New economic & political concerns are putting stocks to the test.
In Ukraine, the situation is fluid. As the trading week ended, much was unresolved about the nation's future. The parliament of its autonomous Crimea region had announced a March 16 referendum, which gave voters two options: rejoin Russia, or break away from Ukraine and form a new nation.3
Ukraine's government calls the referendum unconstitutional. The United States and key EU members agree and claim it violates international law. Russia welcomes the vote - 60% of the Crimean Peninsula's population is made up of ethnic Russians, and Russian troops more or less control the region now.3
Russia wants the real estate (its Black Sea naval fleet is based on the Crimean Peninsula) and could spread its economic influence further with the annexation of that region. The cost: economic sanctions, probably harsh ones. Should diplomacy fail to stop the secession vote, then Russia can expect "a very serious series of steps Monday in Europe and [the United States]," according to Secretary of State John Kerry.3
So far, the moves have been largely symbolic: a suspension of the 2014 G8 summit and the talks on Russia's entry into the OECD, and asset freezes for individuals and companies deemed to be hurting democracy in Ukraine.Additional "serious" steps could include financial sanctions for Russian banks, an embargo on arms exports to Russia, and the EU opting to get more of its energy supplies from other nations.Russia could respond in kind, of course, with similar asset freezesand possible pressure on eurozone companies doing business in Ukraine. The fact that Russia has already staged war games near Ukraine adds another layer of anxiety for global markets.4
Investors see China's growth clearly slowing. Its exports were down 18.1% year-over-year in February. Analysts polled by Reuters projected China's industrial output rising 9.5% across January and February, but the gain was actually just 8.6%. The Reuters consensus for a yearly retail sales gain of 13.5% for China was also way off; the advance measured in February was 11.8%. These disappointments bothered Wall Street greatly on Thursday. The news also roiled the metals market - copper fell 1.3% on March 13, its third down day of the week. Besides being the world's top copper user, China also employs the base metal as collateral for bank loans.1,5,6
As Chinese Premier Li Keqiang noted on March 13, the nation's 2014 growth target is 7.5%; the respected (and very bearish) economist Marc Faber told CNBC he suspects China's growth is more like 4%. The upside, Faber commented, is that "4 percent growth in a world that has no growth is actually very good."6
Will the bull market pass the test? It has passed many so far, and it is just several days away from becoming the fifth-longest bull in history (outlasting the 1982-7 advance). Bears wonder how long it can keep going, referencing a P-E ratio of 17 for the S&P 500 right now (rivaling where it was in 2008 before the downturn), and the 1.9% consensus estimate of U.S. Q1 earnings growth in Bloomberg's latest survey of Wall Street analysts (down from a 6.6% forecast when 2014 began).1
Then again, the weather is getting warmer and the new data stateside is encouraging: February saw the first rise in U.S. retail sales in three months, and jobless claims touched a 4-month low last week. Maybe Wall Street (and the world) can keep these signs of the U.S. economic rebound in mind as stocks deal with momentary headwinds.1
Citations.
1 - bloomberg.com/news/2014-03-12/nikkei-futures-fall-before-china-data-while-oil-rebounds.html [3/12/14]
2 - ajc.com/feed/business/stock-market-today-dow-jones-industrial-average/fYjPS/ [3/3/14]
3 - cnn.com/2014/03/13/politics/crimea-referendum-explainer/ [3/13/14]
4 - uk.reuters.com/article/2014/03/13/uk-ukraine-crisis-factbox-idUKBREA2C19L20140313 [3/13/14]
5 - cnbc.com/id/101492226 [3/13/14]
6 - cnbc.com/id/101489500 [3/13/14]
Sincerely,
William T. Morrissey and Tammy Prouty
Sound Financial Planning Inc.
wtmorrissey@soundfinancialplanning.net
Primary Office
425 Commercial Street, Suite 203
Mount Vernon, WA 98273
Phone: (360) 336-6527
Secondary Office
650 Mullis St., Suite 101
Friday Harbor, WA 98250
(360) 378-3022
PLEASE READ THIS WARNING: All e-mail sent to or from this address will be received or otherwise recorded by the Sound Financial Planning, Inc. corporate e-mail system and is subject to archival, monitoring and/or review, by and/or disclosure to, someone other than the recipient. This message is intended only for the use of the person(s) ("intended recipient") to whom it is addressed. It may contain information that is privileged and confidential. If you are not the intended recipient, please contact the sender as soon as possible and delete the message without reading it or making a copy. Any dissemination, distribution, copying, or other use of this message or any of its content by any person other than the intended recipient is strictly prohibited. Sound Financial Planning, Inc. has taken precautions to screen this message for viruses, but we cannot guarantee that it is virus free nor are we responsible for any damage that may be caused by this message. Sound Financial Planning, Inc. only transacts business in states where it is properly registered or notice filed, or excluded or exempted from registration requirements. Follow-up and individualized responses that involve either the effecting or attempting to effect transactions in securities or the rendering of personalized investment advice for compensation, as the case may be, will not be made absent compliance with state investment adviser and investment adviser representative registration requirements, or an applicable exemption or exclusion. This information should not be construed as investment advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. WE WOULD LIKE TO CREDIT THIS ARTICLE'S CONTENT TO PETER MONTOYA.
