U.S. stocks moved slightly lower on Wednesday after the Dow and S&P 500 extended their rally in the previous session as investors monitored developments in Ukraine and the bond market.
The S&P 500 fell 0.5%, and Nasdaq Composite lost 0.7%. The Dow Jones Industrial Averaged dipped 63 points, or 0.2%.
Russia said Tuesday it would reduce its military presence in some parts of Ukraine, but several countries — including the U.S. and U.K. — remain skeptical over Moscow’s pledge. Meanwhile, Russian attacks on Ukraine continued Wednesday.
Crude prices, which have soared since the war began, climbed more than 3% to $107.83 per barrel on Wednesday. Germany warned of potential rationing of natural gas due to disputes with Russia.
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 the higher oil prices could be a bearish signal for the overall market even while it boosts energy stocks.
“We’re already seeing signs of what I call a countercyclical inflation environment, sometimes called a cost-push inflation environment, where inflation gets so high that it starts putting pressure” on growth, Sonders said.
Elsewhere, shares of Apple, which have risen for 11 consecutive sessions, were down less than 1%. Shares of Procter & Gamble dipped 1.3% following a downgrade from JPMorgan.
Semiconductor stocks were a weak spot for the market, with Marvell falling 3% and Nvidia shedding more than 2%. Micron was flat despite a stronger-than-expected earnings report.
Wall Street is coming off a strong session, with the Dow and S&P 500 posting their fourth straight day of gains on Tuesday. The Nasdaq Composite climbed 1.8% in the previous session and now sits less than 10% from its record. The S&P 500 is up nearly 11% since mid-March.
However, many investment professionals are reluctant to call for the all-clear on a market rebound.
“Above 4,600 in the S&P 500, markets have now traded through most fundamental bounds of valuation, and for this rally to continue, we’ll need to see real, actual positive events (not just events that aren’t as bad as feared),” Tom Essaye of the Sevens Report said in a note to clients Wednesday.
Jeremy Siegel, finance professor at Wharton School of Business, said on CNBC’s “Squawk on the Street” that the market was valued at roughly 20-times forward earnings.
“I mean it’s not cheap, but very reasonable in a very low interest rate environment, even though they are hiking,” Siegel said.
Several retail stocks were under pressure on Wednesday after disappointing quarterly reports, including Five Below and Chewy. On the positive side, apparel stock Lululemon jumped 5% after issuing upbeat guidance and announcing a share buyback program.
Investors also kept an eye on the bond market as the U.S. 5-year and 30-year Treasury yields inverted Monday for the first time since 2016. Historically, this inversion has been a sign of a coming recession, though it hasn’t been a good indicator of when the recession would come. Still, investors largely shrugged off the event.
On Tuesday, the main yield spread traders watch, that between the 2-year and the 10-year rate, came close to inverting but stayed positive. On Wednesday, the spread held near 2 basis points.
“The big talk right now is that at any given point in time, recession can be on the horizon,” Stephanie Lang, chief investment officer at Homrich Berg, told CNBC. “Typically, you won’t see a recession for an average of 20 months once a yield curve inverts. Our antennas are up that recession risk is heightened; that doesn’t necessarily mean that there’ll be one this year, though next year is more of a concern for us.”
Wednesday was also a busy day of economic data. The ADP payrolls report said private firms added 455,000 jobs in March. Economists surveyed by Dow Jones were expected 450,000. The final reading for fourth quarter U.S. GDP showed 6.9% growth, below the preliminary reading of 7%.
Esther George, president of the Federal Reserve Bank of Kansas City, will speak to the Economic Club of New York.