Fears of an economic downturn sent equities into a tailspin on Monday, triggering a steep selloff on Wall Street as commodities like oil, wheat and nickel powered higher. The S&P 500 plunged 3% for its worst day since October 2020, while the Dow Jones Industrial Average shed 800 points to join the S&P in correction territory for the first time in two years. The Nasdaq even ended the session in bear market territory, casting a dark shadow on March after all three indices fell in each of the previous two months.
Analyst commentary: "Not every recession has been caused by an oil price spike but every oil spike has caused a recession. This is likely to be a drawn-out affair and will have a sustained impact on commodity prices," said Brian O'Reilly, head of market strategy at Mediolanum International Funds. "Perhaps the scary part is that in 1990 [during the Gulf War], the Fed funds rate was 8% and eventually embarked on an easing cycle. Today, the Fed is at the beginning of a hiking cycle. It seems more and more likely a recession is unavoidable," added Ryan Grabinski, a strategist at Strategas Securities.
It's a big problem, with the Federal Reserve already stuck between a rock and a hard place in regards to monetary policy. Soaring commodities and red-hot inflation mean the central bank will need to accelerate its tightening, though doing so risks tipping the economy into a recession. On the other hand, taking more of an accommodative state and allowing inflation to rip higher would likely result in the same outcome.
Outlook: Stock futures slowed their descent on Tuesday, hugging the flatline in premarket trade as the Kremlin said it would halt military operations "in a moment" if Kyiv met a list of conditions. Among them are ceasing military action, changing its constitution to enshrine neutrality (eliminate possibility of NATO, EU membership), recognizing separatist republics of Donetsk and Luhansk, and acknowledging Crimea as Russian territory. It's the most specific statement to date from Moscow on the terms it wants to impose on Ukraine, though a likely rejection by the government in Kyiv could lead to renewed market turmoil.