S&P500, Pressured to Step Back?

  • 2022-03-09 06:30:13
  • 5 min read
Sp 500

As the Russia-Ukraine conflict enters its second week and economic pressures mount, Wall Street analysts are beginning to lower their S&P 500 forecasts for this year.

on Sunday, a team of Evercore ISI strategists warned clients in a letter that a test of 3,670 on the main index SPX ( -2.95%), cannot be ruled out. The actual drop to 4,800 from 5,100 was less drastic, but it came with a few conditions.

The S&P 500 was set to open lower at the beginning of this week, with futures pushed lower due to soaring oil prices after Secretary of State Antony Blinken said that the US and EU were considering a possible ban on Russian oil. Both US crude (CL00, 2.84 percent) and Brent crude (BRN00, 3.39 percent) rose to levels not seen since 2008 before falling back, but the entire commodity space was soaring, with wheat and palladium setting new highs.

"We expect that a higher geopolitical risk premium will negatively impact broader market expectations and valuations." There is no change to our index-level earnings expectations, "wrote Citigroup analysts Scott Chronert and Drew Pettit in a note to clients last week.

On the other hand, JP Morgan strategists noted that the S&P 500 has been able to hold above last week’s bullish reversal while they also recognized that the nature of the headlines driving the market can quickly run over the technical predictions. 

Previously, most official entities in US and Europe avoided imposing sanctions on Russian commodities due to the pressure that such restrictions would cause on consumers specially that most economies are still suffering from the impact of pandemic-related inflation. Recently, we witnessed a number of private enterprises refusing to buy Russian oil and the US Secretary of State announcing that the US and its European allies were considering restrictions on Russian oil.

Global stock markets are in an overall bear market status, having dropped more than 20% off their highs. The Dow Jones Index was also down 600 points, or 1.8 percent, and has lost 10% so far in 2022. was significantly worse and was down more than 2% on Monday, and the Nasdaq has dropped over 17% in 2022.

Russia's war on Ukraine, along with sanctions imposed by the US and its European allies on Russian assets, has shaken the financial markets that were already unstable following two years of the pandemic and the risk of central banks reducing support. And with rising commodity prices deepening inflationary pressures, policymakers may be pressured to slow growth while investors become increasingly fearful regarding investing in risky assets.

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