Nasdaq falls more than 2% to lead stock-market losses as investors watch Ukraine, weigh Fed’s policy path

US stocks were trading lower Tuesday afternoon, with the Nasdaq Composite leading the way down, as investors kept a close eye on plans for more sanctions on Russia and remarks by Federal Reserve policy makers.

Shares of Twitter Inc.
TWTR
remained in the spotlight for a second day after the company named Tesla Inc. TSLA
chief Elon Musk to his board of directors.

How are stock indexes trading?
  • The Dow Jones Industrial Average DJIA
    fell 253 points, or 0.7%, to about 34,669.

  • The S&P 500 SPX
    slide 54 points, or 1.1%, to 4,528.

  • The Nasdaq Composite COMP
    fell 326 points, or 2.2%, to 14,206.

On Monday, the S&P 500, Dow and Nasdaq ended higher, led by gains for tech-related shares.

What’s driving the markets?

Stocks saw a mixed start, but soon turned lower across the board following remarks by Fed Gov. Lael Brainard, who indicated policy makers could begin aggressively shrinking the size of the central bank’s balance sheet as early as its next meeting in May.

The Fed will “continue tightening monetary policy methodically through a series of interest rate increases and by starting to reduce the balance sheet at a rapid pace as soon as our May meeting,” Brainard said at a conference sponsored by the regional Fed bank in Minneapolis.

“It’s a double-barreled tightening,” said Liz Ann Sonders, chief investment strategist at Charles Schwab, in a phone interview Tuesday. “It represents a tightening cycle unlike anything in the past.”

Read: Fed’s Brainard says inflation is ‘much too high’ with risks it might go even higher

Investors were also monitoring the war in Ukraine and US economic data.

Ukraine President Volodimir Zelensky addressed the UN Security Council on Tuesday, following evidence of images and reports of atrocities allegedly committed by Russian soldiers around Kyiv, including the suburban city of Bucha.

“With geopolitics at the forefront of investors’ minds, the next few days could be rough and rocky for global markets. The devastation in Bucha has prompted not only the European Union but also world leaders to discuss new sanctions on Russia,” said Lukman Otunuga, senior research analyst at FXTM, in a note.

“As ongoing geopolitical risks fuel uncertainty and trigger volatility, this could sap risk sentiment, extending further support to safe haven assets,” he said.

Meanwhile, the US Treasury has reportedly put a stop to Russia paying its debts via US dollar accounts, while the European Union was expected to consider a ban on coal imports from the country.

Both US CL
and benchmark European oil prices BRN00
lost ground after initially finding support on the prospect of additional sanctions.

“The overall environment remains hard to read as investors’ focus keeps being torn between lingering tensions with Russia, the prospect of an economic downturn brought by flattening yield curves and the sudden hawkish switch from the Fed,” said Pierre Veyret, technical analyst at ActivTrades .

Read: Stock-market bears outnumber the bulls for first time since mid-2019, says RBC

Treasury yields extended a rise after Brainard’s comments, while the yield on the 10-year Treasury note BX:TMUBMUSD10Y
moved slightly above that of the 2-year note BX:TMUBMUSD02Y,
undoing a recent inversion of that curve. Yield curve inversion, when that of shorter-dated notes are higher than longer-dated, are often viewed as a recession flag.

Read: Stocks are rallying because of what an inverted yield curve says about the Fed and inflation, strategist says

And: Dow transports selloff may be warning of something more than just a macro speed bump

Among US economic data released Tuesday, the February foreign trade deficit fell 0.1% to $89.2 billion after an all-time high in January. Economists polled by The Wall Street Journal had forecast a $88.5 billion trade gap.

The Institute for Supply Management said its index of business conditions at service-oriented companies rose 1.8 points in March to 58.3%, rebounding from an omicron-induced slowdown and in line with forecasts. Readings above 50% are viewed as positive, with anything above 55% seen as exceptional.

“Growth during March was especially strong in Entertainment & Recreation, Accommodation & Food Services and Real Estate,” Jeffrey Roach, chief economist for LPL Financial, said in emailed comments on the ISM reading Tuesday. “Given the headwinds, I see this report as confirmation for our general investment thesis that we could still escape recession and modestly grow the latter half of this year.”

Which companies are in focus?
  • Twitter shares were up 2.3% Tuesday after the announcement of Musk’s appointment to the board. The company’s shares had jumped 27.1% Monday for their best single-day gain ever after a regulatory filing revealed Musk had taken a 9.2% stake in the social-media platform.

  • Exxon Mobil Corp.
    XOM
    said in a filing late Monday that its first-quarter profit could top $9 billion, due partly to billions more from rising crude prices. Shares rose 0.2%. Exxon CEO Darren Woods will be among oil-company executives due to testify before a House hearing Wednesday on gasoline-price gouging.

Commodity Corner: Why US consumers suspect gas price gouging — and how much stations actually profit from a gallon of the fuel

How are other assets faring?
  • The yield on the 10-year Treasury note BX:TMUBMUSD10Y
    was trading about 14 basis points higher at around 2.55%.

  • The ICE US Dollar Index DXY
    pink 0.5%.

  • BitcoinBTCUSD
    fell 1.1% to trade at $45,784.

  • In oil futures, West Texas Intermediate crude for May delivery CLK22
    climbed 4% to settle at $103.28 a barrel.

  • Gold futures GC00
    finished lower, with gold for June delivery GCM22
    declining 0.3% to settle at $1,927.50 an ounce.

  • In European equities, the Stoxx Europe 600 XX:SXXP
    closed 0.2% higher while London’s FTSE 100 UK:UKX
    gained 0.7%.

  • In Asia, Japan’s Nikkei 225 JP:NIK
    pink 0.2%.

-Barbara Kollmeyer contributed to this report.

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