Who
said the U.S. stock markets couldn’t surprise us? Amidst rising tensions in the
Middle East stock markets have done the impossible – surfaced into positive
territory. U.S. jet fighters recently bombed militants in Iraq while the
conflict in Gaza resumed post a 72 hour cease fire. And yet U.S. stocks made a
turnaround from Wednesday when a posing threat of Russia invading Ukraine
loomed on every investor’s mind. So the question to be asked then is what is
happening? Why such positivity in the market that morning?
All
fingers are pointing to Russia. Ironically the nation that created unrest in
the market on Wednesday is the remedy that brought some stability the following
day. Traders said that easing tensions in the Russia and Ukraine conflict
eradicated some of the anxiety investors had earlier on in the week. According
to the Wall Street Journal, the
secretary of Russia’s Security Council Nikolai Patrushev told a local Russia
agency that: “Russia will continue to make all efforts for a very fast de-escalation
of tensions.” Apparently Mr. Patrushev’s words were very comforting for those
in the U.S. Easing tensions contributed to a stronger Dow Jones Industrial
Average, which was up about 80 points.
There
are those, of course, that neglect this view all together. Some believe and
often stress that many international geopolitical events are unlikely to be the
main contributing impact of major U.S. indexes. Lawrence Creatura, portfolio
manager at Federated Investors, said the following in a recent interview with
the Wall Street Journal. “In many
cases, these are horrible human tragedies, but they are not particularly major
economic events. Earnings next quarter likely won’t change based on this
morning’s events, and that’s what the stock market cares about.” It would seem
that the words of Mr. Creatura aren’t too far fetched. If we look at previous
market conditions we will see that the decade long depleting conditions in Iraq
have had few lasting effects on the market. Many would be dubious of the recent
airstrikes having a major impact as well.
It
can’t all be good news, however. The bond market is reflecting a more realistic
outcome. Benchmark government bond yields in the world’s most advanced
countries fell to fresh lows in 2014. According to data compiled by the Wall Street Journal, the yield of the 10
year U.S. Treasury note has dropped below 2.4% for the first time this year. It
also traded at its lowest level since the June 2013.
We
all know that the market is inclement to say the least. In global turbulent
times, it is fair to say that not everything impacts the mindset of investors
or the stock market, however there is still need for skepticism. After all we
are not mind readers. At best, we all have our estimations but no one can
guarantee an end to the Ukraine conflict or an overnight solution for Gaza.
Even if there are periods of stability, what we are generally seeing in the
past few days are moments of calamity. Even though stocks were on a cheery note
that day, we cannot be certain for tomorrow let alone next week.
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