By Devik Jain

(Reuters) -U.S. stock index futures dropped on Monday as investors assessed the fallout from a new set of sanctions imposed by the Western countries on Russia over its invasion of Ukraine.

World stocks slid, oil prices jumped and Russia’s rouble tanked to record lows after the Western allies blocked Russian banks off the SWIFT financial network and limited Moscow’s ability to deploy its $630 billion foreign reserves. [GLOB/MKTS]

Worsening geopolitical crisis has added to investor concerns over soaring inflation and the Federal Reserve’s plans to tackle it, with all the major indexes tracking their second straight month of losses.

“The market is telling me that it is not ready to work its way higher just yet. There’s still an awful lot of uncertainty out there from a military perspective as well as from a Federal Reserve perspective,” said Sam Stovall, chief investment strategist of CFRA Research in New York.

“Investors are willing to stick with stocks, but more so from a defensive perspective.”

Wall Street’s main indexes ended sharply higher on Friday, led by gains in defensive consumer staple and healthcare stocks, which investors tend to seek during times of economic uncertainty.

Defense stocks L3Harris Technologies, Raytheon Technologies, Lockheed Martin Corp, General Dynamics Corp and Northrop Grumman jumped between 3.6% and 5.0% in premarket trading following news that Germany would increase its military spending.

Weapons makers outperformed the S&P 500 index last week, with a 3.4% gain for the S&P 500 Aerospace & Defense sub-index, compared with a 0.8% rise in the benchmark index.

Energy stocks edged higher, while Citigroup and Meta Platforms slipped 2.6% and 1.2%, respectively, to lead losses among big banks and mega-cap growth companies.

At 08:03 a.m. ET, Dow e-minis were down 377 points, or 1.11%, S&P 500 e-minis were down 53.75 points, or 1.23%, and Nasdaq 100 e-minis were down 160.5 points, or 1.13%.

The S&P 500 and the Nasdaq are on track for their steepest two-month fall since the pandemic-led crash in March 2020.

Traders now see a 12.5% probability of a 50 basis point rate hike by the Fed at March meeting and an 87.5% chance of 25 basis point rate hike. Fed Chair Jerome Powell will testify before U.S. lawmakers later this week. [IRPR]

The CBOE volatility index, also known as Wall Street’s fear gauge, was last trading at 32.01, its highest level since Feb. 24.

First Horizon Corp surged 32.2% after TD Bank Group offered to acquire the U.S. bank in an all-cash deal valued at $13.4 billion.

(Reporting by Devik Jain and Medha Singh in Bengaluru; Editing by Anil D’Silva)