U.S. stocks gained on Monday as investors monitored the potential for more sanctions against Russia amid ongoing concerns over inflation and global economic growth.
The S&P 500 rose, and the Nasdaq Composite gained more than 1% as technology shares outperformed. Shares of Twitter (TWTR) soared by more than 20% after Tesla (TSLA) CEO Elon Musk disclosed he now owns an about 9.2% stake of the social media company. The Dow Jones Industrial Average joined the S&P 500 and Nasdaq in the green and shook off earlier losses.
Investors globally considered the European Union’s next punitive measures against Russia as the more than month-long war in Ukraine escalated further. The EU responded Monday to apparent war crimes in Ukraine, as Russian forces allegedly now widely killed civilians and attacked civilian infrastructure in major cities, with the bloc saying in a statement it would, “as a matter of urgency, work on further sanctions against Russia.” Some major European officials including Germany’s defense minister said they would support banning Russian natural gas — a move previously excluded from sanctions as Russia supplies about 40% of Europe’s gas energy.
U.S. crude oil prices advanced on Monday to rise for the first time in three sessions. Brent crude oil, the international standard, also gained.
JPMorgan (JPM) CEO Jamie Dimon also called attention to the war in Ukraine as one of three key risks he saw to the economic outlook, according to his widely read annual shareholder letter released Monday. The other included “the dramatic stimulus-fueled recovery from the COVID-19 pandemic” as well as “the likely need for rapidly raising rates and the required reversal of QE [quantitative easing]” from the Federal Reserve, Dimon said.
“We do not know what its outcome ultimately will be, but the hostilities in Ukraine and the sanctions on Russia are already having a substantial economic impact. They have roiled global oil, commodity and agricultural markets,” Dimon said. “Our economists currently think that the euro area, highly dependent on Russia for oil and gas, will see GDP growth of roughly 2% in 2022, instead of the elevated 4.5% pace we had expected just six weeks ago. By contrast, they expect the U.S. economy to advance roughly 2.5% versus a previously estimated 3%.”
Concerns over the resilience of the U.S. economy in the face of a geopolitical crisis and still-elevated inflation have been fanned further as a closely watched portion of the Treasury yield curve inverted — a move that previously has preceded recessions. As of Monday morning, the yield on the benchmark 10-year note remained below that on the shorter-term 2-year note. Such a phenomenon has occurred before each of the last eight recessions since 1969.
“Investors have been particularly concerned about the prospect of yield curve inversion as a signal for imminent recession,” Goldman Sachs strategist David Kostin wrote in a note. “Our rates strategists recently raised their forecasts and now expect the 2-year UST and 10-year UST yields to end 2022 at 2.9% and 2.7%, respectively, for a 20 bp [basis point] inversion.”
“However, our strategists note that the nominal curve tends to invert more easily in high inflation environments, which means that it would take a deeper nominal curve inversion than in recent cycles to produce a comparable recession signal,” he added. “Asset indicators imply a 38% probability of recession within 24 months.”
