By DAMIAN J. TROISE and ALEX VEIGA, AP Business Writers
Wall Street stocks lost early gains and closed sharply lower on Monday as the United States decided to close its embassy in Ukraine amid heightened tensions over the thousands of Russian troops who amassed on the border .
The S&P 500 fell 0.4% after falling 1.2% shortly after the United States announced the closure of its embassy in Ukraine and the transfer of all remaining employees to a city near the Polish border. The move comes as diplomatic efforts continued on Monday in a bid to avert what US officials have warned could be an imminent Russian attack on Ukraine.
Bond yields rose overall, as did energy futures and the price of gold.
The Dow Jones Industrial Average fell 0.5% and the Nasdaq composite ended mostly flat after rising 1% early on. All three major stock indices were coming off a weekly loss.
The market tumble comes on top of losses from a late Friday afternoon selloff after the White House told Americans to leave Ukraine within 48 hours amid fears Russia could soon invade that country . Other governments, including Russia, have withdrawn diplomats and their citizens from the country.
Wall Street is also trying to gauge how stocks and the broader economy will be affected by another source of uncertainty: how much and how quickly the Federal Reserve will raise interest rates to quell soaring inflation. .
“The market is really paying attention to geopolitical things right now, whether it’s things coming out of Ukraine or Washington in terms of what the Fed is going to do,” said Willie Delwiche, investment strategist at All Star Charts. “The bigger story is inflation and rates. The Fed is catching up with inflation, the bond market is now taking the Fed seriously and the question is ‘what are US stocks doing in this environment?’
The S&P 500 fell 16.97 points to 4,401.67. Nearly 80% of stocks in the benchmark fell. Financials, healthcare and energy companies were among the largest weightings in the market. Citigroup fell 1%, Moderna 11.7% and Exxon Mobil 1.5%.
The Dow fell 171.89 points to 34,566.17. The blue-chip index was down 433 points by mid-afternoon. The Nasdaq slipped 0.24 points to 13,790.92.
Shares of small companies, which were on the pace of gains, also fell. The Russell 2000 slipped 9.36 points, or 0.5%, to 2,020.79.
A potential escalation of the conflict between Russia and Ukraine also weighed heavily on European markets, which fell sharply.
Nations are still seeking a diplomatic solution to the situation and the top Russian diplomat has advised Russian President Vladimir Putin to continue dialogue with the United States and its allies.
The price of US crude oil climbed 2.5%, while natural gas prices jumped 6.4%. Russia is a major energy producer. Any military action that disrupts supply could send shockwaves through energy markets and global industry.
The price of gold, traditionally a safe haven in times of geopolitical uncertainty, rose 1.5%.
Bond yields also rose. The 10-year Treasury yield rose to 1.99% from 1.94% on Friday night.
The crisis in Ukraine is another concern for investors as they try to figure out how rising inflation and impending interest rate hikes will impact investments and the economy. Inflation is at its highest level in four decades and the Federal Reserve plans to raise interest rates to help calm inflation.
The central bank is expected to start raising its benchmark interest rate in March, and Wall Street expects up to seven rate hikes this year.
While Fed policymakers agree that the central bank should start raising interest rates next month, they differ on how quickly to do so. On Monday, James Bullard, chairman of the Federal Reserve Bank of St. Louis, reiterated his call for the Fed to take the aggressive step of raising its benchmark short-term rate by a full percentage point by July 1. Kansas City Fed President Esther George expressed support for a more “gradual” approach. And the San Francisco Fed’s Mary Daly declined to commit to more than a modest rate hike next month.
Their comments follow last week’s report that inflation jumped 7.5% in January from a year ago, the fastest rise in four decades. Prices also rose 0.6% from December to January, similar to the previous month, suggesting that the rise in prices is still not slowing, as many economists and Fed officials had hoped.
The Fed typically responds to high inflation by making borrowing more expensive, which slows spending and the pace of price increases.
“Last week’s inflation report woke Fed officials up a bit and really reminded them that they’re behind the curve here, and by acting aggressively earlier, maybe they can do less overall in terms of tightening,” Delwiche said.
Investors are also keeping an eye on the latest round of corporate earnings, in part to better understand how companies are coping with high inflation. Some of the more notable companies reporting earnings this week include Airbnb on Tuesday, DoorDash on Wednesday and Walmart on Thursday.
Investors will also receive more updates on inflation and its potential impact on spending. The Labor Department will release its January wholesale price report on Tuesday and the Commerce Department will release its January retail sales report on Wednesday.
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