The S&P 500 is struggling with a 1.4% decline, as risk sentiment gets curtailed by oil prices rising above $104 per barrel ($104.33, +8.55, +8.9%) in response to worsening Russia-Ukraine developments. The 10-yr Treasury note yield is down 12 basis points to 1.72%.
The Nasdaq Composite is down 1.0%, the Dow Jones Industrial Average is down 1.6%, and the Russell 2000 is down 1.8%.
Overnight, media outlets reported on satellite images showing a 40-mile long convoy of Russian military vehicles approaching Kyiv while Russian forces ratcheted up their attack in Ukraine. Officials believe that a “massive strike” is coming, according to a recent report from The Wall Street Journal .
Despite the news and the visceral reaction in commodities and Treasuries, the major indices opened the session on a flat note. The resilient start might have been due to first-of the-month inflows, but stocks have since been set back by an understanding that the situation could get worse before it gets better.
Ten of the 11 S&P 500 sectors are currently trading lower with losses ranging from 0.3% (real estate) to 3.6% (financials).
The energy sector (+0.8%), of course, is bucking the negative trend due to the spike in oil prices, which are up even after 31 EIA member countries announced a coordinated plan to release 60 million barrels of oil from their reserves. Crude futures briefly topped $106/bbl earlier today.
Financial stocks are falling in tandem with interest rates, which are down not only because of safe-haven interest but also because of burgeoning beliefs that the Fed won’t be as hawkish as initially feared because of the geopolitical situation. The central bank meets in two weeks to discuss policy.
The fed-funds-sensitive 2-yr yield is down 12 basis points to 1.31% as the fed funds futures market now expects five rate hikes this year instead of at least six like it did previously. The 10-yr yield (1.72%) briefly fell to 1.68% earlier today. The U.S. Dollar Index is up 0.7% to 97.41.
Besides the geopolitical angst, risk sentiment has also been pressured by disappointing guidance out of Zoom Video ( ZM 127.00, -5.60, -4.2%) and material losses in Lucid Motors ( LCID 24.32, -4.65, -16.1%) and GoodRx ( GDRX 16.73, -10.67, -38.9%) following their earnings reports.
Target ( TGT 222.49, +22.72, +11.2%) is a notable exception, as shares jump 11% following its earnings report.
Reviewing today’s economic data:
- The February ISM Manufacturing Index increased to 58.6% (Briefing.com consensus 58.0%) from 57.6% in January. A number above 50.0% is indicative of expansion. February marked the 21st straight month of expansion for the manufacturing sector.
- The key takeaway from the report is that new orders growth helped drive the faster expansion activity in February, showing that the effects of the Omicron variant had lessened; moreover, a strong pickup in the backlog of orders index – the largest since January 2011 – is a reflection of pent-up production potential that should keep the manufacturing sector in an expansion mode.
- Total construction spending increased 1.3% month-over-month in January (Briefing.com consensus -0.4%) following an upwardly revised 0.8% increase (from 0.2%) in December. That was the strongest increase since the same period a year ago.
- The key takeaway from the report is that there was strength in both residential and nonresidential spending, reflecting a fairly broad-based pickup in construction spending activity.
- The final IHS Markit Manufacturing PMI for February decreased to 57.3 from 57.5 in the preliminary reading.