The
world seems to be in calamity. With depleting conditions in the Middle East and
the recent crash of flight MH17, there are only two questions remaining on the
general public’s mind. The first is, has faith in humanity been lost? And the
second, and the far more worrying for us on Bay Street, is how all this affects
business?
Unfortunately,
not well. The Standard & Poor 500 Index fell the most in three months
causing the Volatility Index to leap more than it has in a year. Reports out of
New York state that the S&P 500 fell 1.2% to 1,958.12 at 4pm last night.
The gauge has remained stagnant. It hadn’t risen 1% on a closing basis for 62
days. This is the longest streak since the mid 90’s. The Dow Jones Industrial
Average was also seen slipping 161.39 points (0.9%) to 16,976.81. The Chicago
Board Option Exchange Volatility experienced a downfall of 32% to 14.54. This
is the biggest surge experienced by the Volatility Exchange since April 2013. “People
are selling out of fear,” Todd
Lowenstein, a fund manager responsible for managing $16 billion at Highmark
Capital Management Inc. in LA, said in a phone interview. “The market is really
acute to geopolitical risk. Given where valuations are and the move lately amid
all the M&A activity, when you have some geopolitical shocks, people will
look for a reason to sell.”
Moreover,
equities have experienced extended losses in the final hour of trading
following rising tensions between Israel and the Gaza Stip. In Europe,
today’s crisis revolving around the Ukraine and Malaysian Airline
flight MH17 has hurt Russian-American relations after President
Obama announced a set of new economic sanctions against Russia.
New sanctions imposed by the U.S. onto Russian banks and energy
companies has led stocks to fall. The plane has reportly crashed in the
battleground of Ukraine’s civil war region. Russian President
Vladimir Putin has repeatedly denied his country has any involvement in the
insurgency. The U.S. said this week that Russia is supplying the rebels
with weapons.
On
a brighter note, more than 24 companies on the S&P 500 (SPX) report earnings
later on today. Some include Google Inc. and Schlumberger Ltd. Given that the
Dow is at a record and the S&P 500 is close to the all-time high reached
this month, financial professionals are growing increasingly anxious and
rightfully so. It has recently been reported by Bloomberg News that 47% of
investors, analysts and traders have claimed that the equity market is close to
unsustainable levels. About 14% claim to be seeing a bubble forming. All of the
10 main industries in the S&P 500 fell today. Energy and industrial shares
dropped at least 1.5%, which accounts for the largest declines. Airlines
were seen as taking the biggest hits. Delta Air Lines Inc., American Airlines
Group Inc., and United Continental Holdings have all retreated more than 3.4%.
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