March
came in like a ‘Bull’, will it leave a ‘Bear’?
Stocks shook off the winter gloom and
rallied for most of last week, ending February with another record high for the
S&P 500. For the week, the S&P 500 gained 1.3%, the Dow rose 1.4%, and
the Nasdaq grew 1.1%.[1]
The market rally faded later in the
week on news that Ukraine’s political instability may lead to a fight with
Russia. Russian troops moved into Crimea, an autonomous region within Ukraine, last
week and appear ready to take an active role in protecting Russian interests.
Ukraine plays an important part in global natural gas supplies, and traders are
jittery about possible disruptions if the saber rattling escalates into
outright war between the two nations.[2]
Markets around the globe sold off sharply on
Monday with tensions increasing between Russia and Ukraine (and the Western
World).
Fed chairman Janet Yellen
testified before the Senate Banking Committee this week (after winter weather
delayed her visit) and largely mirrored the remarks she made before the House.
She stated that the taper is likely to continue at a measured pace but
emphasized that the pace is dependent on progress in the labor market and
overall economy. She noted that recent softness in economic data might be
attributable to seasonal weather factors and that the Fed would watch carefully
to ensure that future data falls in line with long-term trends. She also
assured Senate members that interest rates are likely to remain low even after
the unemployment rate dips below 6.5%; Yellen made the important point that
6.5% doesn’t meet the Fed’s definition of full employment, but rather a
threshold for discussions about policy changes.[3]
Looking ahead, we’ve got some
important pieces of economic data being released this week. Investors will be interested
in the Employment Situation report for February, which will be released on
Friday. We’ll get a preview of the jobs numbers in the private sector ADP
report, which will be released on Wednesday.
Analysts will also be looking for more
news on the Ukraine situation. While it’s probable that any fighting would stay
local, neighboring countries Poland, Lithuania, and Latvia, former Soviet
territories, are members of NATO and will not welcome any Russian incursions
into the region. A showdown between Russia, the U.S., and Europe over strategic
interests could cause another selloff in emerging markets as investors think
hard about risks. The price of oil and natural gas could rise as markets react
to possible disruptions in supply.
While we’re hopeful that both sides will
take a step back and ratchet down their belligerent stances, we’re not sure how
it’s going to play out. However, keep in mind that U.S. investors have seen
these geopolitical flash fires before. While we can’t use the past to predict
the future, we can look to history for hints of what might come. Remember the
shipping showdown with Iran in 2012? How about when Russia and Ukraine faced
off in 2009 over a natural gas pipeline? The point is that while markets may
react nervously in the short term, these flare-ups generally don’t have
lingering effects on global markets. Instead of worrying too much, let’s take a
moment to count our blessings and think about the suffering of those caught up
in political upheaval and hope for a peaceful resolution.
ECONOMIC
CALENDAR:
Monday: Motor Vehicle Sales, Personal
Income and Outlays, PMI Manufacturing Index, ISM Mfg. Index, Construction
Spending
Wednesday: ADP Employment Report, ISM
Non-Mfg. Index, EIA Petroleum Status Report, Beige Book
Thursday: Jobless Claims, Productivity
and Costs, Factory Orders
Friday: Employment Situation, International
Trade
HEADLINES:
Q4 economic growth revised downward. Fourth quarter 2013 Gross Domestic
Product (GDP) numbers were revised down from 3.2% to 2.4% in the second
estimate. The revision came after several economic factors came in under
estimates.[4]
China’s factory output sinks. Activity in Chinese factories fell to
an 8-month low in February, reinforcing signs of a modest slowdown in the
economy due to falling demand. The results, part of an official government
survey, are in line with other third-party reports on Chinese manufacturing.[5]
New home sales surge. Sales of new homes skyrocketed in January, reaching the
highest levels since mid-2008. Sales jumped 9.6% after a sudden drop-off in
December. Contracts to buy previously owned homes also edged back up in January
after a stall at the end of 2013. Keep
in mind that monthly figures can be volatile this time of year and analysts
will want to see more data before feeling completely optimistic about the
housing market.[6]
Consumer confidence ticks up. An optimistic outlook by younger
Americans and a higher stock market pushed up the chief measure of U.S.
consumer sentiment in February. While the increase was small, analysts hope
that warmer weather will cause sentiment and spending to pick up in the spring.[7]
“Every champion was once a contender
that refused to give up.”
– Rocky Balboa
The Stock Trader’s almanac states…
March is the 3rd best
month for the market in the past 30 years, with 20 out of the last 30 years,
the month ending higher. The average for March is a 1.4% gain in the past 30
years
Did you know?
Mortgage rates are up a full percent
from last year? (Source: Page One Financial)
It’s the ‘Economy Stupid’…
• Judging by ISI's company surveys, the US economy is bouncing
back from the bad weather.
• Inflation is still generally MIA, eg, Unilever/P&G
"shampoo wars".
• DV central banks are still extremely accommodative: the Fed,
ECB, BoE, and BoJ. (Source ISI)
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