US Initiates Airstrikes in Iraq; Stocks Shake Off Dour Week

in Market Commentary by

Market Digest – Week Ending 8/8

Major US stock indexes overlooked a gloomy news week and posted modest gains. International stocks were down, largely due to a strengthening dollar. In Iraq, advances by the militant Islamic group ISIS prompted limited US air strikes. It is unclear if additional US military activity will occur, but it appears the military has the green light for further operations to halt an advance on Kurdish territory or to protect refugees who have fled ISIS. Meanwhile, Russia massed troops on the Ukrainian border but also indicated it would prefer to de-escalate the crisis. In Israel, a temporary cease fire has ended and attacks from both sides resumed. In West Africa, an Ebola outbreak has spread to 1700 people and caused widespread fear. Gold and most bonds rose.

Weekly Returns:

S&P 500: 1,932 (+0.3%)
FTSE All-World ex-US: (-1.0%)
US 10 Year Treasury Yield: 2.42% (-0.08%)
Gold: $1,310 (+1.5%)
USD/EUR: $1.341 (-1.5%)

Major Events:   

  • Monday – Portugal’s central bank took control of Banco Espirito Santo, easing fears the bank’s troubles would infect other financial institutions.
  • Tuesday – Poland said the risk of Russia invading Ukraine has increased.
  • Wednesday – Sprint announced its bid to acquire T-Mobile US has collapsed.
  • Wednesday – 21st Century Fox withdrew its offer to acquire Time Warner.
  • Wednesday – Russia issued restrictions on food imports in retaliation to sanctions previously issued against Russia by the US and EU.
  • Wednesday – Bank of America and the Justice Department were reported close to agreeing to a $16 billion deal related to mortgage misconduct prior to the subprime crisis.
  • Thursday – ECB President Draghi said the conflict in Ukraine creates a risk to the economic recovery in the Eurozone.
  • Friday – Stocks rose on reports that Russia’s defense ministry ended exercises near the Ukrainian border.
  • Friday – US jet fighters dropped bombs on artillery used by the militant group ISIS in Iraq.

Our take:

It was a dour week. 15 minutes on Flipboard could be enough to cause depression. While some positive signs emerged Friday for de-escalation between Russia and Ukraine, there remains a reasonable chance Russia will invade. This alone is reminiscent of some very dark times. A short cease fire in Gaza came and went. In Iraq, a militant group is advancing, killing scores of innocents along the way. It appears to have control over the county’s largest dam. And in Africa, a deadly virus is spreading.

Yet the US stock market advanced. It is a good reminder that global capitalism is a very strong ship and it takes a lot to slow it down.

At Personal Capital, the most important thing we do for our clients is help them stay invested in an efficient portfolio designed specifically to achieve their cash flow goals. That means a well-diversified approach, usually with a majority in stocks. Why? Stocks have been and should continue to be the best asset class for generating wealth. But to own stocks for the long term one must conclude the world will continue on a positive path. Bear markets will come and go, but we assume no major nuclear war. We assume a virus will not wipe out huge portions of the population. We assume financial crisis like we had in 2008 will be resolved, property rights will persist and the will to build wealth and add value in legal ways will carry on. We assume a meteor will not wipe us out.

We could be wrong about any of these. But even if so, owning bonds or cash may not be much better. The right and ability to invest in publically traded companies in a liquid and fair manner is one of the best things about the world today. It allows normal people to grow their wealth and have a better retirement. It is relatively new in history, but hopefully it lasts a very, very long time.

We hope the current problems in Ukraine, Iraq, Gaza and Africa are resolved swiftly and peacefully. Any of these may cause increased market volatility. But we don’t think any of them should scare you out of stocks for the long term.

 

Photo Credit: Airman Magazine, creative commons

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Craig Birk, CFP®

Craig Birk, CFP®

Craig Birk is a member of the Personal Capital Advisors Investment Committee. He also serves as Vice President of Portfolio Management. Prior to Personal Capital Advisors, he was an integral leader within the portfolio management team at Fisher Investments. During Craig’s time there, the company increased assets under management from $1.5 billion under management to over $40 billion. His responsibilities included risk management, portfolio implementation oversight, and management of all securities and capital markets research analysts. Mr. Birk graduated from the University of California at San Diego and has earned the Certified Financial Planner® designation.
Craig Birk, CFP®

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One Response

  1. Barbara Friedberg

    Barbara Friedberg

    Craig, As a news and investing junkie, the global situation looks quite bleak. That said, as a former portfolio manager and decades long investor, I echo your sentiment and sincerely believe in a long term perspective. As long as global business continue to grow and prosper, in spite of the inevitable hiccups, staying investing in the markets has proven to be a superior strategy for wealth building.

    Reply

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