Sliding oil prices fuel rally on Wall Street; Dow soars 600 points

“The resurgence in cases has provided a stark reminder that the pandemic is still lingering,” Russ Mould, investment director at AJ Bell, said Tuesday in comments emailed to The Washington Post. “Investors might have become too complacent over the risks of lockdowns returning once again.”

But the outlook was decidedly positive on Wall Street, where the Dow Jones industrial average closed up nearly 600 points, or 1.8 percent, to settle at 33,544.34. The broader S&P 500 index added more than 89 points, or 2.1 percent, to close at 4,262.45. The tech-heavy Nasdaq jumped more than 367 points, or 2.9 percent, to end at 12,948.62.

Wayne Wicker, chief investment officer at MissionSquare Retirement, said Tuesday’s rally probably reflects the impact of short-term trading, as investors take advantage of recent sell-offs.

“Despite today’s strong start, I believe that we will continue to have a number of factors weighing on the investors,” Wicker told The Post. “Until we gain some clarity on the geopolitical issues affecting Europe as well as the trends in inflation and interest rates, we will most likely have more volatility in global markets over the next few months.”

West Texas Intermediate, the U.S. oil benchmark, shed 7.7 percent to roughly $95 a barrel on Tuesday in response to the news out of China and hopes for a cease-fire in Ukraine. Brent crude, the international benchmark, declined 7.8 percent to trade around $98.50 per barrel.

The slide in oil prices did little to relieve the pressure for consumers at the pump. The U.S. average for a gallon of gas was $4.31 on Tuesday, near record highs and up more than 80 cents from a month ago, according to data from AAA.

Pavel Molchanov, an energy analyst with Raymond James, said a cease-fire between Russia and Ukraine would support an extended decline in oil prices. “Exaggerated fears” related to the war have driven spot prices up to $130 per barrel in recent sessions, Molchanov told The Post in an email, adding that futures are projecting prices will recede to about $85 in 12 months, “which is much more manageable vis-a-vis the global economy.”

Markets loathe uncertainty, but uncertainty has been inescapable in 2022 amid the ongoing pandemic, the Russian invasion of Ukraine, and surging inflation. Households and companies have been confronting price increases along every step of the supply chain and at the checkout counter.

The Ukraine crisis is weighing heavily on the markets because of Russia’s central role as a global energy producer. Russia produces about 10 percent of the world’s oil supply, on par with the United States and Saudi Arabia, and surging energy costs will ripple quickly through the economy, adding heat to already fiery inflation.

Cboe’s volatility index, known as “Wall Street’s fear gauge,” is up nearly 35 percent in the past three months, according to MarketWatch.

Gold, an investor safe haven, continued its downward slide as traders flocked to riskier assets, shedding more than 2.1 percent to trade around $1,919 per troy ounce. But the yield on the 10-year U.S. Treasury note, another safe haven, edged lower, to 2.126 percent. Bond yields move inversely to prices.

Investors are focused on the Federal Reserve’s meeting for signs of how far the central bank will go in raising its key interest rate, its primary weapon against inflation. The initial plan was for the Fed to moderately raise interest rates by 25 basis points at the conclusion of its policy meeting Wednesday — which would mark the first increase after two years of highly accommodative monetary policy during the pandemic. Investors are counting on as many as six more gradual interest rate hikes.

Ivan Feinseth, chief investment officer at Tigress Financial Partners, said that Russia’s war with Ukraine has “massively disrupted the U.S. and global economy” and is complicating “what would have been a positive monetary trend” to start raise rates against a backdrop of strong employment gains and consumer demand.

Now, Feinseth said Tuesday in comments emailed to The Post, the Fed must weigh the fallout from the war against “the potential for higher rates to further disrupt and not moderate an economic recovery.”