Daily Capital

Ukraine Deteriorates, S&P Surpasses 2000 Anyway

Market Digest – Week Ending 8/29

Markets were calm heading into Labor Day Weekend. Stocks rose modestly, with the S&P 500 Index exceeding the 2,000 level for the first time. Generally positive economic news helped offset rising tensions in Ukraine. Ukraine said Russia has “invaded”, while the US and most of Europe struggled how to define Russian intervention. Russia itself denied playing any significant role. No matter how you describe it, a peaceful solution which leaves Ukrainian borders intact seems increasingly unlikely. Bond prices continued to rise, with the 30 year Treasury yield falling to 3%.

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Weekly Returns:

S&P 500: 2,003 (+0.8%)
FTSE All-World ex-US: (+0.6%)
US 10 Year Treasury Yield: 2.34% (-0.06%)
Gold: $1,287 (+0.5%)
USD/EUR: $1.314 (-0.8%)

Major Events:   

  • Tuesday – The S&P 500 index closed above 2000 for the first time.
  • Tuesday – Amazon announced it will pay $970 million for Twitch, a website which hosts videos of people playing video games.
  • Tuesday – The Case-Shiller 20 city home price index rose 8.1% from a year ago, below most expectations.
  • Wednesday – The projected US Budget Deficit for the 12 months ending September 30th is $506 billion, roughly 2.9% of GDP.
  • Thursday – Ukrainian officials said Russia invaded and seized a coastal town. Russia denied their troops were in Ukraine.
  • Thursday – Abercrombie & Fitch announced it will remove its logo from most items amid a shift in teen preference away from displaying brand names.
  • Thursday – Q2 US GDP growth was revised up to 4.2%.
  • Friday – Consumer prices in the Eurozone grew just 0.3% in August, pressuring the ECB to step up stimulus measures.
  • Friday – US private spending declined 0.1% in July from a month earlier, while income rose 0.2%.

Our take:

The US stock market has seemingly decided it doesn’t care about Ukraine. The week began with hope for progress during a scheduled meeting between Russian President Putin and Ukrainian President Poroshenko. But after an initial handshake, the meeting failed to get off the ground and by Thursday Ukraine stated that Russia had invaded. Stocks rose anyway.

If Russia grabs a part of Ukraine, which looks increasingly likely, it will have a big impact on the global power structure and potentially send relations between Russia and the West back to Cold War status. There is nothing good about that possibility. But stocks did just fine in the Cold War, and there is no reason that couldn’t happen again. A Russian invasion of Eastern Ukraine would cause a knee-jerk reaction, but markets (especially US) seem to indicate it would be minor. Europe is somewhat more vulnerable because its own economy is on weaker footing. It trades more with Russia and is more reliant on Russian energy.

The situation with ISIS in Syria and Iraq is very concerning. The world is certainly a dangerous place, but this has been true for a very long time. Over longer periods, the perceived stability of freedom and capitalism greatly impact stock returns. But in the next one or five years, prices will probably be driven by earnings and how the aftermath of massive central bank stimulus plays out.

The content contained in this blog post is intended for general informational purposes only and is not meant to constitute legal, tax, accounting or investment advice. You should consult a qualified legal or tax professional regarding your specific situation. Keep in mind that investing involves risk. The value of your investment will fluctuate over time and you may gain or lose money.

Any reference to the advisory services refers to Personal Capital Advisors Corporation, a subsidiary of Personal Capital. Personal Capital Advisors Corporation is an investment adviser registered with the Securities and Exchange Commission (SEC). Registration does not imply a certain level of skill or training nor does it imply endorsement by the SEC.

Craig Birk, CFP®
Craig Birk leads the Personal Capital Advisors Investment Committee and serves as Chief Investment Officer. His focus is translating improvements in technology into better financial lives. Craig has been widely quoted in the Wall Street Journal, Bloomberg, CNN Money, the Washington Post and elsewhere. Prior to Personal Capital Advisors, he was a leader within the portfolio management team at Fisher Investments, helping assets under management grow from $1.5 billion to over $40 billion. Craig graduated from the University of California at San Diego and has earned the Certified Financial Planner® designation.

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