The U.S. markets began the week with a down session, but futures are suggesting a strong opening when stocks begin trading today.
Although it’s a new week, the two main topics of concern to investors remain the same. Front and center has been the escalation of Russia’s military presence around the country’s borders. Over the weekend, the U.S. embassy in Kyiv, Ukraine was ordered closed by Secretary of State Antony Blinken. He had also urged any U.S. citizens still remaining in Ukraine to leave immediately. Additionally, U.S. national security advisor Jake Sullivan said in an interview that an invasion could occur as early as this week. As of this morning, however, it now looks like the situation may be defusing. Russia had repeatedly asserted that it was only conducting military drills and exercises. According to a spokesman for the Russian Defense Ministry, these have been completed, and a pullback has begun. In response to the news, futures are indicating a strong open for the major U.S. indexes, with large moves to the upside likely for airline and cruise stocks. Stocks in Europe are solidly in positive territory, but oil futures are down nearly 3%.
On the interest-rate front, the market’s fears of higher-than-expected increases were stoked when James Bullard, the President of the St. Louis Fed, repeated his assertion that rates should go up a full percentage point by July. The rapid increase would be targeted at taming the rate of inflation, which is hovering around 40-year highs. The producer price index for January, released earlier this morning, indicated an increase of 1%, versus the consensus estimate of 0.5%; for the past 12 months, the index is up 9.7%. But the Fed faces a delicate balancing act, as there is also the risk of going too far, too quickly, possibly stalling the economic recovery. Another concern is how the lead bank will go about divesting the trillions in Treasuries and mortgage backed securities it bought during the pandemic. The minutes from the last Federal Open Market Committee (FOMC) meeting, which are due to be released Wednesday afternoon, may give investors some insight into the Fed’s plan.
Altogether, the Dow Jones Industrials ended Monday’s session down 171 points, or .5%, the broader S&P 500 lost 16 points (.4%), and the tech-heavy NASDAQ fared the best of the lot, slipping less than a quarter of a percentage point. Most of the major market sectors lost ground for the day, with the largest declines coming from energy (- 2.2%), financials (-1.1%), and healthcare stocks (-1.1%). Consumer discretionary issues bucked the trend, rising .6%, while communication services added a third of a percentage point. Meanwhile oil prices rose to their highest level in more than seven years, briefly crossing the $95-a-barrel mark before closing slightly lower. The European exchanges were hit even harder with losses ranging from 1.7% in the U.K. to 2.3% in France.
While earnings season continues to roll on, this week will also bring a number of closely watched economic reports. This includes retail sales for January on Wednesday, followed by initial jobless claims, building permits, and housing starts on Thursday, as well as existing home sales and leading economic indicators on Friday, among others.
– Mario Ferro
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.
