U.S. stocks fell as the threat of a possible ban on Russian oil imports spurred a spike in energy prices that investors said could weigh on economic growth.
The S&P 500 fell 1.4%, while the Dow Jones Industrial Average fell 1.2%, or about 406 points. The tech-heavy Nasdaq Composite lost 1.7%.
The war in Ukraine, now in its 12th day, has rattled commodity markets, heightened tensions between Moscow and the West and led Russia to disconnect from much of the global financial system.
Oil prices rose, mitigating their highs for the day, with global benchmark Brent crude adding 3.3% to $122.07 a barrel. Earlier on Monday, it rose above $130, the highest level since July 2008. The US equivalent, West Texas Intermediate, rose 1.8% to $117.74. US and European partners are discussing a ban on Russian oil imports, Secretary of State Antony Blinken said on Sunday.
Rising oil prices raise fears of demand destruction and a global recession, said Michael Hewson, chief market analyst at CMC Markets..
“It’s hard to see much in the way of a meaningful stock market rally now amid continued escalation” in Ukraine, he said.
The pancontinental Stoxx Europe 600 index fell 0.2% on Monday. The German DAX stock index and the Italian FTSE MIB fell into bearish territory. Soaring oil and gas prices are raising fears that Europe, an energy importer dependent on Russia, could slide into recession.
Among individual stocks, Occidental Petroleum jumped 3.8% after activist investor Carl Icahn quit after years of campaigning. Bed Bath & Beyond rose 62% after billionaire investor Ryan Cohen disclosed a 9.8% stake in the retailer.
Rising commodity prices and the resulting acceleration in inflation are complicating the next moves of major central banks, which were largely expected to begin tightening monetary policy before the war began. The European Central Bank is meeting this week, and investors will be watching changes to its growth outlook and what that could mean for politics.
“This toxic cocktail poses a huge problem for central banks. Do they tighten monetary policy and risk pushing the world into recession even faster or allow inflation to rise, which would have the same effect? said Mr. Hewson. Inflation fears are weighing on the bond market, he added.
The yield on the benchmark 10-year US Treasury rose slightly to 1.777% on Monday from 1.722% on Friday, reversing direction after posting the biggest one-week decline since March 2020 last week. Yields rise when prices fall. Bonds generally do well in times of market stress or slowing economic growth, but their fixed cash flows lose value in times of rapidly rising prices.
The war in Ukraine and the cut in commodities complicate typical market behavior. Inflation is likely to soar due to rising oil, gas and food prices, limiting the ability of central banks to counter the effect of an economic downturn.
Other safe havens rallied. Gold rose about 1% to $1,984 per troy ounce, the highest level since August 2020. The greenback strengthened, with the WSJ Dollar Index rising 0.4%.
The Russian ruble tumbled, tumbling more than 10% against the dollar and hitting a record low of 137 rubles to the dollar, before recovering its losses and then falling back. Its stock exchange is closed and will remain so until at least Tuesday, according to Russia’s central bank. It has not traded normally since Feb. 25.
European bank stocks continued to fall. The Euro Stoxx banking sub-index fell 3.5%, extending last week’s 19% drop. Those with substantial exposure to Russia were among the hardest hit, with Raiffeisen down 3.7% and ING down 3.6%. ING said on Friday that sanctions against Russia affected $700 million of its loans.
“For some banks, it’s exposure to Ukraine and Russia. A second impact is increased credit risk more broadly as the economy is under pressure,” said Sébastien Galy, macro strategist at Nordea Asset Management.
Investors appear to be in classic flight-to-safety mode and equities are suffering, said Kelvin Tay, Singapore-based regional investment director at UBS..
Very high oil prices will work as “a tax on the global economy, and as a result global growth will actually have to slow down,” he said.
Stock indices in the Asia-Pacific region fell sharply, with South Korea’s Kospi Composite falling more than 2% and Japan’s Nikkei 225 losing 2.9%, to close at their lowest since November 2020. The CSI Mainland China’s 300 and Hong Kong’s Hang Seng Index both fell more than 3%.
—Karen Langley contributed to this article.
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