Wall Street Sharp Decline, Fear of Stagflation

On Wall Street, stock prices sharply fell on Monday, with the Nasdaq index diving into ‘bear’ territory, as the strong rise in oil prices and other commodities fueled fears of further inflationary pressures.

The Dow Jones dropped 797 points or 2.37 percent, to 32,817 points, while the S&P 500 plummeted 2.95 percent, to 4,201 points, and the Nasdaq index fell 3.62 percent, to 12,830 points.

In doing so, the Nasdaq index plunged into ‘bear’ territory, dropping more than 20 percent below its previous record level, while the Dow Jones slipped into correction territory, more than 10 percent below its record level.

The S&P 500 ended at its lowest level since June of last year.

This is a consequence of the strong rise in oil prices as the U.S. and European partners consider a ban on imports of Russian oil as additional sanctions against Russia for its invasion of Ukraine.

The price of a barrel on the London market jumped 4.3 percent yesterday, to $123, after rising more than 20 percent a week earlier. At one point yesterday, it even reached $139, the highest level since 2008.

Not only oil prices are rising, but also other commodities, which recorded the largest jump at the beginning of the year since 1915.

And as wheat and corn prices are also rising, it is clear that inflationary pressures will further strengthen, raising fears of stagflation, or economic stagnation alongside high inflation.

"The rise in oil prices supports concerns about strengthening inflation and possible stagflation. Higher energy prices could hit economic growth as consumers, among other things, will have to pay higher prices at gas stations," says Mona Mahajan, a strategist at Edward Jones.

On Thursday, inflation data for the U.S. in February will be released, and analysts estimate it will reach 7.9 percent year-on-year, a new 40-year high.

Later this month, a regular meeting of the leaders of the U.S. central bank will be held to decide on interest rate increases. Investors hope for a milder increase in the cost of money, by 0.25 percentage points, but given the rise in inflation, the Fed will sooner or later have to raise interest rates more aggressively.

European stock prices also fell yesterday. The London FTSE index weakened by 0.40 percent, to 6,959 points, while the Frankfurt DAX fell by 1.98 percent, to 12,834 points, and the Paris CAC by 1.31 percent, to 5,982 points.