NASDAQ enters bear-market territory as markets price in Iron Curtain 2.0, nickel and wheat join oil in skyrocketing
The NASDAQ is now officially in bear market territory after stocks sank again on Monday. Rising commodity and energy prices spooked investors, leading the tech-heavy index to end the day down 3.62%, erasing all gains from the past year.
The Dow Jones Industrial Average followed suit, dropping nearly 800 points, and the S&P 500 sank almost 3% in its worst day since October 2020.
The economic fallout from Russia’s invasion of Ukraine and the unprecedented resulting sanctions from the U.S. and its allies have rattled markets around the world to start the week. The Euro Stoxx 50 and Germany’s DAX index also ended the day in bear market territory, dropping 1.23% and 1.98%, respectively.
What’s happening in oil?
U.S. oil prices hit their highest level since 2008 over the weekend amid the ongoing conflict, with reports gaining steam that Russian energy, currently unsanctioned, could be banned by the U.S. and western allies.
Brent crude oil, the international benchmark, reached highs of $139.13 per barrel, before dropping back to around $123. West Texas Intermediate crude futures also rose on the day, hitting highs of $130 per barrel before a similar pullback saw them end the day at roughly $120 per barrel.
Gold and other commodities
Gold prices reached $2,000 per oz. to start the week in highs not seen since mid-2020 as investors sought protection in safe-haven assets.
Commodity prices also saw some startling moves on the day. The price of nickel jumped some 76% amid fears of a supply crunch, and wheat prices popped to a 14-year high. Of course, Ukraine is famously known as the “breadbasket of Europe.”
The commodity and oil price gains only exacerbated fears of stagflation among market pundits and economists, the brutal combination of inflation and stagnant growth that bedeviled the economy of the 1970s.
“The most obvious interpretation of the Russia/Ukraine situation is that extended disruptions to global commodity markets will push inflation higher for longer while economic growth slows as global trade and supply chains remain constrained,” said Lisa Shalett, chief investment officer at Morgan Stanley Wealth Management. “Such conditions could lead to stagflation.”
Also, 5- and 10-year break-even inflation rates hit all-time highs on the day of 3.29% and 2.785%, respectively. Experts warned of the dangers of the flattening yield curve as well. The key measures of inflation expectations are evidence the bond market is expecting persistent inflation over the coming years.
Experts warned of the dangers of the flattening yield curve between 2- and 10-year treasuries as well on Monday. A flat yield curve is typically indicative of investors’ loss of confidence in economic growth outlooks combined with fears of rising near-term rates.
“The 2s-10s curve has narrowed to just 20 basis points, indicative of concerns about monetary policy effectiveness in what has become an even more challenging operating environment,” Mohammed El-Erian, President at Queen’s College Cambridge said.
A few key economic data indicators are set to be released in the coming weeks. Consumer Price Index (CPI) data will be released Thursday, with expectations for a 7.8% rise in inflation from a year ago. And the Federal Open Market Committee (FOMC) is set to convene March 15-16 and approve a quarter-point increase in the Fed Funds rate.
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