Stock futures stop falling, but recession risks remain (NYSEARCA:SPY)

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Fears of an economic slowdown sent stocks tumbling on Monday, triggering a sharp selloff on Wall Street as commodities like oil, wheat and nickel propelled higher. The S&P 500 3% dip for its worst day since October 2020, while the Dow Jones Industrial Average lose 800 points to join the S&P in correction territory for the first time in two years. The Nasdaq even ended the session in bearish territory, casting a dark shadow in March after all three indices fell in each of the previous two months.

Analyst Comment: “Not every recession has been caused by an oil price spike, but every oil spike has caused a recession. This is likely to be a long-term affair and will have a lasting impact on commodity prices,” said Brian O’Reilly, director of market strategy at Mediolanum International Funds. “Maybe the scary thing is that in 1990 [during the Gulf War], the fed funds rate was at 8% and eventually embarked on an easing cycle. Today, the Fed is at the beginning of an upward cycle. It seems increasingly likely that a recession is inevitable,” added Ryan Grabinski, strategist at Strategas Securities.

That’s a big deal, as the Federal Reserve is already stuck between a rock and a hard place when it comes to monetary policy. Soaring commodities and runaway inflation mean the central bank will have to step up its tightening, even if it risks tipping the economy into a recession. On the other hand, adopting a more accommodative state and allowing inflation to climb higher would likely lead to the same result.

Outlook: Stock futures slowed their descent on Tuesday, squeezing the fixed line in pre-market trade as the Kremlin said it would halt military operations “in a moment” if Kyiv met a list of conditions. Among them are the cessation of military action, the modification of its constitution to enshrine neutrality (eliminating the possibility of membership in NATO and the EU), the recognition of the separatist republics of Donetsk and Lugansk and the recognition of Crimea as Russian territory. It is the most specific statement yet from Moscow about the conditions it wants to impose on Ukraine, although a likely rejection by the Kiev government could cause further market turbulence.

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