Dow Jumps 300 Points, Oil Prices Fall After Ukraine-Russia Ceasefire Talks—But War Still Poses ‘Unsettling’ Risk For Stocks

Topline

The stock market climbed for a fourth straight day Tuesday morning as promising geopolitical developments helped bolster investor sentiment and drive gains in recently struggling technology stocks, but some experts warn the recovery could be short-lived if signs of escalating conflict between Russia and Ukraine arise again.

Key Facts

The Dow Jones Industrial Average climbed 350 points, or 0.8%, to 35,304 on Tuesday morning, while the S&P 500 and tech-heavy Nasdaq jumped 0.8% and 1.2%, respectively.

A slew of travel and leisure stocks headed up the market Tuesday morning, with Norwegian Cruise Line, Delta Air Lines and United Airlines up more than 3% apiece.

In a morning note, market analyst Tom Essaye of the Sevens Report attributed the gains to progress in ceasefire talks between Russia and Ukraine, with Moscow officials saying early Tuesday they would “drastically reduce” military activity near the cities of Kyiv and Chernihiv “in order to increase mutual trust and create the necessary conditions for further negotiations.”

The promising development helped boost risky tech stocks in particular, Essaye noted, as Chinese e-commerce giant JD.com surged nearly 8%, while NXP Semiconductors and Zoom Video Communications jumped about 3% apiece.

Also reflecting the shifting sentiment, oil prices plummeted Tuesday morning after reports of the ceasefire talks, with the price of U.S. benchmark West Texas Intermediate falling nearly 6% to less than $100 for the first time in almost two weeks, continuing a decline that’s pushed prices down about 20% from a 13-year high earlier this month.

Meanwhile, shares of TV ratings firm Nielsen skyrocketed more than 21% after announcing it entered into a deal to be acquired by a consortium of private equity firms Evergreen Coast Capital and Brookfield Business for about $16 billion, or $28 per share.

Key Background

The stock market logged a dismal start to the year after the Fed revealed it would act more aggressively than previously expected to hike interest rates amid decades-high inflation, with Russia’s invasion of Ukraine only adding to economic uncertainty in recent weeks. “Although financial conditions have only tightened somewhat since the start of the conflict, we see potentially large downside growth risks if tighter sanctions or an escalation in the conflict leads to a broader global slowdown that spills over to the U.S.,” Goldman Sachs chief economist Jan Hatzius wrote in a recent note to clients. And though stocks have recovered from lows earlier this month, indexes are still swimming in negative territory. After climbing 27% in 2021, the S&P 500 is down 5% this year.

Crucial Quote

“Stocks have been resilient and somewhat supported on hopes that both the war in Ukraine won’t be a long one—and that a lot of the inflation we are currently seeing will ease in the second half of the year, but eventually risk appetite will struggle as the robust consumer demand softens,” Oanda analyst Ed Moya wrote in a morning note. “The longer this war lasts, the greater stagflation risks grow and that should be unsettling for stocks.”

Tangent

Despite the market turnaround, a majority of Wall Street firms have been cutting their S&P price targets for 2022 in recent weeks, with Barclays on Thursday forecasting the index will end the year roughly flat at 4,500. The investment bank predicts a major slowdown in consumer spending that will impact corporate earnings, and in turn dent economic growth, with geopolitical tensions only adding to market uncertainty. However, some experts are still bullish. Credit Suisse and Deutsche Bank hold price targets of 5,200 and 5,250, respectively, implying nearly 15% upside.

Further Reading

Wall Street Firms Are Slashing S&P 500 Price Targets—Here’s What They Predict For Markets (Forbes)