The S&P 500 declined 0.4% on Monday, as the market remained preoccupied with the Russia-Ukraine situation and a continued rise in interest rates. The Dow Jones Industrial Average and Russell 2000 both declined 0.5%, while the Nasdaq Composite was unchanged.
Nine of the 11 S&P 500 sectors closed lower, paced by losses in the energy (-2.2%), financials (-1.1%), health care (-1.1%), and real estate (-1.0%) sectors. The consumer discretionary (+0.6%) and communication services (+0.3%) sectors closed higher.
Early on, the market felt relieved after Russia’s Minister of Foreign Affairs opened the door for diplomacy with a statement that there’s a chance for an agreement on security issues. The qualification that Russia doesn’t have indefinite time to talk, though, served as a reminder that the situation is still serious.
The S&P 500 was trading flat midday until media reports misinterpreted a statement from Ukraine President Zelensky, who said Russia will attack on Feb. 16 and that he would declare that day a national holiday. The sarcastic tone contrasted with a precautionary move from the U.S. to relocate its Kyiv Embassy to western Ukraine.
Following these conflicting headlines, oil prices topped $95 per barrel ($95.48, +2.39, +2.6%) and the S&P 500 was down as much as 1.2%. At the same time, Treasury yields continued to push higher on expectations for a hawkish Fed amid persistent inflation pressures.
The 2-yr yield rose seven basis points to 1.59% as the CME FedWatch Tool continued to price in more than six rate hikes this year. The 10-yr yield rose four basis points to 2.00%. The U.S. Dollar Index increased 0.3% to 96.35.
St. Louis Fed President Bullard (FOMC voter) reiterated his hawkish stance in a CNBC interview, arguing that the Fed should front load tightening and that the central bank’s credibility is on the line with respect to fighting inflation.
Interestingly, growth stocks outperformed on a relative basis despite the higher rates, and energy stocks performed terribly despite the higher oil prices. Rebalancing activity might have driven the discrepancies in addition to concerns that elevated oil prices could eventually hurt demand.
Separately, The Wall Street Journal reported that Cisco (CSCO 53.18, -0.72, -1.3%) made a recent offer to acquire Splunk (SPLK 124.97, +10.46, +9.1%) for $20 billion. Splunk turned down the offer, but SPLK shares still rose 9% on the takeover interest.
Investors did not receive any economic data on Monday.
Looking ahead, investors will receive the Producer Price Index for January, the Empire State Manufacturing Survey for February, and Net Long-Term TIC Flows on Tuesday.
- Dow Jones Industrial Average -4.9% YTD
- S&P 500 -7.7% YTD
- Russell 2000 -10.0% YTD
- Nasdaq Composite -11.9% YTD
Overseas:
- Europe: DAX -2.0%, FTSE -1.7%, CAC -2.3%
- Asia: Nikkei -2.2%, Hang Seng -1.4%, Shanghai -1.0%
Commodities:
- Crude Oil +1.95 @ 95.10
- Nat Gas +0.20 @ 4.17
- Gold +23.10 @ 1873.30
- Silver +0.41 @ 23.82
- Copper -0.02 @ 4.48