe this is warranted given strong economic fundamentals, our expectation the (twp-year and 10-year Treasury) curve will stay positive this year, and moderating risks of large energy supply disruptions,” they wrote.
In U.S. equity markets Wednesday, Alphabet-owned Google said it will pause all ads containing content that exploits, dismisses or condones the ongoing Russia-Ukraine conflict. Its stock fell 1.1%.
GameStop Corp shares jumped 14.5% after Chairman Ryan Cohen’s investment company bought 100,000 shares of the videogame retailer.
Declining issues outnumbered advancing ones on the NYSE by a 1.78-to-1 ratio; on Nasdaq, a 1.81-to-1 ratio favored decliners. The S&P 500 posted 22 new 52-week highs and four new lows; the Nasdaq Composite recorded 43 new highs and 60 new lows. Volume on U.S. exchanges was 11.69 billion shares, compared with the 14.62 billion average for the full session over the last 20 trading days.
European stocks also fell about 1%, with a pan-European equity benchmark hitting a new one-month high in early London trading before falling back as traders took profits.
MSCI’s broadest gauge of world stocks declined 0.71%, but kept near levels last seen in mid-February just before Russia invaded Ukraine.
Reuters, Globe staff
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