Weekly Update: August 25, 2014

Feeling Good After Jackson Hole

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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Bulls Having Fun in the Sun

Weekly Update: July 7, 2014

Those who are constructive on the stock market -- myself being one of them -- were treated to a solid employment report last Thursday, which inevitably set the stage for the benchmark S&P 500 index to challenge the psychological level of 2,000 in the near future. The pre-holiday rally put all four of the major averages (Dow, S&P, Nasdaq and Russell 2000) in technical overbought territory, whereby the chartist's playbook would call for some consolidation before a run to S&P 2,000 is warranted.

The euphoria U.S. markets experienced had a minor positive effect on foreign markets Friday, but failed to spill over into overnight trading. Here, too, most global markets have rallied smartly during the latter half of June and deserve a rest. Today's lack of mega merger news also left pre-market participants groping for a fresh catalyst to keep the party going, hence it only makes logical sense to see some back-and-filling take hold.

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Mid-Year High-Yield Gut Check

Weekly Update: June 30, 2014

Today officially marks the halfway point for the 2014 calendar year -- and it is also a symbolic point by which every professional fund manager makes game-changing decisions about how to position assets for the next quarter and for the second half of the year. I've noted before that I expected the market to reward prudent stock-picking this year, but for many fund managers, these efforts have not gone well.

According to research by Morningstar concerning actively managed mutual funds that invest in large U.S. companies, so far in 2014, more than 74% of these funds are trailing the S&P 500. That's up from 50% last year, and is in fact more than in any full year since 2011, as well as the second-worst performance since 2004. This situation is a big source of frustration for many stock pickers who have been unable to surpass market benchmarks for years but were hopeful that things would turn around in 2014.

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