Dow slides 2 percent amid sanctions, escalation in Ukraine

After staging a fragile comeback to start the week, the Dow Jones skidded more than 700 points by early afternoon. The broader S&P 500 index slid 1.7 percent, while the tech-heavy Nasdaq edged 1.5 percent lower. All three indexes are down 8 percent or more year to date.

Cboe’s volatility index, known as Wall Street’s “fear gauge,” was up nearly 14 percent on Tuesday, signaling that March will likely see a continuation of the wild swings that have dominated 2022 trading so far.

European indexes also closed in negative territory, with Russia-exposed indexes suffering steep losses: Germany’s DAX and France’s CAC40 both closed down nearly 4 percent, while the benchmark Stoxx 600 index gave up about 2.4 percent.

Although markets normally look past geopolitical tensions, Russia’s mounting aggression toward Ukraine and the avalanche of financial consequences Russia is now facing have been in key focus for investors. Stocks have been moving in lockstep with headlines due to Russia’s role as a major global oil producer: disruptions to energy markets and other commodities will exacerbate inflation that is already at a four decade high.

Lauren Goodwin, an economist at New York Life Investments, said that stocks could recover if evidence emerges that points to a “contained conflict and lighter sanctions”, but warned that they will face more volatility in “moments of escalation.” In comments emailed Tuesday to The Post, Goodwin called the invasion “one of the most meaningful geopolitical events in decades.”

“It is also taking place alongside a global transition from a two-year pandemic, and in a time of unprecedented monetary policy unwind,” Goodwin noted. “Both of these realities are clear drivers of the economy and markets ahead.”

Paradoxically, the inflationary fears have also driven some feeble rallies as investors hope that “current global events will cause the Fed to pull back on its recent hawkish shift, driving increasing cash flows back into stocks,” Ivan Feinseth, chief investment officer at Tigress Financial Partners, said Tuesday in comments emailed to The Post.

Oil prices exploded past multiyear highs Tuesday as investors anticipated disruptions to energy markets, which could quickly ripple through the global economy. Brent crude, the international oil benchmark, gained about 9.3 percent to trade around $107 per barrel. West Texas Intermediate, the U.S. oil benchmark, rose 10.9 percent, to trade around $106 per barrel.

On Tuesday, the International Energy Agency announced the coordinated release of 60 million barrels of oil reserves in an effort to relieve some pressure.

The tensions sent investors flocking toward safer assets. Gold, a Russian export and safe haven in times of turmoil, climbed 1.77 percent to trade around $1934.40 per troy ounce. Government bonds, another safe haven, saw major activity, with the yield on the 10-year U.S. Treasury note careening as low as 1.702. Bond yields move inversely to prices.

On Monday, the U.S. government and its European allies introduced sweeping penalties that banned all people in the U.S. and the European Union from trading with Russia’s central bank. The sanctions also apply to Russia’s Finance Ministry and its sovereign wealth fund. In recent days, officials had also moved to bar several major Russian banks from SWIFT (a global monetary transfer service), crack down on Russian oligarchs and prevent Russia’s central bank from bailing out the domestic economy.

Meanwhile, Russia’s struggling economy came under further pressure from corporate action, with shipping giant Maersk freezing bookings of cargo in and out of the country and Visa and Mastercard blocking its financial institutions. Russians can now only access the ailing ruble, which Russia’s central bank tried to prop up by raising its key interest rate to 20 percent. ATMs were flooded as Russians tried to access funds amid the plunge.

So far, government sanctions have not targeted Russia’s energy sector in a meangingful way. Although Ukraine has requested that the European Union impose an embargo on Russian oil and gas imports, that is unlikely to happen, according to Pavel Molchanov, an energy analyst with Raymond James.

Giants such as Shell, BP and General Motors have announced plans to suspend or end their dealings with Russia in wake of the sanctions. These divestment gestures are largely symbolic, “simply changing shareholder A to shareholder B,” Molchanov told The Post in an email. But when a major bank or insurance company refuses to provide actual services, that has a “tangible effect” on the business of Russian energy companies being targeted, he said.

“In essence, this is the private sector equivalent of sanctions,” Molchanov said. “Just as foreign central banks will no longer cooperate with Russia’s central bank, it would be a big deal for major international commercial banks to stop working with Gazprom, Rosneft, or Lukoil.”

Britain added to a long list of economic punishments it had already adopted by banning Russian-owned ships from docking in U.K. ports, and even Switzerland suspended its centuries-old policy of neutrality and isolation to say it would join the E.U. in closing its airspace to Russian flights and imposing sanctions on Russian President Vladimir Putin and other officials.

Russian markets were closed for the second straight day Tuesday as Russia tried to keep money from flooding out of its economy, which was already showing signs of severe distress before the new measures were implemented. Last week, as the incursion into Ukraine unfolded, Moscow’s MOEX index endured one of the steepest equity crashes in its stock market history.

Putin has promised a tough response to sanctions, which he called “illegitimate.” Putin put Russia’s nuclear force on higher alert, a move quickly condemned by the U.S. and NATO. U.S. businesses have been warned to prepare for possible cyberattacks, and President Biden has acknowledged the crisis could lead to higher gasoline prices but said that limiting pain Americans feel at the pump is “critical.”

The national average cost for a gallon of gas in the U.S. was $3.61 on Tuesday according to AAA, up about 25 cents from a month ago.

Consumer-facing costs are already piling up in the wake of Russia’s move Monday to ban air carriers from 36 countries, including European nations and Canada, from its massive, highly trafficked airspace after the European Union took similar action against Russian airlines. This will force major airlines to take longer, more circuitous routes to Asia and the Middle East, likely increasing the cost of ticket prices and jet fuel for travelers.