[New York Stock Market] Stagflation Fear Causes Sharp Drop... Nasdaq Down 3.62%

[Image source=Yonhap News]

[Asia Economy New York=Special Correspondent Joselgina] International oil prices, which surged due to Russia's invasion of Ukraine, simultaneously slowed global growth and raised concerns that inflation would further increase, leading to a broad decline in major U.S. stock indices on the 7th (local time) in New York. Amidst a slump in growth and a sharp rise in inflation, the market froze in fear of 'stagflation,' and the price of gold, a representative safe-haven asset, briefly surpassed $2,000 per ounce during the session.

On Monday, the 7th (local time), the Dow Jones Industrial Average closed at 32,817.38, down 797.42 points (2.37%) from the previous day. The large-cap focused S&P 500 index fell 127.78 points (2.95%) to 4,201.09, and the tech-heavy Nasdaq index dropped 482.48 points (3.62%) to 12,830.96. The Dow entered a correction phase following the S&P 500 and Nasdaq indices. The Nasdaq is currently about 20% below its previous peak.

Investors are focusing on the potential economic ripple effects if Western energy sanctions against Russia are implemented amid the ongoing invasion of Ukraine. Jim Poulsen, Chief Investment Strategist at Royholt Group, said, "Stagflation is becoming central to portfolio strategy," adding, "It is fueling investors' fears as they prepare for slowing growth and persistent inflation."

By sector, energy stocks rose alongside international oil prices amid fears of sanctions on Russian crude. Baker Hughes closed up 4.70%, Chevron rose 2.14%, and ExxonMobil jumped over 3%.

Conversely, financial stocks slid amid growing concerns over economic slowdown due to ongoing Western sanctions on Russia, with Citigroup down 1.84% and US Bancorp falling 3.89%. Technology stocks also declined. Tesla dropped 3.84%, Nvidia fell 6.65%, and Apple (-2.25%), Microsoft (-3.59%), Meta Platforms (-6.28%), and Amazon.com (-5.33%) all closed lower.

Major consumer goods stocks such as McDonald's (-4.87%), Starbucks (-6.19%), and Nike (-5.14%) also plunged. This was due to heightened concerns over living costs, as the average gasoline price in the U.S. surpassed $4 per gallon. Travel-related stocks, including airlines and cruise lines, also weakened for similar reasons.

Additionally, retail company Bed Bath & Beyond's stock surged over 34% after news that Ryan Cohen, chairman of GameStop, holds about a 9.8% stake in Bed Bath. Inflation concerns pushed U.S. Treasury yields higher, with the 10-year Treasury yield reaching around 1.78%. The Chicago Board Options Exchange (CBOE) Volatility Index (VIX), known as Wall Street's 'fear gauge,' rose more than 13% to 36.

Cash Bostanich, Chief U.S. Economist at Oxford Economics, told CNBC, "The stock market is grappling with a massive commodity supply shock, including oil prices, reflecting fears that this is not just an inflation shock but could evolve into a stagflation shock." Michael Hewson, Chief Market Analyst at CMC Markets, assessed that rising oil prices are triggering fears of demand destruction and a global economic recession.

Currently, investors are focusing on the U.S. Consumer Price Index (CPI) for February, to be released on the 10th. This is a key inflation indicator published before the Federal Reserve's March Federal Open Market Committee (FOMC) meeting. Forecasts suggest it will record a higher rate of around 7.8% compared to the previous month.

The price of gold, a representative safe-haven asset, continued its upward trend. On the New York Mercantile Exchange, April delivery gold closed at $1,995.90 per ounce, up 1.5% ($29.30). During the session, gold prices peaked at $2,007.50 per ounce, briefly surpassing the $2,000 mark.

After surging past $130 per barrel the previous day, oil prices somewhat stabilized as Germany and others showed a lukewarm stance toward energy sanctions. However, with the U.S. considering an independent ban on Russian crude imports, upward pressure on oil prices is expected to continue.

On the same day at the New York Mercantile Exchange (NYMEX), April delivery West Texas Intermediate (WTI) crude oil closed at $119.40 per barrel, up 3.2% ($3.72) from the previous trading day. Alexander Novak, Russia's Deputy Prime Minister in charge of energy, said regarding Western energy sanctions, "The surge in oil prices will exceed expectations. Prices above $300 per barrel are possible."