What impact will Egypt have on the Markets? Ken Mahoney
U.S. stocks’ winning streak ended Friday amid news of political strife in Egypt. The Dow closed down 1.39%, the S&P 500 declined 1.79%, and the Nasdaq fell 2.48% -- the biggest single day losses in nearly six months. This pullback left many investors asking what political strife in Egypt has to do with the U.S. stock market. You may be wondering the same thing. So what is the answer?
While many factors are involved, the primary issue is that the stock market hates uncertainty. It’s an old adage, but one that is often true. On a fundamental level, the stock market is based on people’s speculation about what is going to happen in the future. Uncertainty about the future leads many to sell and/or sit on the sideline because they aren’t comfortable investing their money until they feel like they know what is ahead. For the time being, the situation in Egypt is anything but certain.
Uncertainty, combined with Egypt’s position along one of the busiest trade routes in the world, had a combined affect on the markets last week. The price of oil rose with fears about the stability of maritime operations on the Suez Canal. As a major trade route, any interruption or closure has the potential to create a spike in oil and energy prices. As a result, analysts predict a measure of volatility until calm is restored. As we saw on Friday, when volatility increases, a flight to safety often drives uneasy investors into so-called “safe havens”.
The affect of Egyptian politics on U.S. stock markets serves as a reminder that we are part of an intricate international economy. The ups and downs of the markets are rarely predictable, and a measure of risk is to be expected. Historically, stocks have outperformed all other investments, but in the short-term, fluctuations are inevitable. At times like this, rest assured that we will continue to monitor the situation abroad and bring you relevant information as soon as it becomes available.
ECONOMIC CALENDAR:
Monday – Personal Income and Outlays, Chicago PMI Tuesday – Motor Vehicle Sales, Redbook, ISM Mfg Index, Construction Spending
Wednesday – ADP Employment Report, EIA Petroleum Status Report
Thursday – ECB Announcement, Jobless Claims, Productivity and Costs, Factory Orders, ISM Non-Mfg Index Friday – Employment Situation
HEADLINES:
The United Nations reported that international food prices rose by an all-time high of 25% in December. The rising costs for staples like rice, wheat, and maize have been affected by bad weather in Australia and Russia, rising incomes in China and India, and a push for biofuels. The sharp inflation in food costs has sparked political unrest throughout the Middle East, including Egypt and Tunisia.
The GDP figures for the last quarter showed that consumer spending was up a strong 4.4% on an annualized basis, and final sales surged 7.1%, its largest jump in nearly 30 years. Trade was a big contributor to the economic gains, with exports surging 8.5% and imports declining 13.6%. Inventories grew by $121 billion in the third quarter, but only rose by $7 billion in the final three months of the year.
Comcast Corp., took control of NBC Universal shortly before midnight on Friday. The deal comes after the government shackled Comcast’s behavior in the coming years to protect online video services such as Netflix and Hulu. The takeover gave Comcast 51% control of NBC Universal, which owns the nation's fourth-ranked broadcaster, NBC, the Universal Pictures movie studio and related theme parks, and a bevy of cable channels including Bravo, E! and USA.
Chinese authorities have blocked the word "Egypt" from searches on Twitter-like microblogging sites in an indication of concern among Communist Party leaders that the unrest there could encourage similar calls for political reform in China.
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