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Market Snapshot: Dow sheds 500 points Friday, stocks book weekly declines on Ukraine and inflation concerns

U.S. stocks closed sharply lower Friday as heightened concern that Russia may soon invade Ukraine sent oil prices spiking and investors to dump risky assets like equities. Investors also weighed a sharp drop in consumer sentiment and a pickup in near-term inflation expectations.

All three major stock benchmarks saw a weekly decline, halting a two-week advance. The tech-laden Nasdaq Composite suffered the biggest drop.

What did stock indexes do?

The Dow Jones Industrial Average
DJIA,
-1.43%

dropped 503.53 points, or 1.4%, to close at 34,738.06.

The S&P 500
SPX,
-1.90%

fell 85.44 points, or 1.9%, to end at 4,418.64.

The Nasdaq Composite
COMP,
-2.78%

fell 394.49 points, or 2.8%, to finish at 13,791.15.

Friday’s fall turned the S&P 500 lower for the week, down 1.8%. The Nasdaq saw a weekly drop of 2.2%, while the Dow fell 1% for the week.

On Thursday, the Dow fell 526 points, or 1.5%, while the S&P 500 dropped 1.8% and the Nasdaq dropped 2.1%.

What drove markets?

Stocks fell after the White House warned that Russia may soon invade Ukraine and as investors assessed a survey showing a slump in consumer sentiment on concerns about high inflation.

“Stock traders quickly hit the ‘sell button’ after reports that the US expects Russia to move forward with invading Ukraine,” said Edward Moya, senior market analyst for the Americas at OANDA, in a note Friday afternoon. “A period of calm was somewhat expected regarding the Ukraine situation but that does not seem to be the case anymore.”

The sell off in equities sped up in afternoon trading after news reports indicated the U.S. expects Russian President Vladimir Putin to invade Ukraine within days, and that Moscow has communicated those plans to the Russian military.

“We continue to see signs of Russian escalation, including new forces arriving at the Ukrainian border,” Jake Sullivan, President Joe Biden’s national security adviser, told reporters on Friday, according to a New York Times report. The New York Times quoted Sullivan warning that an invasion could begin “during the Olympics” and that all Americans should leave Ukraine in the next 24 to 48 hours.

The BBC reported that the U.K. has told British nationals to leave Ukraine immediately. A Downing Street spokesperson also said Prime Minister Boris Johnson feared for the “security of Europe in the current circumstances.”

“The Russia-Ukraine tensions have hovered over already shaky investor sentiment,” said John Lynch, chief investment officer for Comerica Wealth Management, in emailed comments Friday afternoon. “Investors have been counting on a diplomatic resolution, but recent developments indicate this may be wishful thinking and therefore, not fully priced into the markets.”

In economic data, the University of Michigan’s preliminary February gauge of consumer sentiment fell to 61.7, from January’s level of 67.2, the lowest reading since October of 2011. Economists were expecting a reading of 67, according to economists surveyed by The Wall Street Journal.

“Consumers are very much concerned about inflation,” said Luke Tilley, chief economist at Wilmington Trust, in a phone interview Friday. “Nearly half of all consumers are expecting declines in their inflation-adjusted incomes during the year ahead.”

The University of Michigan survey also found expectations for inflation over the next year rose to 5% from January’s expectation of 4.9%, the highest level since July of 2008, while inflation expectations over five years held steady at 3.1%.

“Long-term inflation expectations are crucial to the path” of Federal Reserve policy, said Tilley, adding it’s “encouraging” that five-year expectations didn’t move higher in the latest reading of the survey.

Thursday brought more clarity on inflation, but also increased speculation around the possible path the Fed could take to tame it through rate hikes.

The Labor Department reported Thursday morning that consumer prices jumped 7.5% in the 12 months ending January. Then, in an interview with Bloomberg News, St. Louis Fed President James Bullard talked about the possibility for the central bank to start with a 50-basis point hike in March — or even a rate hike in between scheduled meetings.

That lifted the 2-year Treasury yield
TMUBMUSD02Y,
1.516%

by 21 basis points — the largest single-day rise since June 5, 2009. The yield on the 10-year Treasury note rose above 2% Thursday but fell back below that level Friday.

Should Russian invade Ukraine, “we expect a significant bid for U.S. Treasuries, putting demand for yield in direct conflict with the Fed’s intentions,” said Lynch of Comerica Wealth Management. When prices of Treasurys rise, their yields fall.

Other Fed speakers late Thursday played down the prospect of a half-point rate hike to combat high inflation. Richmond Fed President Tom Barkin said he was open to the concept, but questioned whether there was a “screaming need” to do it. “I would have to be convinced on that,” he said at an event, according to Reuters. San Francisco Fed President Mary Daly was quoted as telling Market News International that a half-point move wasn’t her preference.

See: A ‘firestorm’ of hawkish Fed speculation erupts following strong U.S. inflation reading

As investors anticipate rate hikes by the Fed, “the rotation within sectors in the market has been incredibly important,” said Tilley. They’ve rotated into cyclical and value stocks, he said, while “some of the high-flying growth stocks” in the consumer discretionary
SP500EW.25,
-2.12%

and technology sectors
SP500EW.45,
-3.02%

are down.

Information technology and consumer discretionary were the most beaten down sectors of the S&P 500 Friday, with tech sinking 3% and consumer discretionary falling 2.8%, according to FactSet data. Energy stood out for its sharp gain of 2.8%.

“By pushing energy prices even higher, a Russian invasion would likely exacerbate inflation and redouble pressure on the Fed to raise interest rates,” Bill Adams, chief economist for Comerica Bank, said in emailed comments Friday afternoon.

Which companies were in focus?

Under Armour Inc.
UAA,
-12.49%

reported earnings and revenue that topped expectations. Shares of the athletic-apparel company fell 12.5%.

Shares of Goodyear Tire & Rubber Co.
GT,
-27.44%

plummeted 27.4% despite reporting a much stronger-than-expected rise in profits.

How did other assets fare?

The yield on the 10-year Treasury note
TMUBMUSD10Y,
1.943%

fell 7.7 basis points to 1.951%. Yields and debt prices move opposite each other.

The ICE U.S. Dollar Index
DXY,
+0.50%
,
a measure of the currency against a basket of six major rivals, rose 0.5%.

Bitcoin
BTCUSD,
-0.50%

was down around 0.7%.

In U.S. oil futures, West Texas Intermediate crude for March delivery
CLH22,
+4.47%

CL.1,
+4.47%

rose 3.6% to settle at $93.10 a barrel, the highest finish for a front-month contract since September 2014, according to Dow Jones Market Data.

Gold futures
GC00,
+1.26%

for April delivery rose 0.3% Friday to settle at $1,842.10 an ounce for a weekly rise of 1.9%.

The Stoxx 600 Europe Index
SXXP,
-0.59%

fell 0.6% Friday but remained up 1.6% for the week. London’s FTSE 100
UKX,
-0.15%

edged down 0.1% Friday and climbed 1.9% for the week.

The Shanghai Composite
SHCOMP,
-0.66%

fell 0.7% Friday but booked a weekly gain of 3%. The Hang Seng Index
HSI,
-0.07%

shed 0.1% in Hong Kong Friday and saw a weekly gain of 1.4%.

—Steve Goldstein contributed to this report.

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