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Dow Plunges 500 Points, Oil Prices Surge Amid Fears That Russia Will Soon Invade Ukraine

Topline

Markets plunged Friday after the White House said Russia could invade Ukraine “any day now,” including during this month’s Winter Olympics, a prospect that led panicked investors to dump stocks and caused oil prices to surge to seven-year highs. 

Key Facts

Stocks plunged following the announcement from the White House: The Dow Jones Industrial Average fell 1.5%, over 500 points, while the S&P 500 lost 1.9% and the tech-heavy Nasdaq Composite 2.8%.

President Joe Biden’s national security advisor, Jake Sullivan, said in a press conference Friday afternoon that Russia could launch an invasion of Ukraine “any day now,” possibly even during the Olympics, amid signs of further military buildup at the country’s border.

Any American citizens should leave the country “immediately,” the White House said, adding that even though it is uncertain whether Russian President Vladimir Putin has made a final decision to invade, “it may well happen soon.”

The news sent oil prices surging higher, with the price of U.S. crude oil rising up to 4.7% to briefly trade at over $94 per barrel—its highest price since 2014.

Adding to the selloff on Friday were ongoing investor concerns about how quickly the Federal Reserve will tighten monetary policy and raise interest rates to combat surging inflation.

Markets had already been reeling from a red-hot inflation reading from the Labor Department a day earlier, which showed consumer prices in January jumping 7.5% from a year ago.

Crucial Quote:

“The Russia-Ukraine tensions have hovered over already shaky investor sentiment,” says John Lynch, chief investment officer for Comerica Wealth Management. “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.”

What To Watch For:

Several aerospace and defense stocks rallied on the Ukraine news. Northrop Grumman jumped nearly 4%, while Lockheed Martin rose over 2%.

Tangent:

Worse-than-expected inflation data, coupled with fears about the Federal Reserve tightening monetary policy too quickly and sending markets into a tailspin, has put pressure on tech and other growth stocks while causing government bond yields to surge. The ten-year Treasury note briefly jumped above 2% on Thursday, its highest level since August 2019 and up from 1.5% in December.

Key Background:

Stocks have largely struggled for direction so far in February, moving slightly higher after last month’s widespread selloff, which was the market’s worst start to a year since 2009. January’s red-hot inflation reading now has many experts predicting that the Federal Reserve will need to move more aggressively in tightening monetary policy. Investment banks including Bank of America and Goldman Sachs are warning clients the central bank will likely raise interest rates more times than forecast in a bid to combat the surge in consumer prices. Some experts now predict as many as seven interest rate hikes this year—far more than the three rate hikes Fed officials originally forecast in 2022.

Contra:

“You can’t minimize what today’s news could mean on that part of the world and the people impacted, but from an investment point of view we need to remember that major geopolitical events historically haven‘t moved stocks much,” says Ryan Detrick, chief market strategist for LPL Financial. “For instance, after JFK was assassinated in November 1963, stocks went on one of their best six-month runs ever . . . the truth is a solid economy can make up for a lot of sins.”

Further Reading:

Dow Plunges 500 Points As ‘Market Anxiety’ Returns After Latest Inflation Surge (Forbes)

Fed’s ‘Wake-Up Call’: Investors ‘Losing Confidence’ After Latest Inflation Surge—How Aggressive Could Rate Hikes Be? (Forbes)

Inflation Spiked 7.5% In January—Hitting Nearly 40-Year High (Forbes)

Can A Vintage T. Rowe Price Fund Ride Rivian, Microsoft And Snap To The Moon? (Forbes)

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