May 26, 2022

StrategisChhr

Skillful Business Crafters

Stock Market Today: Dow Falls, Gold and Oil Surge, Bed Bath & Beyond Soars

Stocks plummeted on Monday, with the


Dow Jones Industrial Average

entering correction territory. The price of oil continued to rise on reports that Western countries are considering banning imports of Russian oil. 

In afternoon trading, the Dow fell 797 points, or 2.4%. This was the first time the Dow closed in correction territory — defined as 10% drop — since Feb. 27, 2020. The


S&P 500

dropped 3%, with the


Nasdaq Composite

down 3.6%. Those two indexes are also in correction territory, while the Nasdaq is now in a bear market territory, defined as a 20% drop.

The price of WTI crude oil gained more than 3%, to just over $119 a barrel, an increase of almost 60% for the year, but down from its high of $130.50 on Sunday night. That was the highest intraday level since 2008. Markets are concerned that less oil will be available when and if Western countries impose sanctions on Russian oil in retaliation for Russia’s attack on Ukraine.  

Sunday night, reports surfaced that the U.S. and its European allies were discussing banning imports of Russian oil. U.S. Secretary of State Antony Blinken said the U.S. is mulling the possibility. U.S. House Speaker Nancy Pelosi also said in a letter to colleagues that Congress is considering legislation that would ban imports of Russian oil. 

“US stocks declined as surging commodity prices continued to add to worry that economic growth prospects will take a big hit as the Ukraine uncertainty persists,” wrote Edward Moya, senior market analyst at Oanda.

The main problem for the stock market is that persistently higher oil prices would add to the already-burdensome inflation that households are facing. Not only could that reduce spending, higher commodity costs would also squeeze profit margins for many companies. 

Oil isn’t the only commodity that the West could sanction. Russia sees a lot of its economic output come from commodity production, so sanctions on non-oil commodities would be harmful to the country’s economy. Already, the price of wheat is up almost 70% for the year.

Rising prices also make the job of the Federal Reserve more difficult. The Fed wants to reduce inflation by raising interest rates several times this year. More inflation could press it to go further—and more rate increases could slow down economic growth. But if the Fed is less aggressive, that could be insufficient to rein in inflation. 

The Fed releases its interest rate decision next week. Currently, markets are expecting rates will be raised by a quarter of a percentage point, with almost no chance of the half percentage-point move investors expected earlier in the year. Investors will be listening for clues about how fast rates will rise in the months ahead. 

Before the rate hike announcement, inflation data will come out this Thursday. Economists are looking for the consumer-price index to have risen 7.8% year-over-year in February, above the 7.5% seen in the prior result. 

With the political tensions between the West and Russia heating up, Russian President Vladimir Putin is now allowing his government and the country’s companies to pay creditors of hostile nations in rubles in an attempt to help the country stave off default. 

Russia has already dealt with sanctions on its banking system. Russian banks are currently not participating in the Swift payments system, which allows for more seamless banking transactions between countries. That could mean Russian banks will not make payments to foreign parties on time, potentially creating stress at European banks and other businesses. 

While these risks remain constant, one behavior is worth monitoring. To be sure, the stock market was selling off Monday, but there could be a floor for stock prices. The S&P 500, at 4,200, the index ended a hair below its previous worst closing level for the year of 4,225 hit in late February.

The major indexes had almost fully bounced back in the morning, but when peace talks between Russia and Ukraine concluded with no agreement, the market drifted lower again. “Equities are near the lows of the day as peace talks ended with no major progress,” wrote Michael Reinking, senior market strategist. 

In general, “there’s absolutely a huge element of dip buying,” said Kevin Simpson, founder of Capital Wealth Planning. “We’re actively adding to our positions.”

That’s partly because It’s not yet clear exactly how central banks will respond to the recent inflationary pressures and by how much economic growth will decline. So when stocks fall enough, opportunistic market participants buy more.  

Now, investors want to see that the S&P 500 doesn’t open lower Tuesday. If no buyers emerge at current price levels, it’s anybody’s guess how low the index could go. 

Consistent with that uncertainty, the stock market seems unlikely to move close to its all-time high anytime soon. Citigroup strategists lowered their S&P 500 year-end price target to 4,700—a hair below the index’s early January all-time high—from 5,100. The Citi strategists kept their aggregate earnings estimate for the index in place, but lowered the multiple, or valuation, they expect on those earnings. Investors usually pay fewer dollars per profit dollar to own stocks when there is heightened risk that those earnings come in lower than expected. “We expect that a higher geopolitical risk premium will negatively impact broader market expected valuations,” wrote Scott Chronert, strategist at Citi.

Evrecore strategists also lowered their price target to 4,800 from 5,100.

Overseas, Frankfurt’s


DAX

shed 2%, and Tokyo’s


Nikkei 225

ended the day 2.9% lower.

Gold prices marched higher, as investors fled to havens amid declines in stocks as well as cryptocurrencies. Futures for the precious metal jumped 1.8%, and had earlier topped $2,000 an ounce, the highest levels since mid-2020. Closing above $2,000 would mark just the second period that gold has breached that mark in at least 50 years.

Here are six stocks on the move Monday:


Occidental Petroleum
(ticker: OXY) fell 1.4%. That’s even considering three key factors: high crude prices; a significant stake disclosed by


Warren Buffett’s Berkshire Hathaway
(BRK.A. and BRK.B); and reports that activist investor Carl Icahn sold the last of what was once a roughly 10% stake in the oil company.

Other oil and oil-related stocks were risinr.


Halliburton
(HAL) stock rose 6.2%.


Chevron
(CVX) gained 1.8%.


Bed Bath & Beyond
(BBBY) shot up 34% following news that


GameStop
(GME) Chairman Ryan Cohen took a major stake in the retailer and had urged it to explore strategic alternatives, including a sale.


United States Steel
(X) stock fell 0.6% even after getting upgraded to Equalweight from Underweight at Morgan Stanley.


Citigroup
(C) stock fell 1.8%. Jefferies downgraded it to Hold from Buy.

Write to Jack Denton at [email protected]s.com and Jacob Sonenshine at [email protected]

https://www.barrons.com/articles/stock-market-today-51646648420