Weekly Update: September 15, 2014

Big Week Ahead for Market Bulls

A quick view of the economic, IPO and Fed calendars provides a clear take on how well the bullish case will be able to build on itself following a three-week period of consolidation for the major averages. The scales are tipped in favor of being long the U.S. markets as the third quarter comes to a close and earnings season approaches against a somewhat cautious tone.

For what is historically a quiet time of the year, much has transpired during the past month, from volatile geopolitical situations to a major rally in the dollar to levels not seen since July 2013. The soaring greenback is drawing capital flows from around the globe into U.S. equities and debt assets, which is providing a solid bid under both markets.

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U.S. Markets Tapped as Global Safe Zone

Weekly Update: September 2, 2014

The month of August saw the S&P 500 climb 3.8%, defying its historical laggard behavior, primarily as a world awash in cash allocated capital to U.S. bond and equity assets as the de facto recipient for financial yield and growth. Strength in the U.S. dollar also acted like a magnet, drawing huge interest in the wake of geopolitical risk and uncertainty that hasn't shown any signs of abating.

The dollar index (DXY) hit a fresh 52-week high of 83.0 last Friday as the yield on the 10-year Treasury traded down to 2.33% before seeing some giveback this morning, which sent the yield back up to 2.41%. Typically against a backdrop like this, including the Russian invasion into Ukraine and the widespread violence in the Middle East, crude and gold prices would be soaring. However, quite the opposite is occurring: Crude is trading below $95 per barrel, and gold is trading below $1,270 per ounce. But, then again, the market landscape has been anything but normal.

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Feeling Good After Jackson Hole

Weekly Update: August 25, 2014

A double-barreled dose of dovish commentary by Fed Chair Janet Yellen and ECB President Mario Draghi has got stock bulls trying for new high ground today. Both central bankers assured markets that low interest rates would persist until the U.S. macro employment picture broadens out further and the war on deflation in Europe is won on all fronts. That's taken as supportive rhetoric by markets looking for additional catalysts to add to already sharp gains of the past two weeks.

The threat of inflation, or lack thereof, is also contributing to the bullish sentiment. Crude oil is hovering in the low $93 per barrel level, providing consumers a decent measure of savings at the pump and on paying utility bills. The decline in oil prices comes as Mid-East tensions and violence remain unchecked as Russian tanks moved into Ukraine early this morning.

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Late-Summer Volatility Alive and Well

Weekly Update: August 18, 2014

Leading up to last week, markets were trying to find support after getting aggressively sold off amid a stream of negative headlines surrounding several potentially highly disruptive scenarios engulfing Ukraine, Iraq and the slowing of the European recovery that will only be exacerbated by Russian sanctions. Soft retail sales in the U.S. during the month of July also contributed to the sharp pullback for the major averages.

That said, there appears to be a de-escalation of geopolitical risk and the notion of further European Central Bank stimulus to support the European economy, and coming up is what is expected to be a highly dovish speech by Janet Yellen at a conference in Jackson Hole, Wyoming this week. Together, these two factors have the market putting together a sharp rebound during the past week.

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External Events a Drag on Bullish Tone

Weekly Update: July 28, 2014

Increasing tensions in Ukraine, Gaza, Iraq, Iran, Syria and Afghanistan are making for stiff headwinds against improving economic macro data for global markets. It's hard to get through the evening news without being reminded of all the strife -- and yet the string of high-profile mergers continues unabated, while emerging markets have come back to life, scoring strong gains last week.

At the same time that negative geopolitical events are captivating the networks, second-quarter earnings season is coming in at or better-than-expected for three of every four companies that have reported. This week, 140 S&P companies will post their numbers, which will shed further light on the broader health of the U.S. economy. The market rallied well leading up to earnings season, so it's not surprising to see some selling on the news after the S&P touched 1,985 and today is testing 1,970.

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Geopolitical Headwinds Trip Up Rally

Weekly Update: July 21, 2014

One can look to the market's resilience of late and only be impressed with the strength of how each and every dip in stock prices is being snapped up by investors eager to add to equity holdings. In a normal world, the phenomenal wave of mergers and better-than-expected high-profile earnings that are crossing the tape would have the S&P 500 trading up through the 2,000 level like a hot knife through butter.

In light of the events in Ukraine and Israel/Gaza, both of which are worsening by the day, the fact that the major averages are trading higher shows that, despite the ugly nature of these highly fluid scenarios, neither situation will seriously affect the global economy. With more than 700 companies set to report earnings in the next two weeks and the likelihood of more merger activity also prevalent, any downside move in equities will, in my view, be well-contained.

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