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    Russia-Ukraine Crisis Troubles the Stock Market

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    Whether you call it a correction or a panic attack, a stock market that was already becoming shaky has been roiled by Russia’s hostilities toward Ukraine.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.”

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    Recent S&P 500 Corrections
    Note: Bear markets are highlighted in red. The low point of the correction from the peak on Jan. 3, 2022, has yet to be determined. Source: Yardeni ResearchBy The New York TimesWhat 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, like palladium, which is needed in the catalytic converters of gasoline-powered automobiles, and whose prices have contributed to the high inflation in the United States.The anticipation of interruptions in commodity supplies has increased prices in futures markets, particularly for oil and natural gas, all of which could go much higher if the Ukraine crisis intensifies and if Western sanctions begin to bite.For those who remember the 1970s and early 1980s, an era of soaring inflation and multiple recessions caused in part by a geopolitical shift and two oil shocks, the possibility of a 2020s parallel is deeply disturbing.So is the fact that Russia is a nuclear power engaging in aggressive action against an independent country that is supported by NATO. The possibility that the conflict could be the start of a new Cold War, or something even worse, can’t be totally dismissed.That said, for investors, it’s worth remembering that since the stock market hit bottom in March 2020, the S&P 500 rose 114.4 percent through Jan. 3. Compared with that stupendous increase, the market’s decline since then has been inconsequential.S&P 500Since the beginning of the coronavirus pandemic

    Source: RefinitivBy The New York TimesWhat’s more, although just about everyone who closely follows the stock market agrees that it has had a correction, there is no agreement on when it took place. Laszlo Birinyi, who began analyzing the market with Salomon Brothers back in 1976, says a correction happens whenever the market crosses the 10 percent border, whether it’s at the end of the trading day or in the middle of it.That’s why Mr. Birinyi, who heads his own independent stock market research firm, Birinyi Associates, in Westport, Conn., says a market correction occurred on Jan. 24, not on Tuesday. The market at one point on Jan. 24 dropped as far as 12 percent below its close on Jan. 3 before rebounding smartly. “The psychology of the market, the mood, shifted then,” Mr. Birinyi said. “People were panicky until then — and then they weren’t.”The Ukraine Crisis’s Effect on the Global EconomyCard 1 of 6A rising concern. More

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    Stock Markets Off to Worst Start Since 2016 as Fed Fights Inflation

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    Stocks are off to their worst start of a year since 2016 as the central bank pulls back the enormous stimulus programs it began in the early months of the pandemic.After falling for a fourth day in a row on Friday, the stock market suffered its worst week in nearly two years, and so far in January the S&P 500 is off to its worst start since 2016. Technology stocks have been hit especially hard, with the Nasdaq Composite Index dropping more than 10 percent from its most recent high, which qualifies as a correction in Wall Street talk.That’s not all. The bond market is also in disarray, with rates rising sharply and bond prices, which move in the opposite direction, falling. Inflation is red hot, and supply chain disruptions continue.Until now, the markets looked past such issues during the pandemic, which brought big increases in the value of all kinds of assets.Yet a crucial factor has changed, which gives some market watchers reason to worry that the recent decline may be consequential. That element is the Federal Reserve.As the worst economic ravages of the pandemic appear to be waning, at least for now, the Fed is ushering in a return to higher interest rates. It is also beginning to withdraw some of the other forms of support that have kept stocks flying since it intervened to save desperately wounded financial markets back in early 2020.This could be a good thing if it beats back inflation without derailing the economic recovery. But removing this support also inevitably cools the markets as investors move money around, searching for assets that perform better when interest rates are high.“The Fed’s policies basically got the current bull market started,” said Edward Yardeni, an independent Wall Street economist. “I don’t think they are going to end it all now, but the environment is changing and the Fed is responsible for a lot of this.”The central bank is tightening monetary policy partly because it has worked. It helped stimulate economic growth by holding short-term interest rates near zero and pumping trillions of dollars into the economy.This flood of easy money also contributed to the rapid rise in prices of commodities, like food and energy, and financial assets, like stocks, bonds, homes and even cryptocurrency.What happens next comes from an established playbook. As William McChesney Martin, a former Fed chairman, said in 1955, the central bank finds itself acting as the adult in the room, “who has ordered the punch bowl removed just when the party was really warming up.”The mood of the markets shifted on Jan. 5, Mr. Yardeni said, when Fed officials released the minutes of their December policymaking meeting, revealing that they were on the verge of embracing a much tighter monetary policy. A week later, new data showed inflation climbing to its highest level in 40 years.Putting the two together, it seemed, the Fed would have no choice but to react to curb rapidly rising prices. Stocks began a disorderly decline.Financial markets now expect the Fed to raise its key interest rate at least three times this year and to start to shrink its balance sheet as soon as this spring. It has reduced the level of its bond buying already. Fed policymakers will meet next week to decide on their next steps, and market strategists will be watching.Low interest rates made certain sectors especially appealing, foremost among them tech stocks. The S&P 500 information technology sector, which includes Apple and Microsoft, has risen 54 percent on an annualized basis since the market’s pandemic-induced trough in March 2020. One reason for this is that low interest rates amplify the value of the expected future returns of growth-oriented companies like these. If rates rise, this calculus can change abruptly.Inflation F.A.Q.Card 1 of 6What is inflation? More

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    Stocks Hit a Record as Investors See Progress Toward a Spending Deal

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    After weeks of fluctuations driven in part by Washington gridlock, share prices hit another high and put a dismal September in the rearview mirror.Wall Street likes what it’s hearing from Washington lately.The S&P 500 inched to a new high on Thursday, continuing a rally aided by signs of progress in spending talks that could pave the way for an injection of some $3 trillion into the U.S. economy.The index rose 0.3 percent to 4,549.78, its seventh straight day of gains and a fresh peak after more than a month of volatile trading driven by nervousness over the still-wobbly economic recovery and policy fights in Washington.The S&P 500’s performance this year

    Source: S&P Dow Jones IndicesBy The New York TimesBut even baby steps by lawmakers have helped end a market swoon that began in September.Share prices began to rise this month when congressional leaders struck a deal to allow the government to avoid breaching the debt ceiling, ending a standoff that threatened to make it impossible for the country to pay its bills. The rally has gained momentum as investors and analysts grow increasingly confident about a government spending package using a recipe Wall Street can live with: big enough to bolster economic growth, but with smaller corporate tax increases than President Biden’s original $3.5 trillion spending blueprint.“It seems like we’re kind of reaching a middle ground,” said Paul Zemsky, chief investment officer, multi-asset strategies at Voya Investment Management. “The president himself has acknowledged it’s not going to be $3.5 trillion, it’s going to be something less. The tax hikes are not going to be as much as the left really wanted.”Share prices had marched steadily higher for much of the summer, hitting a series of highs and cresting on Sept. 2. But a number of anxieties sapped their momentum as the certainty that markets crave began to evaporate. Gridlock over government spending, continuing supply chain snarls, higher prices for businesses and consumers and the Federal Reserve’s signals that it would begin dialing back its stimulus efforts all helped sour investor confidence. The S&P 500’s 4.8 percent drop in September was its worst month since the start of the pandemic.It has made up for it in October, rising 5.6 percent this month. But it’s not just updates out of Washington that have renewed investors’ optimism.The country has seen a sharp drop in coronavirus infections in recent weeks, raising, once again, the prospect that economic activity can begin to normalize. And the recent round of corporate earnings results that began in earnest this month has started better than many analysts expected. Large Wall Street banks, in particular, reported blockbuster results fueled by juicy fees paid to the banks’ deal makers, thanks to a surge of merger activity.Elsewhere, shares of energy giants have also buoyed the broad stock market. The price of crude oil recently climbed back above $80 a barrel for the first time in roughly seven years, translating into an instant boost to revenues for energy companies.But the recent rally seemed find its footing two weeks ago. On Oct. 6, word broke that Senator Mitch McConnell of Kentucky, the Republican leader, was willing to offer a temporary reprieve allowing Congress to raise the debt ceiling. The market turned on a dime from its morning slump, finishing the day in positive territory. That week turned out to be the market’s best since August.Once done as a matter of course in Washington, raising the debt ceiling has been an increasingly contentious issue in recent years — with sometimes serious implications for the market. In August 2011, a rancorous battle over the debt ceiling sent share prices tumbling sharply as investors began to consider the prospect that the United States could actually default on its debts.But the recent deal on the ceiling — even though it only pushed a reckoning into December — suggested to investors that there’s little appetite in Washington for a replay of a decade ago.“I think that let some pressure out of the system,” said Alan McKnight, chief investment officer of Regions Asset Management. “What it signaled to the markets was that you can find some area of agreement. It may not be very large. But at least they can come together.”With the impasse broken, the rally gained strength. Last Thursday, the S&P 500 jumped 1.7 percent — its best day in roughly seven months — as financial giants like Morgan Stanley and Bank of America reported stellar results.Potential progress on a deal in Washington has only brightened investors’ outlook.“Democrats are now moving in the same direction, and hard decisions are being made,” wrote Dan Clifton, an analyst with Strategas Research, who monitors the impact of policy on financial markets, in a note to clients on Wednesday.Understand the U.S. Debt CeilingCard 1 of 6What is the debt ceiling? More