Russia-Ukraine Tension: Energies Rise, Stocks Slide

Battered by hot US inflation numbers and a hawkish policy outlook from the Federal Reserve, Wall Street has started the week on a pessimistic note. So far, 2022 has been characterized by dampened market sentiment, with traders eyeing an imminent interest rate hike and the ongoing tapering of monetary support. The escalation of Russia-Ukraine tension over the past couple of weeks has only added to the pressure. 

Monday saw the S&P 500 and Dow Jones edge lower into the red as Treasury yields rose once again. However, whilst stocks have struggled, oil prices remain elevated through the weekend, when US Security Adviser Jake Sullivan suggested a Russian invasion of Ukraine could be staged “any day now”.  

To be precise, oil hovers around 7-year highs, with Brent crude sitting near $94 per barrel. This comes on the back of ongoing supply concerns being compounded by potential sanctions against Russia. Moreover, soaring oil has allowed the S&P 500’s energy sector to exceed the index’s other sectors for year-to-date returns, producing a 26% increase compared to the broader market’s 7% slide. 

Overall, the Russia-Ukraine border conflict will affect more than just oil. Traders fear that escalating energy prices could exacerbate inflation and push the Fed further into its hawkish corner. In any case, the geopolitical uncertainty means traders can expect another choppy week in the markets.