When Russia invaded Ukraine two-and-a-half weeks ago, the global marketplace saw it as an unfortunate — but likely temporary — inconvenience on near-term equity pricing. Now, market participants are seeing a very different reality: an ongoing war slogging forth indefinitely, with energy and other commodity prices spiking and a European recession right around the corner.
Hence today’s sell-off, even already well below all-time highs seen between two and four months ago (depending on the index): the Dow closed at its session lows, -801 points or -2.38% — and this was the best-performing major index of the day. The small-cap Russell 2000, focused as it is mostly on domestic stocks, dropped -2.48%. The S&P 500 posted its worst day of the year, -2.96%, and the Nasdaq was in the basement today, -482 points or -3.62%.
Basically, tech stocks and financials took another bath today, while commodities like nickel, wheat, gold and, yes, oil all jumped higher. WTI crude is now at its highest level since the Great Recession in 2009, while Brent crude saw its biggest one-day gain ever, +4.89%. Both the WTI and Brent are up more than +22% over the past week alone. The Energy sector was up +1.5% on the day, while Utilities were +1.3%; all other sectors wallowed in the red today.
Overbought tech is being pulled back down to earth, and financials with heavy European exposure are the biggest areas of risk at the moment. And even with the U.S. economy growing huge numbers of jobs and productivity making wage hikes worth holding onto, analysts are starting to chart percentages for a recession here at home, as well.
The 10-year bond yield is currently +1.784% while the 2-year is +1.546%. Clearly, this is not an inversion, but it’s closer than it has been in a long time. If this yield curve does eventually invert, that is the strongest signal that a recession is on its way here in the U.S. once it works its way through Western Europe.
This is what the market is pricing in today. We see the Nasdaq -21% from its highs in early November last year. The S&P 500 is almost -13% and the Dow is now -11% — all in correction territory, if not Bearsville. The specter of a drawn-out conflict throughout Ukraine sends tributaries of strife virtually everywhere on the globe. And not to be prepared for it makes market participants susceptible to even worse disasters down the road.
That said, we’re also in a highly volatile market currently. The VIX, at +36%, is at its highest levels of the year. And we’ve seen in the very recent past days where the market bloodbath looks to be ongoing, only to be set upon by a reset of good news, bargain-buying, or both. Even though we’re seeing bearish pricing in the market to start the week, that’s not to say tomorrow won’t bring a sunnier outlook.
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Markets Pricing-In Brutal Realities
When Russia invaded Ukraine two-and-a-half weeks ago, the global marketplace saw it as an unfortunate — but likely temporary — inconvenience on near-term equity pricing. Now, market participants are seeing a very different reality: an ongoing war slogging forth indefinitely, with energy and other commodity prices spiking and a European recession right around the corner.
Hence today’s sell-off, even already well below all-time highs seen between two and four months ago (depending on the index): the Dow closed at its session lows, -801 points or -2.38% — and this was the best-performing major index of the day. The small-cap Russell 2000, focused as it is mostly on domestic stocks, dropped -2.48%. The S&P 500 posted its worst day of the year, -2.96%, and the Nasdaq was in the basement today, -482 points or -3.62%.
Basically, tech stocks and financials took another bath today, while commodities like nickel, wheat, gold and, yes, oil all jumped higher. WTI crude is now at its highest level since the Great Recession in 2009, while Brent crude saw its biggest one-day gain ever, +4.89%. Both the WTI and Brent are up more than +22% over the past week alone. The Energy sector was up +1.5% on the day, while Utilities were +1.3%; all other sectors wallowed in the red today.
Overbought tech is being pulled back down to earth, and financials with heavy European exposure are the biggest areas of risk at the moment. And even with the U.S. economy growing huge numbers of jobs and productivity making wage hikes worth holding onto, analysts are starting to chart percentages for a recession here at home, as well.
The 10-year bond yield is currently +1.784% while the 2-year is +1.546%. Clearly, this is not an inversion, but it’s closer than it has been in a long time. If this yield curve does eventually invert, that is the strongest signal that a recession is on its way here in the U.S. once it works its way through Western Europe.
This is what the market is pricing in today. We see the Nasdaq -21% from its highs in early November last year. The S&P 500 is almost -13% and the Dow is now -11% — all in correction territory, if not Bearsville. The specter of a drawn-out conflict throughout Ukraine sends tributaries of strife virtually everywhere on the globe. And not to be prepared for it makes market participants susceptible to even worse disasters down the road.
That said, we’re also in a highly volatile market currently. The VIX, at +36%, is at its highest levels of the year. And we’ve seen in the very recent past days where the market bloodbath looks to be ongoing, only to be set upon by a reset of good news, bargain-buying, or both. Even though we’re seeing bearish pricing in the market to start the week, that’s not to say tomorrow won’t bring a sunnier outlook.
Questions or comments about this article and/or its author? Click here>>