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  • Writer's pictureThe San Juan Daily Star

S&P 500, Nasdaq fall as inflation worries resurface; Tesla slides

The Nasdaq Composite dipped Monday as a spike in oil prices added another threat to an economy already struggling with Federal Reserve rate hikes and recent turmoil in the banking sector.

The Nasdaq Composite

slid 0.8%, while the S&P 500

hovered around the flatline after a lower open. The Dow Jones Industrial Average

bucked the trend, rising 239 points, or 0.7%. Chevron shares led the Dow higher, rising 3.9%.

The output cut from OPEC+, which is slashing 1.16 million barrels per day, sent oil prices soaring. West Texas Intermediate crude was 6.6% higher, while international benchmark Brent crude climbed 6%.

Traders are shedding optimism from recent market strength with the prospect of higher oil prices adding to fears of higher inflation and a looming recession.

The Energy Select Sector SPDR fund (XLE), which tracks the S&P 500 energy sector, popped more than 4%. Marathon Oil and Halliburton were the fund’s best performers, rising 9% and 6.2%, respectively.

The prospect of higher oil prices could add further unease to Wall Street as the output cut plays out, according to Morningstar energy strategist Stephen Ellis.

“The actual cut itself was less of a surprise, given the large increase in global inventories and recession concerns, likely increased by the recent banking struggles,” Ellis said. “Higher oil prices are likely to provide a modest boost to inflation, providing more of a dampening effect on the economy.”

All three major averages were positive in the first quarter, despite turmoil in the banking sector highlighted by the collapse of Silicon Valley Bank in March. The Nasdaq Composite led the way in the quarter with a gain of 16.8% while the S&P 500 rose 7% in the first three months of the year for its second-straight positive quarter. The Dow industrials lagged but still managed to grind out an advance of 0.4%.

Still, the recent rally may be short lived given stronger macroeconomic factors, according to OANDA senior market analyst Ed Moya.

“This current macro backdrop isn’t conducive for a meaningful stock market rally: The economy is recession bound as the consumer is clearly weakening, lending is about to get ugly, energy cost uncertainty will remain elevated for a while, and monetary policy is finally restrictive and about to break parts of the economy,” Moya said.

The first week of the new quarter is a shortened one for Wall Street, as trading will be closed for Good Friday. However, there will be several key pieces of economic data for investors, including job openings data on Tuesday, ADP private payrolls report on Wednesday and the closely watched monthly jobs report on Friday.

In currencies, the dollar index fell 0.438%, with the euro up 0.54% to $1.0902. The Japanese yen strengthened 0.20% versus the greenback at 132.55 per dollar, while Sterling was last trading at $1.2372, up 0.5% on the day.

In U.S. Treasuries, benchmark 10-year notes were down 0.4 basis points to 3.562%, from 3.566% late on Wednesday. The 30-year bond was last down 1.7 basis points to yield 3.7613%. The two-year note was last was up 3.7 basis points to yield 4.1174%.

In commodities, U.S. crude recently rose 1.8% to $74.28 per barrel and Brent was at $79.20, up 1.18% on the day. Spot gold added 0.7% to $1,978.49 an ounce. U.S. gold futures gained 0.64% to $1,979.40 an ounce.

In crypto currencies, Bitcoin last fell 0.91% to $28,094.00.

US consumer spending rose moderately in February, and while inflation cooled, it remained elevated enough to possibly allow the Federal Reserve to raise interest rates one more time this year.

Additional data showed US consumer sentiment fell for the first time in four months in February on concerns of an impending recession, although the impact of the recent banking crisis was muted, reported Reuters. Expectations for a 25 basis point rate hike at its May meeting dipped to about 50%, with no hike seen to be just as likely.

However, Boston Federal Reserve President Susan Collins said the inflation data doesn’t alter the Fed’s monetary policy path yet, while New York Fed President John Williams said financial conditions will be a key contributor to his thinking about what’s next for central bank interest rate policy.

“Fed fund futures are basically pricing in a coin flip of a 25 (basis point) hike in May, but calling that the end of it, if they even go there, so anytime the data doesn’t give the Fed a reason to re-engage hawkishly, the market is going to like it,” said Ross Mayfield, investment strategist at Baird in Louisville, Kentucky.

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