Russia-Ukraine Crisis Troubles the Stock Market
The U.S. stock market has been stumbling since the beginning of the year. Now, Russia’s escalating conflict with Ukraine is adding considerably to the market’s problems.
After President Vladimir V. Putin of Russia ordered troops to enter two separatist-controlled enclaves in Ukraine, the S&P 500, which often serves as a proxy for the U.S. stock market, also crossed a notable threshold.
On Tuesday, the S&P 500 fell to 4,304.76, down 1.01 percent for the day. That wasn’t much of a loss, but it nonetheless represented a notable milestone. It brought the stock market down 10.3 percent from its most recent peak on Jan. 3.
On Wednesday, the index dropped another 1.84 percent, bringing its losses from the record to 11.9 percent.
In Wall Street jargon, that meant the S&P 500 is in a “correction,” because its losses since Jan. 3 exceeded 10 percent.
That 10 percent definition is entirely arbitrary and the subject of many quibbles, but this much is clear: A correction is not a good thing.
“It’s an early warning indicator that tells you the market isn’t heading in the direction you want it to be going in,” said Edward Yardeni, an independent Wall Street economist who has compiled detailed records on modern stock market history. “A 10 percent decline isn’t that bad in itself, necessarily, but if the market keeps heading down, the next thing you know, you’re down 20 percent and then by common agreement you’re in a bear market, and, maybe, worrying about a recession.”
What makes the market decline disconcerting is that an escalating geopolitical conflict in Eastern Europe is now being added to the stock market’s ample woes.
Stocks have been falling for weeks, for a variety of reasons. Concerns about the prospect of rising interest rates and generally tighter monetary policy from the Federal Reserve are at the top of my personal list.
The Fed is, perhaps belatedly, planning at its meeting on March 15-16 to start increasing its benchmark funds rate from its current near-zero level, and then to begin reducing its $8.9 trillion balance sheet. All that is intended to mitigate the inflation that is running at an annual rate of 7.5 percent, a 40-year high.
In addition, the death, illness and inconvenience caused by the coronavirus pandemic have had myriad pernicious effects. The labor force in the United States is smaller than it would be otherwise, and the economy’s service sector hasn’t fully rebounded. The pandemic has also caused supply chain bottlenecks that have held back sales and production and increased the prices of important products as varied as automobiles and kitchen appliances.
Many publicly traded companies are circumventing these problems and passing the associated costs on to consumers, but their ability to keep doing so, while generating the profits that fuel the stock market, is questionable.
The Russia-Ukraine crisis threatens to make matters worse for the economy and the markets. Russia produces important commodities,…