The Dow dropped more than 300 points on Tuesday as Russian forces took up positions inside Ukrainian territory, raising fears of all-out war to a fever pitch.
The Dow dropped 301 points, or 0.8 percent, to 33,778.44 shortly after the start of trading on Tuesday. The S&P 500 and Nasdaq were both recently off 0.4 percent.
The shattering of peace in Eastern Europe and the specter of a new cold war is likely to exacerbate economic pressures — including record levels of inflation — as the world struggles to recover from the effects of the coronavirus pandemic.
Meanwhile, global crude prices rose to $99 per barrel, raising fears that the escalation in the Russia-Ukraine conflict could cause a disruption to oil supplies in what was already a tight market.
“Higher energy and food costs are certain to be a byproduct of sanctions or armed conflict, as Russia is one of the world’s biggest oil producer and wheat exporters,” said Greg McBride, the chief financial analyst for Bankrate.com.
“That won’t be the type of inflation that the Federal Reserve can tame, much like the supply chain issues that have generated much of the current inflation.”
Dow futures were down 1.4% while Nasdaq futures lost as much as 2.1% before recovering somewhat early Tuesday morning. Getty ImagesRussia could cease supplying oil and natural gas to Europe, which could have major ripple effects globally. Many of the pipelines through which Russia supplies the continent run through Ukrainian territory.
“Russia and Ukraine are major exporters of a lot of commodities. In addition to oil, Russia exports nearly half the palladium in the global market. It also exports gold, platinum and gas,” notes Anthony Denier, CEO of trading platform Webull.
Russian President Vladimir Putin on Monday issued a decree recognizing breakaway regions of Ukraine occupied by pro-Russian separatist forces as independent republics.
Putin then ordered Russian troops into the regions as “peacekeepers” — a move that observers fear is a precursor to a full-scale invasion of Ukraine.
The Biden administration has vowed to impose sanctions on the Kremlin in retaliation for any offensive actions against Ukraine.
The emerging conflict in Eastern Europe also sent US crude and global crude futures surging on Tuesday. Getty ImagesMcBride added: “It is too early to assess any economic fallout for the US. But Europe will feel the economic impact much more directly.”
Nevertheless, the tumult in Eastern Europe is only beginning to make its impact on the street, according to Denier.
“I think the market is being cautious and not pricing in a full armed conflict,” he said. “If that happens, we could see a big drop.”
