By Geoffrey Smith
Investing.com --- U.S. stock markets opened lower on Monday as drastic new sanctions enacted by the West on Russia over the weekend drew a furious response and further threats of escalation from the Kremlin.
By 9:40 AM ET (1440 GMT), the Dow Jones Industrial Average was down 392 points, or 1.2%, at 33,667 points. The S&P 500 was down 1.2% and the NASDAQ Composite was down 1.0%.
Earlier Monday, the U.S. Treasury said it would impose sanctions on the Russian Central Bank - a measure which, in conjunction with others taken over the weekend in Europe - will freeze over half of Russia's foreign reserves and severely limit its foreign trade. The Russian ruble fell over 20% against the dollar in response. President Vladimir Putin responded over the weekend by placing his strategic nuclear forces on high alert, while Russia's invading forces intensified their attacks on Ukraine's cities, striking residential areas with long-range missiles.
Aviation stocks were among the worst hit: AerCap (NYSE:AER) stock fell 12.4% after it said it would halt leasing to Russia, a market that accounts for 5% of its revenue.
The escalation supported defense and energy stocks, with Lockheed Martin (NYSE:LMT) stock rising 4.6% and Raytheon (NYSE:RTX) stock rising 1.5%. With oil prices surging again due to fears that supplies out of Russia - the world's second-largest exporter - will be disrupted, Exxon Mobil (NYSE:XOM) stock fell 0.8%, outperforming the broader market but still depressed by fears about its own exposure to Russia, where it operates the massive Sakhalin-1 oil field.
Exxon's rival Chevron (NYSE:CVX) fared better, supported by news of a $3.15 billion acquisition of Renewable Energy Group (NASDAQ:REGI), whose stock rose 38%. By contrast, BP ADRs (NYSE:BP) fell 6.9% after it said it would exit its near-20% stake in Russian oil giant Rosneft immediately. The holding has generated a large part of BP's cash flow for the last seven years.
There was also M&A news in the financial sector, where Toronto Dominion (TSX:TD) said it will buy First Horizon National (NYSE:FHN) for $13.4 billion, a 37% premium to Friday's close. The deal will make TD, which already has a sizeable presence in the U.S. through its Ameritrade unit, into the country's sixth-biggest lender, according to some estimates.
Financials were nonetheless hit by concerns about their exposure - direct and indirect - to Russia, and by the renewed fall in bond yields that will depress their lending margins. Citigroup (NYSE:C) stock lost 4.2%, while JPMorgan (NYSE:JPM) stock fell 3.3% and Bank of America (NYSE:BAC) stock fell 3.2%.
Despite the shock to financial markets out of eastern Europe, analysts still said U.S. equities were well supported by fundamentals.
Fidelity analyst Naveen Malwal argued that the U.S. is likely not to get directly involved in the conflict, and that its economy "is still in a mid-cycle expansion" despite the headwind from higher energy prices. Malwal pointed to "strong consumer spending, a tight job market, and rising corporate profits."