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The Russia-Ukraine conflict will 'test' U.S. consumers on multiple fronts, experts say

The travel and transportation industries are likely to be hit the hardest as a result of the volatility in oil prices.

The market extended its five-day tumble Thursday as Wall Street grappled with the images of Russian soldiers marching into Ukraine with black smoke rising from the skylines of its cities.

The Chicago Board Options Exchange’s CBOE Volatility Index, the market’s so-called fear gauge, jumped by more than 4.5 percent as jittery investors tried to game out the ripple effects of the invasion. 

As President Joe Biden addressed the nation, the Dow Jones was down roughly 500 points, a 1.5 percent drop. The broad-based S&P 500 was down roughly 20 points or about 0.5 percent. The Nasdaq moved in the opposite direction, climbing 124 points.

The markets broadly rebounded at the close of the trading day with the Dow Jones Industrial Average, the S&P 500 and the Nasdaq all settling in positive territory.

“Nobody knows for sure how all-encompassing this is going to be,” said Sam Stovall, the chief investment strategist at CFRA Research.

The Nasdaq was the outlier among the three major indices, recovering from a morning plunge that dropped the tech-heavy index into bear market territory, off 20 percent from its November high, before a bounce that brought it roughly flat.

Full coverage: See the latest NBC News coverage of the Russia's invasion of Ukraine

Analysts said this suggests traders were assuming the combination of economic volatility and an energy price shock could be enough to persuade Federal Reserve officials to be less aggressive with interest rate hikes, since lower borrowing costs have a more significant impact on fast-growing companies that rely on debt to expand. 

In trying to balance rising inflation and more expensive energy, the central bank has little margin for error, Ross Mayfield, an investment strategy analyst at Baird, said. “If this is an event that could really hinder economic growth, they actually may be less aggressive in tightening,” he said. “This probably could not have happened at a worse time for the Federal Reserve.”

Bond yields — which move inversely to stock prices — sank and metals prices jumped as investors sought safe havens. Oil, which already was elevated, rose further, with the benchmark Brent price jumping over $100 a barrel. Mayfield said that energy companies would be among the few sectors benefiting from the upheaval so long as both prices and demand for oil and gas remained high. 

While negative sentiment weighed across most other sectors, analysts said those that tend to incur high energy costs, such as travel and transportation, are likely to be hit the hardest as a result of the jump in oil prices. Consumer discretionary brands are also exposed, since the fairly quick pass-through of oil prices to gasoline could crimp consumer spending as Americans pay more to fill up their vehicles

“Higher energy prices impact consumer discretionary spending. The consumer is pretty strong, but at some point, that begins to be tested,” Mayfield said.

Market observers said that while a whipsawing Wall Street could spook small investors into selling, doing so would be a mistake.

“Historically, this type of thing in terms of market sell-offs and recoveries is fairly brief,” said Dan North, a senior economist at Euler Hermes North America. Since World War II, he said, the average sell-off cycle has lasted about 15 days, with a roughly similar time frame for recovery. “It’s going to feel bad … but it won’t last that long,” he predicted.

Stovall concurred, saying that investors should focus on long-term goals like saving for retirement without responding to short-term volatility. “Historically, military surprises have thrown the market for a tailspin in the short term, but have proven themselves to be more frequent reasons to buy than bail,” he said. “Don’t allow your emotions to become your portfolio’s worst enemy.”