U.S. stock markets closed higher on Monday as crude oil prices fell from their peak two weeks ago. Market participants have also ignored the partial inversion of the government yield curve for a brief period. All three major stock indexes ended in positive territory.

How Did The Benchmarks Perform?

The Dow Jones Industrial Average (DJI) gained 0.3% to close at 34,955.89. Notably, 16 component of the 30-stock index ended in green while 13 finished in negative zone and 1 remained unchanged. The tech-heavy Nasdaq Composite finished at 14,354.90, gaining 1.3% or 185.60 points due to the strong performance of large-cap technology stocks.

Meanwhile, the S&P 500 rose 0.7% to end at 4,575.52. Eight out of 11 broad sectors of the benchmark index closed in positive zone while three in red. The Consumer Discretionary Select Sector SPDR (XLY), the Real Estate Select Sector SPDR (XLRE) and the Technology Select Sector SPDR (XLK) rallied 2.7%, 1.3%  and 1.2%, respectively. On the other hand, the Energy Select Sector SPDR (XLE) tumbled 2.5%.

The fear-gauge CBOE Volatility Index (VIX) was down 5.7% to 19.63. A total of 11.23  billion shares were traded Monday, lower than the last 20-session average of 14.09 billion. Decliners outnumbered advancers on the NYSE by a 1.06-to-1 ratio. On Nasdaq, a 1.08-to-1 ratio favored declining issues.

Crude Oil Prices Decline

Crude oil prices have declined to considerable extent from their recent peaks two weeks ago. The invasion of Russian troops in Ukraine compelled the United States and European Union to sanction Russian energy product including crude oil and natural gas. Russia proves nearly 40% of the energy required in Europe. Moreover, the OPEC was reluctant to raise crude oil production.

Consequently, crude oil prices touched $120 per barrel. Notably, commodity prices, especially the price of crude oil, are major sources of inflation. The United States is already suffering from soaring inflation, which is currently at a 40-year high.

However, on Mar 28, the price of the U.S. benchmark – West Texas Intermediate – crude future slid 7% to settle at $105.96 per barrel. The global benchmark – the Brent – crude futures tumbled 7% to settle at $112.48 per barrel. \

Consequently, shares of oil behemoths like Exxon Mobil Corp. (XOM Quick QuoteXOM - Free Report) and Chevron Corp. (CVX Quick QuoteCVX - Free Report) tanked 2.8% and 1.8%, respectively. Both stocks sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Partial Inversion of the Government Bond Yield Curve

Wall Street started session on Monday with a partial inversion of the term structure of the sovereign bonds. The yield on the 5-Year U.S. Treasury Note inched up to 2.6361% while the yield on the 30-year U.S. Treasury Note inched down to 2.6004%. This happened for the first time since March 2006. Importantly, the spread between the two yields ended in negative at Monday’s closing.

Inversion in government yield curve is considered as a sign of an upcoming economic recession. However, a more visible sign of an upcoming recession is the yield inversion of the 2-Year and 10-Year U.S. Treasury Note. That yield spread remained positive.

On Mar 25, the yield on the 10-Year U.S. Treasury Bond surged 15.1 basis points to 2.491% after touching more than 2.5% on the same day, marking its highest since May 2019. On Mar 16, the Fed announced after the completion of its 2-day FOMC meeting that it would raise the benchmark interest rate by 25 basis points effective immediately.

Fed Chairman Jerome Powell said that the central bank will not hesitate to take further harsh measures if its proposed interest rate hike failed to control inflation. Several economists and financial researchers have said that in next two FOMC meeting, the Fed may increase interest rate by 50 basis point as inflation is likely to be elevated due to ongoing Russia-Ukraine war.