© Reuters. FILE PHOTO: TV camera men wait for the opening of market in front of a large screen showing stock prices at the Tokyo Stock Exchange in Tokyo, Japan October 2, 2020. REUTERS/Kim Kyung-Hoon
By Pete Schroeder
WASHINGTON (Reuters) -The selloff on Wall Street worsened Monday and oil prices turned lower as rising geopolitical tensions and the Fed’s plans to reduce economic stimulus took their toll on investors.
Jitters over the prospect of a Russian attack on Ukraine and anticipated Fed tightening following its Wednesday meeting kicked a January stock selloff into overdrive.
The Nasdaq Composite was down over 3% in midday trading, while the Dow Jones Industrial Average and S&P 500 were down 2.5% and 2.9%, respectively.
The S&P was on course to confirm a correction, now down 11.3% from its record closing high on Jan. 3. A correction is confirmed when an index closes 10% or more lower than its record closing level.
And the CBOE Volatility index, a widely watched measure of investor anxiety, was last trading at its highest level since January 2021. The MSCI world equity index, which tracks shares in 45 nations, was down 2.55%.
NATO said on Monday it was putting forces on standby and reinforcing eastern Europe with more ships and fighter jets in response to Russia’s military build-up at Ukraine’s borders.
The U.S. State Department on Sunday ordered diplomats’ family members to leave Ukraine, while U.S. President Joe Biden weighed options for boosting U.S. military assets in the region.
“Dealers are worried about the prospect of a war in Eastern Europe as the human and economic cost would be huge. Some central European economies like Germany are heavily dependent on energy from Russia, and should a war break out, it’s a possibility those energy supply lines would be cut, which would cripple economic output in the EU,” said David Madden, a market analyst at Equiti Capital.
The pervasive risk-off attitude appeared in oil markets too, as prices dipped by as much as 3% after closing Friday with a fifth straight week of gains.
Brent crude fell 1.81% to $86.30 a barrel. U.S. crude was down 2% at $83.44 per barrel.
“With the stock market falling out of bed, we’re getting into a risk-off situation,” said Phil Flynn, analyst at Price Futures Group in Chicago. [O/R]
Other riskier assets suffered similar fates. Bitcoin was down another 5%, as the cryptocurrency hit its lowest level in six months. The cryptocurrency has lost more than half of its value since hitting an all-time high of $69,000 in November.
FED TIGHTENING LOOMS
The Federal Reserve, which had announced plans to begin paring back unprecedented stimulus, is set to update its policy trajectory at a Wednesday meeting. Concerns that the central bank could tighten too quickly added to investor nerves.
The U.S. central bank is expected to confirm it will soon start draining the massive pool of liquidity that has supercharged growth stocks in recent years.
Treasury yields were down across the curve Monday, with the benchmark U.S. 10-year yield falling to 1.7121%, after earlier hitting an 11-day low of 1.7070%.
Fears over the Fed and Ukraine boosted safe haven investments on Monday. The dollar hit a two-week high against a basket of currencies, last up 0.26%. Spot gold prices also jumped 0.44% to $1,841.28 an ounce..