Mid-day: Mixed up with the Fed and Russia/Ukraine

The stock market continues to contend with hawkish Fed expectations and a serious Russia-Ukraine situation. The S&P 500 trades flat, and the Dow Jones Industrial Average trades lower by 0.2%. The Nasdaq Composite, however, is leaping ahead with a 0.8% gain.

Prior to the open, Russia’s Minister of Foreign Affairs Sergei Lavrov acknowledged that there’s a chance for an agreement on security issues regarding Ukraine, and St. Louis President Bullard (FOMC) reiterated his hawkish policy stance in a CNBC interview due to rising inflation pressures.

The market is appreciating Mr. Lavrov’s diplomacy, even though he warned that Russia doesn’t have indefinite time to discuss the situation. As for Mr. Bullard’s hawkish viewpoint, that’s a matter that the market continues to dwell on, especially as Treasury yields continue to rise.

Eight of the 11 S&P 500 sectors are trading lower with the energy sector (-2.9%) diverging not only from the pack but also energy prices ($93.62/bbl, +0.54, +0.6%), which remain elevated amid the geopolitical uncertainty. Energy stocks might be succumbing to profit-taking interest amid concerns that consumers could hold back at the pump.

The information technology (+0.6%), consumer discretionary (+1.8%), and communication services (+0.8%) sectors are trading higher due to the mega-caps, which are showing strength despite the 10-yr yield being up seven basis points to 2.02%.

The 2-yr yield is up eight basis points to 1.60% while the fed funds futures market prices in at least six rate hikes this year. The U.S. Dollar Index is up 0.2% to 96.30.

The mega-caps are largely responsible for the outperformance of the Nasdaq and the flat indication in the S&P 500. The Vanguard Mega Cap Growth ETF (MGK 229.79, +2.05) is up 0.9% while the Invesco S&P 500 Equal Weight ETF (RSP 154.63, -0.69) is down 0.4%.

Separately, shares of Splunk (SPLK 124.08, +9.56, +8.4%) are up 8% after The Wall Street Journal reported that Cisco (CSCO 53.53, -0.37, -0.7%) recently proposed to acquire the company for $20 billion.

Investors did not receive any economic data today.

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