Developments in Eastern Europe have once again returned to the front burner. As the U.S. steps up military shipments to Ukraine and Russia continues its latest assault, reports have surfaced that the European Union (EU) may call for a phased out embargo on Russian oil any day now. However, it appears unlikely that the bloc can reach a unanimous agreement. Additionally, EU officials said they will not comply with Russia’s demand that gas be paid for in rubles, citing that it would be a breach of existing sanctions. Meanwhile, natural gas has already been cut off in Bulgaria and Poland, and the EU warned that all members should be prepared for a shutdown. Part of this will likely be offset by shipments of liquefied natural gas (LNG) from the U.S., which will probably lead to higher prices for domestic consumers. This will further fan the flames of inflation, which is already running at 40-year highs; natural gas prices in particular are up about 50% on U.S. shores since Russia’s invasion began.
Altogether, April marked the worst monthly performances in just over two years for the Dow Jones Industrial Averages (down nearly 5%) and S&P 500 (-8.8%). Meanwhile, the NASDAQ composite, which is heavily weighted toward technology stocks, slid more than 13%, marking its worst showing in more than 13 years. The year-to-date performance has been even more abysmal, highlighted by the fact that the broad S&P index (down more than 13% through April) posted its worst showing since 1939.
Stocks began the new month with all three indexes gaining ground in early morning trading on Monday, but trended lower through midafternoon. However, value-seekers apparently stepped in to spur a late-session rally, which helped lift stocks back into positive territory. The Dow Jones Industrial Average, which at one point was off 775 points from its high for the day, closed up 84 points, or one-quarter percent. The S&P 500 gained 23 points (+0.6%), and the tech-laden NASDAQ came out on top for the day, advancing 201 points or 1.6%. Sector performance was evenly split between advancers and decliners. Communication services led the pack with a 2.4% advance, followed by technology (+1.6%), and energy shares (+1.4%). At the other end of the spectrum, consumer staples shed 1.3%, while utilities were down 1.0%. The price of West Texas Intermediate oil gained about half a percentage point, to about $105.20 per barrel.
U.S. stock futures are flat ahead of today’s opening bell. Elsewhere, Asian markets were mostly lower overnight, however stocks in Europe are mostly in positive territory. Meanwhile, oil futures are down slightly. New lockdowns in China remain a concern, while OPEC (Organization of the Petroleum Exporting Countries) and its partners are scheduled to discuss its output target later this week.
On the economic front, the Institute for Supply Management will release its index for the services economy for April on Wednesday; consensus expectations call for further expansion of activity, but a flat reading with March. However, investors will be more focused on parsing the Federal Open Market Committee’s statement after its two-day meeting wraps up Wednesday. The consensus is unanimously calling for the lead bank to raise its overnight target rate by 50-basis-points, or half a percent, but watchers will be more interested in clues to the pace and extent of further tightening. All things being equal, rising interest rates make fixed income investments (such as bonds) a more attractive alternative to equities. In addition to putting further pressure on stocks, higher borrowing costs cut into corporate profits and investment plans, which would raise concerns about a possible recession down the road. In other news, later in the week, Friday’s employment report from the Labor Department will likely show another strong figure for job growth, as unemployment hovers near 50-year lows.
– Mario Ferro
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.
