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US stocks surge on oil price slide as investors await Fed rate decision

Last updated: 16:10 15 Mar 2022 EDT, First published: 06:30 15 Mar 2022 EDT

Market Report -

4.10pm: S&P breaks 3-day losing streak

US stocks closed with strong gains Tuesday as oil prices declined amid the Russia-Ukraine war while investors await the Fed's decision on interest rates on Wednesday.

At the closing, the Dow Jones Industrial Average rose sharply by 1.8%, or almost 600 points, at 33,545, while the Nasdaq Composite gained 2.9% at 12,949, and the S&P 500 surged 2.1% at 4,263.

Major gainers were airlines and cruise lines during the Tuesday rally as oil prices reduced. The shares of American Airlines were up by 9.3%, while Delta gained 8.7%. Expedia (NASDAQ:EXPE) added 5.2%.

“Airlines have been a notable outperformer in the US on the back of the decline in oil prices, and thus lower fuel prices, while the removal of mask mandates and other restrictions in England has given a boost to transatlantic routes to London, with American Airlines, Delta and United all getting a decent lift,” commented Michael Hewson chief market analyst at CMC Markets UK. 

12.05pm: Dow Jones gains 300 points

US stocks extended their gains at midday as crude prices continued to decline despite the escalating war in Ukraine, while a Federal Reserve decision on a likely interest rate hike following the latest two-day policy meeting is expected on Wednesday.

By noon, the Dow Jones Industrial Average had climbed by 0.9% or over 300 points, at 33,250, while the tech-heavy Nasdaq Composite gained 1.7%, and the S&P 500 added 1.2%.

“While the Ukraine invasion remains the dominant driver of market sentiment, there will be some focus in the coming days on central banks as the Fed and BoE both prepare to raise interest rates,” commented Craig Erlam, senior market analyst, UK & EMEA, OANDA.

“For the Fed, it will be the first of the tightening cycle, with further increases expected at most meetings this year,” he added.

Oil prices declined again on Tuesday, taking total losses since the start of the week to more than 10%. 

“Of course, that's largely a reflection of just how far they rose since the invasion, with Brent now more than 25% from its highs just over a week ago,” Erlam said. “The talks between Ukraine and Russia aren't just lifting market sentiment, they're alleviating some of the worst fears around commodity supply disruptions.”

Among the stocks rallying Tuesday were tech giants including Microsoft, Netflix, and Alphabet, all gaining about 2%.

The Dow was lifted by gains in shares of McDonald’s, Disney, and Procter & Gamble (NYSE:PG), all up by 3%.

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10.00am: Stocks open higher

US stocks opened higher on Tuesday as oil prices retreated further below $100 a barrel having spiraled on the Russia-Ukraine conflict, easing the pressure on inflation as the latest Federal Reserve monetary policy meeting gets underway, with a rate decision expected on Wednesday.

The Dow Jones Industrial Average gained 0.5%, or 180 points, at 33,124, while the tech-laden Nasdaq Composite added 0.4%, and the S&P 500 was up by 0.4%.

“For the first time ever since 2018, Jerome Powell, the Fed Chairman, is expected to hike interest rates at the forthcoming meeting (Wednesday),” commented Naeem Aslam, chief market analyst at Avatrade. “The Fed Chairman has already voiced his opinion during his recent appearance where he made it clear to Congress that the committee is of the mind frame it will choose to raise the federal funds rate by 25 basis points.”

The Fed has been under pressure to increase interest rates due to the steady drumbeat of rising inflation numbers, Aslam noted.

“When an adverse supply shock hits the economy, central banks must make difficult decisions: doing too many risks pushing the economy into recession while doing too little risks unanchoring inflation expectations,” Aslam warned. “The worst is yet to come in terms of inflation news.” 

On the economic front, the headline producer price index (PPI) was up at 0.8% in February, below an estimate of 0.9%. The year-over-year PPI was up by 10%, the same as January and the biggest 12-month move in history.

Meanwhile, New York’s Manufacturing Activity reduced to -11.8 in March from 3.1 in February, well below expectations of a 5.5 reading.

“Investors are feeling a little relieved knowing the fact that PPI has gone down. But then we have the Empire State Manufacturing Index, which completely plunged,” said Aslam. “Traders know that the only data that matters the most is inflation, and given that there is a war in Ukraine that has disrupted the supply chain, inflation isn’t going to come down.” 

6.30am: US stocks seen opening down

US stocks are expected to open lower as investors face the double whammy of surging coronavirus (COVID-19) cases in China - leading to large-scale lockdowns - as the conflict in Ukraine enters its 20th day. 

The market is also awaiting the outcome of the Federal Reserve’s two-day monetary policy-setting meeting on Wedneday, which is likely to result in a 25 basis point hike in interest rates.  

Futures for the Dow Jones Industrial Average fell 0.3% in Tuesday pre-market trading, while those for the broader S&P 500 index shed 0.24% and the tech-heavy Nasdaq declined 0.11%.

US markets ended mixed on Monday ahead of the Fed’s decision and amid hopes of a de-escalation between Ukraine and Russia.

The Dow was flat at 32,945, while the S&P 500 lost 0.74% to 4,173 and the Nasdaq dropped 2.04% to 12,581.

“Markets were again unable to sustain gains as the cocktail of concerns was extended, with China being added to the list,” commented Richard Hunter, head of markets at interactive investor. “Surging COVID-19 cases in China saw one of Apple’s main iPhone assembly suppliers, Foxconn, shut two factories as part of the Shenzen shutdown. More broadly, the most recent spike in cases has led to concerns that there could be further supply chain disruptions and that China’s economic growth could flatline in the first quarter.”

Adding to investor woes was a reminder that the relationship between China and US remains fractious, following warnings around any Chinese support for the Russian effort, Hunter noted.

“These developments add to the current fragility of sentiment,” he said. “The imminent Federal Reserve rate decision is expected to result in a hike, and interest rate sensitive stocks such as those within the tech sector have felt the force of selling pressure in the run-up to the decision.

“Not only does this directly impact the tech-heavy Nasdaq index, but there is also a negative effect on the wider S&P500, which has a large exposure to tech. in the year to date, the Nasdaq has now fallen by 20% and the S&P500 by 12.5%."

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