Stocks fell Tuesday, as intensifying tensions between Russia and Ukraine dented market sentiment to start the week.
The Dow Jones Industrial Average dropped about 350 points, dragged down by a 9.5% loss in Home Depot. The S&P 500 fell 0.6%, and the Nasdaq Composite slipped more than 0.7%. The U.S. stock market was closed Monday due to the Presidents’ Day holiday.
Stocks sold off broadly after Russian President Vladimir Putin said Monday that he would recognize the independence of two breakaway regions in Ukraine, potentially undercutting peace talks with President Joe Biden. Putin later ordered forces into the two breakaway regions.
Stocks came off their lows Tuesday afternoon when Biden announced sanctions on Russian bank VEB and its military bank, Russia’s sovereign debt and certain wealthy individuals and their families. The Dow was down more than 700 points at its low.
The VanEck Russia ETF, a U.S.-traded security which invests in top Russian companies, dropped more than 12% on Tuesday.
“The Russia/Ukraine situation remains very fluid, and tensions remain high, and in the short term that will remain a headwind on stocks, said Tom Essaye, founder of the Sevens Report.
U.K. Health Minister Sajid Javid said Tuesday that “the invasion of Ukraine has begun.” The U.K. has also started targeted economic sanctions against five Russian banks and three wealthy individuals.
The news came after the White House said Sunday that Biden has accepted “in principle” to meet with Putin in yet another effort to deescalate the Russia-Ukraine situation via diplomacy. White House press secretary Jen Psaki said the summit between the two leaders would occur after a meeting between Secretary of State Antony Blinken and his Russian counterpart Sergey Lavrov.
Oil prices rose, with West Texas Intermediate futures jumping 3% to $95.19 per barrel.
The Russia-Ukraine conflict has put pressure on market sentiment recently, with the major averages coming off of back-to-back weekly losses. The Dow fell 1.9% last week, and the S&P 500 and Nasdaq Composite slid 1.6% and 1.8%, respectively.
“While Monday’s episode will have important implications for Russia’s political relations with foreign partners, a significant market event is likely avoided for the time being, but the trajectory in the coming weeks will be important to monitor from a rising market risk perspective,” said Ed Mills of Raymond James.
Earnings and data
Home Depot reported quarterly profit of $3.21 a share, three cents better than estimates, and said it sees earnings and revenue growth this year. Shares, however, fell more than 9%.
Meanwhile, Macy’s dropped more than 4% despite beating on the top and bottom lines of its quarterly results. Macy’s also authorized a new $2 billion share buyback program and announced a 5% dividend increase
In deal news, Houghton Mifflin Harcourt shares surged about 15% after the company said it would be taken private by Veritas Capital in a deal worth $21 a share, representing a nearly 16% premium from Friday’s close. The deal is expected to be completed in the second quarter.
On the economic data front, the IHS Markit manufacturing PMI rose to 52.5 in February from 50.5. The IHS Markit services PMI jumped to 56 in February from 51.1 the month prior.
Traders are also keeping an eye on the Federal Reserve, as the U.S. central bank is expected to raise rates multiple times starting next month. Traders are betting that there is a 100% chance of a Fed rate hike after the March 15-16 meeting, with expectations tilting toward a 0.25 percentage point move, according to the CME Group’s FedWatch tool.
Expectations of tighter monetary policy have put pressure on stocks, particularly those in rate-sensitive sectors like tech, and have sent Treasury yield sharply higher to start 2022. The benchmark 10-year Treasury yield ended last week around 1.93% after briefly breaking above 2%. The 10-year began 2022 trading at around 1.51%.
