Stocks are flat as investors monitor recession odds, higher oil prices

Stocks were mostly flat on Tuesday as traders continue to assess the odds of a recession and the latest developments in Ukraine that is keeping oil over $100 a barrel.

The S&P 500 was about flat, taking a breather after two gains in a row. Nasdaq Composite shed 0.4%, pulling back after a 1.9% gain in the prior session. The Dow Jones Industrial Average traded about 100 points higher, or 0.3%, helped by gains in Merck and Chevron.

A so-called inverted yield curve, a phenomenon where short-term rates exceed long term rates, has raised concerns about a recession recently. Deutsche Bank on Tuesday became the first major Wall Street bank to forecast a U.S. recession is ahead, citing surging inflation and aggressive Federal Reserve rate hikes.

“The US economy is expected to take a major hit from the extra Fed tightening by late next year and early 2024,” the bank’s economists said in a note to clients Tuesday. “We see two negative quarters of growth and a more than 1.5% pt rise in the US unemployment rate, developments that clearly qualify as a recession, albeit a moderate one.”

The key part of the yield curve — the 2-year and 10-year spread — was flat on Tuesday after first inverting last week. These inversions have historically preceded recessions.

Shares that would hold up well in a slowing economy were higher on Tuesday. Drugmakers Johnson & Johnson and Pfizer were higher by more than 1.5%. Staples like Procter & Gamble and Walmart were also higher.

Tech shares were lower, led by chip shares, consolidating their big gains from Monday. Still, Twitter shares tacked on another 6% to their 27% Monday gain as Elon Musk said he will join the company’s board of directors a day after revealing a 9.2% stake in the social media giant.

Stocks could be on hold as investors await the release of Federal Reserve meeting minutes on Wednesday. Those minutes were for the meeting last month where the central bank hiked rates for the first time in years and indicated six more hikes were ahead this year.

And investors continue to keep an eye on Europe, as the war between Ukraine and Russia continues. Ukraine President Volodymyr Zelenskyy pledged to pursue allegations of war crimes against Russian forces, noting that more than 300 people were killed and tortured in a suburb near the capital of Kyiv. (Click here for the latest.)

“Markets have been resilient given the war in Ukraine, continued price pressures, and uncertain global economic outlook, with investors’ ‘buy the dip’ mentality driving equity returns,” said Mark Hackett, Nationwide’s chief of investment research.

Oil prices continued their climb on Tuesday, with West Texas Intermediate rising 0.7% at $104.03 per barrel and Brent crude gaining 0.5% to $108.09. The market has been volatile since the onset of the war amid concerns over supply disruptions.

The Nasdaq Composite rise 1.9% on Monday, led by shares of Twitter. The blue-chip Dow rose about 100 points to begin the trading week, while the S&P 500 advanced 0.8%, both posting their second straight day of gains.

The new quarter has kicked off after the major averages finished their worst quarter in two years. Investors are preparing for the first-quarter corporate earnings season, which is set to begin next week.