Stock futures halt decline, but recession risks remain in the mix

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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.

Comments

[karondongotbanned]

today's rally is fake. no support

[AndrewGaines]

I don’t expect this comment to be popular. Nevertheless…

If you take the trouble to look into the history of NATO and Russia, you will find that NATO (meaning of course the US) made an agreement with Russia to not expand NATO towards Russia, and to not put intermediate range nuclear missiles within reach of Russia.

Why? Having been invaded by Napoleon and Germany, Russia (now meaning Putin), wanted to feel secure from military threat. This detente held for some time. It was broken under Clinton for no obvious reason; after the dissolution of the USSR Russia posed no threat.

Putin made clear that allowing Ukraine into NATO, which would mean the possibility of placing nuclear missiles directly along Ukraine’s border with Russia, was a red line it would not accept. He offered to negotiate on this before the invasion, but was rebuffed.

If the US wants to restore peace, all it has to do is acknowledge that it trespassed on previous agreements, and guarantee that Ukraine will remain neutral, rather than joining NATO. Indeed, the guarantee without the acknowledgment would suffice.

[Sergio Blow]

@AndrewGaines I completely agree. Why is it so difficult to understand that Russia does not want missiles near its borders when in 1962 we almost had a nuclear war between Russia and the US because Russia wanted to install missiles in Cuba?
We play with fire, nuclear fire…

[thesuperchief]

@AndrewGaines If you use history as a precedent you must also use history in the making [now]. Present history making may not be the same as those in command are not the same today. This may have been already taken into account by Putin where his thinking is that we will rely upon the past. It would be preferable to use the past as you suggest, but nothing is ever written in stone. As this is more a finance page may i suggest removing some stocks and becoming more liquid as the possibility of a cyber war that might come our way could wipe out any records of our holdings and any proof of ownership. You can always buy back in, maybe at a better $$$$. thanks for your posting, it was worth putting up there for those that might not have thought of what you mentioned.

[LK106218]

@AndrewGaines

The Aegis Ashore and Patriot missile systems are defensive ground to air anti aircraft and anti missile systems. They are not ground to ground offensive missile systems. These US systems are functionally similar to Russia's S-300 and S-400. The intermediate range nuclear treaty was broken by Russia with the reintroduction of mid range nuclear capable cruise missiles a few years ago.

There was and is no promise to Russia regarding NATO expansion. Sovereign nations ask to join and NATO decides whether to accept. Both Russia and NATO should negotiate placement of ground to ground missile systems such as what Russia is now using to attack Ukraine civilians. Both sides should withdraw offensive systems back from mutual borders.

The countries nearest Russia have no history of attacking Russia, quite the contrary. Russia has been party to partitioning Poland twice in 1795 and 1939. Russia starved Ukrainians 80 years ago. Russia has sent military forces into neighbors numerous times to sustain puppet governments such as in Czechoslovakia and Hungary during the Warsaw pact era and recently Belarus and Kazakhstan.

If Russia wants peace, withdraw forces from neighboring sovereign nations and establish mutually respectful relations. The issue is not actually about international relations. Putin's concern is remaining in power as democracy closes in.

[linkdonald]

The kremlin lies. Simply a fact. The present market nervousness is due to a multiplicity of negatives, few with immediate solutions. Rather than a bear, I see a sloth until some logical thinking returns to world capitals. Reminder: Putin is 70 years old and current hi-def films do not show the same man that used to ride shirtless in the tiaga.

[YvesT]

@linkdonald The current market conditions are the result of QE (money printing) since 2008 (under Dems and Republicans alike) and a recent acceleration in spending money we didn't have in the first place. All it needed is a good geopolitical trigger. Thank Bernie and the likes of AOC, don't use the war as an excuse. By the way , what happened with COVID ?

[jhon3338]

Progress is made by working together, not by making demands. Putin demands Ukraine, Xi demands Taiwan, Kim demands to be a world leader, Trump demands elections be overturned.

[Furniture business guy]

Can I ask for some financially or economically wise commenter to opine on whether inflation is good for corporate profits? I realize it’s much more politically correct to “hate on inflation“. BTW, I do personally realize that inflation is most painful for the poor in our society and “hate” it for this reason, but believe that corporate profits gain in the short term.

[Xiz21]

@Furniture business guy In general the 2% mark is ideal for growth. But runaway inflation definitely hurts corporate profits. Higher selling prices are regularly a result of passing higher costs to consumers, not higher margins. They also end up causing lower sales growth(by unit) as consumers spend the same money buying less goods. Some industries will take advantage of the trend, example energy, miners, even semis, as margins increase. Certain sectors may do well in a mega inflationary environment but a recession is bad for profits as a whole. So the Fed not acting on inflation in 2020 because of years of sub 2% inflation makes sense as well as them acting now that its getting dangerously high. Also inflation has nothing to do with political correctness IMO, it is just a function of the economy.

[Xiz21]

@Furniture business guy An easy way to think of it is Inflation caused by an increase in the demand for goods(i.e. reopening economy post covid) is good for the economy/profits. Yet inflation caused by higher costs(i.e. supply chain bottlenecks and Russian embargoes) or increased money supply (i.e. Fed rate and QE) is dangerous inflation, sometimes good more often bad.

[Nicholas Istvan Kiss, CFA]

I think it's a contrarian signal that almost every comment is quite negative on the current market outlook.

Please allow me some self-marketing on that topic, which could probably freak out some notorious market bears:

seekingalpha.com/...

[Chancer]

"...every oil spike has caused a recession..." Therefore, Powell is raising rates into a known cause of inflation- although he delayed in raising rates BEFORE the oil price spike. And we also know that the Fed in the past has CAUSED recessions by raising rates too high.

Re. Putin's terms:
1- Putin has a consistent pattern of adding on more and more to the negotiations.
2- Ukraine could have probably got better terms if they negotiated BEFORE the invasion without the death and destruction of Ukraine.

But we are where we are now.

[John Leszar]

@Chancer Ukraine is responsible for the Russian invasion? So in your opinion it is Ukraine's fault that they wanted to continue to be a sovereign nation. That is a pretty outrageous statement.

[veebee13]

@John Leszar Yes, it is fault of Ukraine for refusing to negotiate as much as it is Russia's fault for wanting to bring back former glory of Soviet Union

[LK106218]

@veebee13

If neighbor 1's daughter breaks up with neighbor 2's son, then #2 does donuts in #1 yard, it looks like you would buy gas for #2 because his reputation was harmed. Really? Invasion is justified by not talking and agreeing to subjugation? Really? You would let a neighbor park in your driveway because the car is leaking oil and they don't want a stain on theirs? Really? This is not that complicated. Russia has no justification.

[prudent 576]

CBOE vix over $36, with dimentia Joe about to announce a ban Russian oil and an executive order on crypo. If there is no clear plan to lower oil and gasoline prices, (and I don't expect any specific plan) the QQQ could fall to 300 in the near-term.

[sdavid04191]

When life deals me lemons I look for the best way to make lemonade. In this case temporarily remove fracking restrictions. Post reminder signs on every gas pump along the lines of help us help Ukraine by 1) using public transportation, or 2) planning all of your chores in a single trip, or 3) consider forming a car or van pool or ride sharing. At current prices Canadian sand oil becomes feasible and our capacity can be maxed out to rein in prices. There are still plenty of unfilled jobs and people that are waiting as long as 6 months for deliveries of what they have already paid for. I think any recession will be short lived.

I don't know why Ukraine doesn't consider some black ops programs to trigger suicide bombing missions in Russia's major cities starting with Moscow. If he is so stretched out that he is recruiting Syrian fighters bringing some troops home to protect the homeland will stretch him out even further.

[Amos Tuck]

Whither the S&P 500?

3,300 Pre-pandemic. (Bubble)
2,200 Pandemic lockdown.
4,800 Post lockdown. (Massive bubble)
4,200 Today.

Where do we go from here?

2,500 Base case.
2,100 Worst case.

The world has been ravaged by a pandemic, and is now confronted with a land war in Europe.

Inflation is raging, and the Fed has no choice but to aggressively raise interest rates.

Liquidity is being extracted.

We are entering a period of stagflation/recession.

In the next two years, we might breach pandemic lows.

[Tdog88]

@Amos Tuck award for the most dire scenario I have seen since Novemeber lol. People don’t seem to understand stagflation, but humans do this type of stuff when new words get thrown around. The economy is actually warming up. Consumer spending is strong, consumer balance sheet is strong, unemployment getting better, companies are flush with cash - buybacks this year may hit $1T - interest rates are still 0%, raising them to 1% isn’t going to cause stagflation. Analysts estimate that we grow 3.7-4% this year. It would take another monumental black swan for that to go negative.

[Finding Your Retirement]

russian oil ban is supposed to be announced today according to the press

[Chancer]

@Finding Your Retirement:

Sanctions on Russian oil has been predicted to increase oil prices more and push the US into recession. But "no brains Biden" probably has not figured that out- nor his incompetent advisors.
With other incompetents, like Pelosi, jumping on the oil ban bandwagon, that is a great record to run on for the midterms: highest oil prices ever with a recession and inflation.

[Mghaynes]

@Chancer Why attack Biden when Republicans pushed for the Russian oil ban? Aren’t you tired of blaming everything on Biden yet?

[jeffk100]

halt decline? not for long

[wanster]

Um, better revise the headline, futures turning down ~~

[Dividend Seeker]

Recession is a foregone conclusion

[milehr]

Perhaps it was Putin's plan from the beginning.

[elwalle]

@milehr yes..I suspect Putin anticipated all the sanctions so far and was prepared for most of them............the U.S. however seems to have had no plan

[HavingFunToday]

@elwalle he had to know the world would have to do something to him. With the EU getting so much of their oil and natural gas from Russia they can't go to war with Russia so some slap on the wrist sanctions is all the EU can really do.

[19robin50]

@HavingFunToday These sanctions are not a slap on the wrist - more like a TKO.

[metalhead]

The futures so bright, I gotta wear shades!

(To protect my eyes from the flash of a nuke ...)

[tom_t]

@metalhead That was actually the meaning of that song -- nuclear war.

[aliens_r_us]

We did it Joe!

[imogen8]

@aliens_r_us I'm did not vote for him, and I'm no fan of his, but you can't blame everything on him either. Congress controls the purse strings, and the pandemic had a huge impact on the economy for two years (with lingering supply chain issues still a major problem). The job market didn't really recover till Trump left, but we can't blame that on Trump either.

www.nationalreview.com/...

thesolidinvestor.com/...

https://www.mackinac.org/3416

www.theatlantic.com/...

[mallocxiao]

@imogen8 uh, remember green new deal? Ban fracking? Ban pipelines? Ban shale drilling on Federal lands? Being progressive and woke usually has a price, especially the president is in that position. And the price is usually imposed among the poorest: the people who needs that gas to commute to work since they cannot afford a tesla, a solar panel or housing close to their work, and most price sensitive.

What next have to happen before people take a critical look on Biden's policies like the same level of scrutiny people gave to Trump? A civil turmoil? A decade long stagflation? The lose of US dollars as reserve currency and the country becomes irrelevant?

[Mktneutralhedger]

unfortunately there's a clear stagflation risk that prevents bond from performing at the moment. If something doesn't change this might be a year where only commodities perform well.

[LK106218]

The last recession to start during a Democrat administration, Jimmy Carter's, was caused by a spike in oil. Recession? Employment in the US increased 678k in February. Of course that was before Russia's invasion of Ukraine, but that is a lot of momentum. Increases in commodity prices should take a while to spread through the economy. It is the producers of those commodities who will take the bigger hit to employment and they are not in the US or EU.

[cdraughon]

@LK106218 Markets are forward looking. Recession doesn't happen immediately, but perhaps within the next 3 to 9 months.

[nhsully88]

@LK106218 keep paddling upstream, you might get someone to believe you... Let's talk here and now, not the past

[dl4]

@LK106218 Ammonium nitrate is scarce. Wheat and other grain harvests will suffer not to mention non from Ukraine. How will we acquire rare Earth metals? Lots a unanswered question. Thanks Joe.

[elwalle]

A nickel may be worth more than a nickel this morning

[Mktneutralhedger]

@elwalle if you remove Norilsk from the market you can expect such a development.

[user 11202791]

the 1942-45 nickels that are part silver are worth a dollar