US stocks drop as Vladimir Putin recognizes Ukraine rebel regions

Representative image (Source: Reuters)

Representative image (Source: Reuters)

U.S. stock index futures tumbled on Monday after Russian President Vladimir Putin recognized two breakaway regions in eastern Ukraine, increasing concerns about a major war.

Putin described Ukraine as an integral part of Russia’s history, with eastern Ukraine made up of ancient Russian lands, and he was confident the Russian people would support his decision. Putin ordered the Russian army to launch what Moscow called a peacekeeping operation in the area.

In response, the White House said U.S. President Joe Biden would soon issue an executive order prohibiting economic activity between the two regions of Ukraine and U.S. individuals. Britain also vowed to impose sanctions.

“This infighting has been going on since 2014 and Russia has been supporting them without necessarily recognizing them as republics, today he formalized it so that now ramps it up again,” said Ken Polcari, managing partner at Kace Capital Advisors in Boca Raton, Florida.

“The markets are going to react and if Russia pushes to invade then all the threats that have been made, like the sanctions, go into effect.”

S&P 500 e-mini futures slid 1.81%. Dow Jones industrial average e-mini futures fell 1.37% and Nasdaq 100 e-mini futures dropped 2.65%.

U.S. stock markets were closed on Monday for the Presidents Day holiday.

Oil prices rose as the Ukraine news exacerbated existing supply concerns that have pushed prices near $ 100 a barrel. The S&P energy sector has been by far the best performer in 2022, up nearly 22%, and one of only two S&P sectors that are positive on the year.

U.S. equity markets have been under pressure in recent weeks as rising inflation has put the Federal Reserve on a path to tightening its monetary policy, likely to begin at its March meeting, while simmering tensions in Ukraine have grown.

Later in the week, personal consumption expenditures data will be released and is likely to cement expectations the central bank will begin raising interest rates next month.

The benchmark S&P 500 dropped for a second straight week on Friday, and is down 9.3% from its Jan. 3 record closing high, just shy of correction territory, commonly viewed as a drop of 10% from a high.