The US stock market also tumbled and backpedaled on its winning streak on account of the inversion of the 5-year and 30-year Treasury yields earlier this week for the first time in about 6 years.
In a very clear deviation from the winning streak it has recorded all week long, the US stock market has tumbled on Wednesday as investors weigh in on the bond market.
The S&P 500 (INDEXSP: .INX) dropped 0.63% to 4,602.45 while the Dow Jones Industrial Average (INDEXDJX: .DJI) shed off 65.28 points atop a 0.19% loss to 35,228.81. The Nasdaq Composite (INDEXNASDAQ: .IXIC), and the Russell 2000 Index (INDEXRUSSELL: RUT) lost 1.21% and 1.97% to 14,442.27 and 2,091.07 respectively.
The developments in Ukraine and the ensuing sanctions on Russia have been biting hard on the country’s economy and the global market has been seeing its impact on the energy market. According to data from Oilprice.com, the energy market has pared off its gains on Wednesday with the Brent Crude selling for $107.7 per barrel atop a 5.09% slump.
The West Texas Intermediate (WTI) also dropped by 5.48% to $101.9 respectively. Considering the volatility in natural gas prices and the entire dynamics in the global energy sector, German officials have warned of the likely rationing of natural gas as one of the aftermaths of the protracted war between Russia and Ukraine.
According to Charles Schwab’s Chief Investment Strategist, Liz Ann Sonders, the rising energy prices as seen most of the time per the ongoing geopolitical dispute in Eastern Europe could turn out bearish for the global market over time, irrespective of the current positivity it gives energy stocks at this time.
“We’re already seeing signs of what I call a countercyclical inflation environment, sometimes called a cost-push inflation environment, where inflation gets so high that it starts putting pressure” on growth, Sonders said.
US Stock Market and the Inverted Treasury Yield Outlook
The US stock market also tumbled and backpedaled on its winning streak on account of the inversion of the 5-year and 30-year Treasury yields earlier this week for the first time in about 6 years. The spread between the 2-year and the 10-year rate also came close to inverting on Tuesday. This inversion is as good as the macro indicators telling us that the economy is ripe for another recession.
“The big talk right now is that at any given point in time, recession can be on the horizon,” Stephanie Lang, chief investment officer at Homrich Berg, told CNBC. “Typically, you won’t see a recession for an average of 20 months once a yield curve inverts. Our antennas are up that recession risk is heightened; that doesn’t necessarily mean that there’ll be one this year, though next year is more of a concern for us.”
The performance action amongst individual stocks was varied on Wednesday as each company charted its own price trend drawing on different fundamentals. While regional banks got a beating with the Bank of New York Mellon Corp (NYSE: BK) shedding 1.71% of its value to $51.84, outfits like the Phillips 66 (NYSE: PSX) benefited from the energy boom to grow their shares by 4.77% to $87.44.