Fed Poised to Divert Stocks From Round Trip to Nowhere

For all their daily volatility, U.S. stocks have been on a bumpy round trip to nowhere since Russia’s bloody invasion of Ukraine began three weeks ago. The S&P 500 Index, Dow Jones Industrial Average and Nasdaq Composite Index have all been basically flat in the period. That suggests either (a) the market thinks it discounted the invasion correctly before it happened, including the rapid rise and fall of oil prices or (b) the market is simply confused by everything that’s transpired and isn’t ready to pick a direction.

I’m betting on the latter, and I think that’s about to change.

As my colleague John Authers wrote this week, the U.S. economy is in ambiguous economic territory when it comes to the war. It’s 5,000 miles from the conflict zone, isn’t particularly dependent on Russian energy and went into 2022 with a rather rosy outlook for growth and corporate earnings. Although it’s certainly vulnerable to a recessionary energy-price shock, oil futures markets seem to have guessed right, at least for now, that the most extreme prices would not persist.