Stocks slip after EU agrees to partial ban on Russian oil
Stocks dipped Tuesday as global prices rose after the European Union announced a ban on most Russian oil imports by year-end.
While Wall Street veered away from a bear market on Friday, inflation and rising interest rates, the war in Ukraine and China's slowing economy are all punishing stocks and raising fears about a possible U.S. recession.
The S&P 500 slipped 26 points, or 0.6%, to 4,132. The Dow Jones Industrial Average fell 0.7%, while the tech-heavy tech Nasdaq was essentially flat.
Through mid-May, the S&P 500 tumbled to seven straight losing weeks for its longest such streak since the dot-com bubble was deflating two decades ago. Slowing data on the U.S. economy heightened worries that high inflation will force the Federal Reserve to raise interest rates so aggressively that it will cause a recession.
"Outside of a peace agreement in Ukraine, it's difficult to construct a case for more than a bear market rally," which would be just a temporary turn higher for stocks, Morgan Stanley strategists led by Michael Wilson wrote in a report. They said that the more stock prices rise, the more likely the Federal Reserve will be to hike interest rates.
Oil jumps
Oil prices, which have soared almost 60% this year, rose another 3% and neared $120 per barrel early Tuesday after the EU said it would embargo most Russian oil imports because of its brutal invasion of Ukraine.
The pact was worked out at a summit focused on helping Ukraine with a long-delayed package of new financial support. The embargo covers Russian oil brought in by sea, allowing a temporary exemption for imports delivered by pipeline. That was crucial to bring landlocked Hungary on board, a decision that required consensus.
Benchmark U.S. crude oil gained $3.52 to $118.59 per barrel in electronic trading on the New York Mercantile Exchange. It added 98 cents to $115.07 per barrel on Monday.
Brent crude, used as the basis for pricing for international trading, advanced $1.72 to $119.32 per barrel.
Biden to discuss inflation with Powell
President Joe Biden will meet with Federal Reserve Chairman Jerome Powell on Tuesday as soaring inflation continues to carve up Americans' earnings.
The meeting Tuesday will be the first since Biden renominated Powell to lead the central bank and weeks after the Senate confirmed a second term. The White House said the pair would discuss the state of the U.S. and global economy and especially four-decade high inflation, described as Biden's "top economic priority."
Many big tech stocks, seen as some of the most vulnerable to rising interest rates, have already fallen much more than 20% this year. That includes a 37.2% tumble for Tesla and a 69.1% nosedive for Netflix.
It's a sharp turnaround from the powerful run Wall Street enjoyed after emerging from its last bear market in early 2020, at the start of the pandemic.
With inflation at its highest level in four decades, the Fed has switched from keeping interest rates super-low to support markets and the economy and is raising rates and making other moves to tamp down inflation. The worry is it might go too far or too quickly.
Goldman Sachs economists recently put the probability of a U.S. recession in the next two years at 35%, while analysts at TD Securities predict "some moderation in growth and inflation."
Inflation has been painfully high for months. But the market's worries swung higher after Russia's invasion of Ukraine sent prices spiraling further at grocery stores and gasoline pumps, because the region is a major source of energy and grains.
Adding pressure onto stocks are signs corporate profits are slowing and finally may be suffering from inflation.
But there is a bright side according to Ryan Detrick, Chief Market Strategist for LPL Financial, who points to the big gains at the close of May and the end of the S&P's seven-week losing streak as positive takeaways.
"Huge gains like the 6.6% gain for the S&P 500 last week are usually a great sign for the bulls," Detrick said in a research note. Historically, "future returns are very strong" for the S&P 500 following a gain of more than 6% in a week, according to the LPL analyst.
"Up 12.5% on average six months later and nearly 22% a year later on average is something that could have most bulls smiling after the rough start to 2022," Detrick added.