The Stock Market Was Afflicted By A 25% Pop In Oil Prices, Which Were Driven By Worsening Developments Surrounding Russia's Invasion Of Ukraine.
The Nasdaq Composite dropped 2.8%, followed by losses in the Russell 2000 (‐2.0%), Dow Jones Industrial Average (‐1.3%), and S&P 500 (‐1.3%).
WTI crude futures finished the week at $115.27 per barrel, which was responsible for the 9.3% gain in the S&P 500 energy sector. The utilities (+4.8%), real estate (+1.7%), and health care (+1.2%) sectors also closed higher amid some defensive positioning.
The biggest laggards were found in the financials (‐4.9%), information technology (‐3.0%), communication services (‐2.7%), and consumer discretionary (‐2.6%) sectors, which dropped between 2‐5%.
This week, Russian forces attacked civilian areas and seized Europe's largest nuclear power plant in Ukraine. Russia was undeterred by an expansion of sanctions, which blocked select Russian banks from the SWIFT financial transactions system and prevented Russia's central bank from accessing its foreign currency reserves.
Two rounds of ceasefire talks only produced an agreement to designate humanitarian corridors to safely evacuate civilians from the country. The threat of nuclear conflict (President Putin also put his nuclear forces on high alert) worsened the market's low spirits.
Fed Chair Powell said the central bank would "proceed carefully" because of the geopolitical uncertainty and that he would support hiking rates by 25 basis points later this month. He acknowledged though, that a 50‐bps hike is still possible in the future if inflation is higher than expected.
On a related note, Russia's central bank hiked its key rate to 20.0% from 9.5% to protect the ruble, which plunged against the dollar. The U.S. Dollar Index rallied 1.9% to 98.50 amid weakness in the euro.
The Treasury market was a signpost for growth concerns, which were exacerbated by disappointing guidance from high‐growth story stocks, a relatively disappointing ISM Non‐Manufacturing Index for February, and stagnant wage growth for February in an escalating inflationary environment.
The 10‐yr yield dropped 27 basis points to 1.72%, and the 2‐yr yield dropped 10 basis points to 1.49% amid expectations for the Fed to be less aggressive when it comes to removing policy accommodation.
Providing more color on the move in oil, prices received little relief from an agreement among 31 IEA member countries to release 60 million barrels of oil from their reserves. Crude futures leveled off amid speculation that a nuclear deal with Iran could be signed soon, then rallied back to the highs on news that the White House is considering a ban on Russian oil imports.