These are just opportunities, but fears about them weigh on the markets.
Stock and bond markets in turmoil
Yields on long-term bonds have fluctuated, suggesting that markets are not sure where the economy is heading.
If the Fed does raise rates, short-term interest rates will quickly exceed long-term levels, another bad omen for the economy. This matching of interest rates, known as yield curve inversion, often preceded recessions.
As Bloomberg reports show, the broad stock market has experienced one of its worst starts since 1900. The markets bounce up and down. But already this year, the S&P 500 has fallen more than 10 percent from its peak, a fall known on Wall Street as a correction, while the Nasdaq composite index has been more than 20 percent below its November peak, putting it in what Wall Street calls bear market territory.
Commodity rates paid off. The iShares S&P GSCI Commodity-Index Trust, an exchange-traded fund that tracks a diversified group of commodities, is up 51 percent this year. Energy stocks soared, but little else was good.
For long-term investors with balanced, diversified portfolios containing stocks and bonds, such declines occur periodically. They can be painful, but if history repeats itself, the stock market will bounce back and surpass its past highs.
If the actual closure of Russian financial markets and rising commodity prices lead to a sharper fall in the stock market or have other unexpected consequences, the Fed will be in a quandary. It is moving towards tighter monetary conditions, but it may have to back out and carry out another bailout, as it did in March 2020.
This is a risky moment, Liz Ann Saunders and Kevin Gordon of Charles Schwab said on Monday. It is possible that the war could end abruptly and energy prices could drop sharply, but “betting on this in the short term is a stupid idea.”