US stocks were slightly lower on Wednesday after the Dow and S&P 500 extended their rally in the previous session, as investors watched developments in Ukraine and the bond market.
The S&P 500 fell 0.6% and Nasdaq Composite lost 0.7%. The Dow Jones Industrial Average fell 130 points, or 0.4%.
Russia said on Tuesday it would reduce its military presence in some parts of Ukraine, but several countries – including the US and UK – remain skeptical of Moscow’s promise. Meanwhile, Russian attacks on Ukraine continued on Wednesday.
The price of crude oil, which has risen since the start of the war, rose more than 2% on Wednesday to $106.90 a barrel. Germany warned of possible natural gas rationing due to disputes with Russia, and US crude oil inventories fell.
Oil stocks moved higher, with Valero rising more than 4% and Phillips 66 gaining about 3%.
Liz Ann Sonders, chief investment strategist at Charles Schwab, said higher oil prices could be a bearish signal for the general market, even if it boosts energy stocks.
“We’re already seeing signs of what I call a countercyclical inflation environment, also called a cost-push inflation environment, where inflation gets so high that it’s starting to put pressure on growth,” Sonders said.
Elsewhere, Apple shares, which have risen for 11 consecutive sessions, fell less than 1%. Shares of Procter & Gamble fell 1.3% after a downgrade from JPMorgan.
Semiconductor stocks were a weak spot for the market, with Marvell falling 3% and Nvidia losing more than 2%. Micron remained flat despite a stronger-than-expected earnings report.
Wall Street is coming out of a strong session, with the Dow and S&P 500 posting their fourth consecutive day of gains on Tuesday. The Nasdaq Composite climbed 1.8% in the previous session and is now less than 10% off its record. The S&P 500 is up nearly 11% since mid-March.
However, many investment professionals are reluctant to advocate for the market’s full recovery.
“More than 4,600 in the S&P 500 have now traded through the most fundamental valuation limits, and for this rally to continue we need to see real, actual positive events (not just events that aren’t as bad as feared),” said Tom Essaye of the Sevens Report in a note to customers on Wednesday.
Jeremy Siegel, a professor of finance at the Wharton School of Business, said on Slice Mag’s “Squawk on the Street” that the market was valued at about 20 times future earnings, which is not far from historic levels.
“I mean, it’s not cheap, but very reasonable in an environment with very low interest rates, even if they’re walking,” Siegel said.
Several retail stocks came under pressure on Wednesday after disappointing quarterly reports, including Five Below and Chewy. On a positive note, apparel stock Lululemon rose 5% after issuing optimistic guidelines and announcing a share buyback program.
Investors also watched the bond market as yields on US 5- and 30-year Treasuries reversed Monday for the first time since 2016. Historically, this inversion was a sign of a coming recession, although it is not a good indication of when the recession would come. Still, investors largely shrugged their shoulders at the event.
On Tuesday, major traders watched the yield spread, which moved close to inversion between the 2-year and 10-year yields, but remained positive. On Wednesday, the spread held close to 2 basis points.
“The most important point right now is that a recession could be on the horizon at any time,” Stephanie Lang, Chief Investment Officer at Homrich Berg, told Slice Mag. “Normally you won’t see a recession on average for 20 months if a yield curve inverts. Our antennas are up that recession risk is greater; that doesn’t necessarily mean there will be one this year, although next year is more of a concern for us.”