US Considers Ban on Russian Oil: What Does That Mean for the Stock Market?
The Dow Jones Industrial Average opened low on March 7 and continued to fall, losing 1.25% by mid-morning. The S&P 500 and Nasdaq composite lost 1.6% and 1.8%, respectively, in a troubling trend for stocks, CNN Business reported.
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Meanwhile, oil prices continue to climb, with Brent crude, one of three main benchmarks for crude oil prices, gaining 18% to sell for just under $140 a barrel on the morning of March 7. The U.S. and its European allies are considering banning Russian oil exports in response to the Russian invasion of Ukraine, a ban which would affect roughly 5 million barrels of oil per day, Bloomberg reported.
U.S. Secretary of State Antony Blinken told CNN on March 6 that the U.S. is working with European allies to determine if a ban on Russian oil imports is feasible. A group of bipartisan lawmakers, which includes Democratic Senator Joe Manchin, are backing a bill to ban Russian oil imports — with or without the support of the European Union. Europe relies on Russian for 41% of its gas supply, according to CNBC, which makes it more difficult for the continent to cut ties.
Yeap Jun Rong, market strategist for IG Group, wrote in a note reported by CNN: “In the event of any implementation [of the ban], the move will further exacerbate the supply-demand imbalance in an already tight oil market.”
The U.S. stock market felt the crunch, with March 7 sell-offs leading to a fourth straight week of dips. Investors fear that rising oil prices will slow the U.S. economy while further exacerbating inflation.
“Preparing for slower growth and more persistent inflation is driving investor fears and actions,” Jim Paulsen, chief investment strategist for the Leuthold Group, told CNBC. He used the term “stagflation,” which is a combination of slowed economic growth combined with high inflation. Typically, inflation occurs hand-in-hand with economic growth and low unemployment. Stagflation could bring new challenges for an economy and supply chain already grappling with the effects of the global pandemic.
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“The longer oil prices and inflation remain elevated — and thereby threaten an early demise of this economic expansion and bull market — the more investors will trim their exposure to equities,” Sam Stovall, chief investment strategist at CFRA, wrote in a note excerpted by Bloomberg.
