The growing diplomatic crisis over the Ukraine rattled US markets this week, producing the steepest declines in a week since January.
All three indices fell, with the biggest loss at the Dow Jones Industrial Average, which sank 387.05 (2.35 percent) to 16,065.67, while the broad-based S&P 500 lost 36.91 (1.96 percent) to close on 1,841.13 and the tech-rich NASDAQ Composite Index gave up 90.82 (2.09 percent) to end the week on 4,245.40.
Wall Street saw a flood of headlines about Ukraine that spelled a mushrooming crisis, including aggressive moves by the Russian military, a rise in violence at protests and inconclusive talks between US Secretary of State John Kerry and Russian Minister of Foreign Affairs Sergei Lavrov ahead of a referendum today on whether the Ukraine’s Crimea should join Russia.
“Investors fear the unknown,” BMO Private Bank chief investment officer Jack Ablin said. “Investors not only don’t know what’s going to happen, but investors don’t know what the implications of what could happen are.”
Washington and its European allies are preparing sanctions against Moscow over Ukraine, which could begin with visa bans on senior Russian officials.
“Sanctions against Moscow have already been more or less priced in the market,” Peter Cardillo of Rockwell Global Capital said. “But the greatest fear is an escalation of an economic war between Russia and the West. Sanctions are a first thing. Then, of course, who knows what can happen afterward?”
The week’s biggest piece of US economic data was a surprisingly solid report on US retail sales for last month, which rose 0.3 percent, bucking a trend of largely weak data attributed in part to frigid weather that depressed economic activity.
Markets reacted to a series of poor datapoints out of China, including a reading that Chinese industrial output rose 8.6 percent in the period from January to last month, the lowest in five years.
“Each time US investors worry about China, it results in lower stock prices,” BTIG chief global strategist Dan Greenhaus said.
The biggest corporate story of the week involved General Motors Co (GM), which faces a plethora of questions over its recall of 1.62 million vehicles in North America.
GM disclosed that it knew of the problem with the ignition switches tied to the recall as early as 2001, three years earlier than was previously thought.
Advocacy group the US Center for Auto Safety has released a study that linked 303 deaths to the airbags failing to properly deploy in recently recalled vehicles.
GM stock slid 9.6 percent this week as congressional committees opened probes into the recall. The US Department of Justice is also reportedly investigating the issue.
Also facing investigation is nutritional products marketer Herbalife International, which took a hit on Wall Street after disclosing that the US Federal Trade Commission has undertaken a probe of the company. The investigation follows months of charges by activist investor William Ackman that Herbalife is a pyramid scheme.
Herbalife shares sank 10.3 percent for the week.
In merger news, Chiquita Brands International Inc and Ireland’s Fyffes PLC announced that they would unite to form the world’s biggest banana company, a venture that will have a combined value of US$1.07 billion. Also, Men’s Wearhouse Inc and Jos. A. Bank Clothiers inc finally agreed to tie the knot after a lengthy and often contentious courtship.
Next week’s calendar includes a handful of corporate earnings reports, including Oracle Corp, FedEx Corp and Dow member Nike Inc.
It will also be a heavier week of economic releases, with major reports on housing starts and industrial production, as well as a two-day meeting of US Federal Reserve policymakers.
While these items will get attention, investors will be most focused on Ukraine, Ablin said, adding: “Investors generally have very short attention spans and they’re going to focus on the shiny object [in front of them].”
“This week, the shiny object is geopolitical developments and I think that’s where they’ll be focused next week,” he added.