The start to 2014 has been the tale of two very different months. After late January’s sell-off, stocks bottomed in early February when emerging markets stabilized. Now, U.S. and European stocks are back to their December levels. That’s because the equity market’s “down” January was followed by a solidly “up” February with the S&P 500 breaking out to another new all-time high at the end of last week, despite some late-week profit-taking in many of the highest-flying stocks. Perhaps some traders were simply taking profits in their highest-risk names as geopolitical tensions rose in Ukraine.
Stocks got a mid-week lift from Senate testimony by new Fed Chairwoman Janet Yellen. Much like in her earlier testimony before the House of Representatives, Yellen provided a sense of accommodative continuity that markets seemed to really like again, especially given the uncertainty surrounding much of the recent economic data.
For the week, the S&P 500 added 1.26%, the Dow gained 1.36%, and the MSCI EAFE (developed international) was up 0.67%.
Here are the 3 stories this week that rose above the noise:
Forget Sanctions, What Could Really Hurt Putin Is Investor Backlash
Global equity markets have rebounded from Monday’s selloff as Russia has backed off escalating military involvement in the Ukraine. A Bloomberg article points out that as the world has become more inter-connected, the threat of investor capital flight has become a powerful geopolitical weapon.
Investors punished Russia yesterday by causing an 11% drop in Moscow’s Micex stock index. Investor selling also caused the Russian currency, the ruble, to sink to a record low against the U.S. dollar which, in turn, caused Russia’s central bank to hike interest rates from 5.5% to 7% in an effort to defend the ruble. A declining stock market and higher interest rates cause further risks to the Russian economy. Russia can’t afford to let this go on, as even before the Ukraine crisis, it was hemorrhaging investment capital.
Corporate Insider Bearishness at Pre-2008 Crash Levels
Mark Hulbert, writing for MarketWatch, examines the current state of corporate insider sentiment based on analysis of the latest available trading data. Based on the analysis described in the article, corporate insiders are now more bearish than at any point since 2011.
However, while the overall tone of the article is bearish, in our view it is not too surprising that insiders are selling shares given the market gains experienced over the past year. We view the bearish insider sentiment discussed in the article as a potential indication that profit growth may be more challenging to attain in the near-term than analysts expect, but it is only one cautious data point to consider.
Manufacturing Growth Speeds Up in U.S., Slows Globally
U.S. manufacturing expanded at a faster rate than expected in February to help offset some of the recent weakness caused by abnormally cold weather conditions and grew at an accelerated pace for the first time in three months.
Additionally, the closely watched ISM New Orders Index, a strong leading indicator of economic activity, also expanded at a faster pace in February. U.S. manufacturing activity diverged from Europe and Asia last month, where growth eased in both regions from falling international demand. China’s manufacturing data was disappointing and experienced its weakest growth in eight months.
Articles chosen and summarized by the First Allied Asset Management, Inc. investment management team.
