S&P 500 recovers from new monthly lows to 4350 area as investors await new US sanctions on Russia

• The S&P 500 has recovered back to trade flat near 4350 after hitting fresh monthly lows in the 4310s.
• Equity markets remain very much driven by geopolitical headlines, with US sanctions on Russia expected to be announced soon.
• The index is trading just under 10% below January’s record highs, meaning it isn’t on course to confirm a “correction”.

It was a choppy start to the session, with the S&P 500 index falling as much as 0.7% in the immediate aftermath of the open to hit fresh monthly lows just above 4310, though having since recovered back to trading flat in the 4350 area. At current levels, the index is trading just under 10% below the record highs it printed at the start of the year – a close of more than 10% below a recent peak would confirm that US equities have undergone a “correction”.

Investors remain nervous ahead of the official announcement of US sanctions against Russia sometime later in the day. The US and its NATO allies are hitting Russia with new sanctions after it recognised the independence of two breakaway regions of Eastern Ukraine and move troops into the area on a “peacekeeping” mission. Market commentators have noted how markets are set to remain very much driven by Russia/Ukraine headlines, making for difficult, unpredictable trading conditions. Investors are worried recent escalation from the Russians raises the risk of a broader Russia/Ukraine conflict, thus raising the risk that the West imposes larger sanctions on Russia that could have an inflationary impact on the global economy.

In the background, traders are also mulling Fed tightening, after Fed policymaker Michelle Bowman on Monday said she had not yet decided whether the Fed should hike interest rates by 25 or 50bps in March. The latest round of US data releases, which saw S&P/Case-Shiller Home Price inflation exceed YoY expectations in December, a stronger rebound than expected in both the Services and Manufacturing sectors according to the preliminary February Markit PMI surveys and slightly better than forecast flash February Consumer Confidence figures have not impacted US equity market sentiment. That speaks to the fact that US data has been and will likely continue to play second fiddle to the themes of geopolitics. Traders may take more notice of Friday’s January Core PCE inflation report if it affects Fed tightening expectations in anyway.

Looking at the other major US indices, the Nasdaq 100 index has recovered back to the north of the 14K level after briefly dipping below 13.9K and now trades 0.3% higher on the day. Bears will be eyeing a test of annual lows in the 13.7K area should the index lose grip of 14K level once more. The Dow, meanwhile, has lost its grip on the 34K level and trades about 0.4% lower on the day. The S&P 500 CBOE Volatility Index, or VIX, has fallen back under 29.00 after briefly testing February highs in the 32.00 area earlier in the session.