STOCK MARKET STAYS STRONG
INVESTORS SHRUGGING OFF WORLD OF WORRY
If you look at how the stock market has behaved lately, it’s as if investors haven’t been watching the unsettling events unfolding on the news.
By any measure, so- called “headline risk,” largely in the form of anxiety- provoking news from around the globe, has been on the rise. There was the U. S. missile strike in Syria, the megabomb America dropped on ISIS in Afghanistan and President Trump’s war of words with North Korea.
The list of things to worry about grew longer Tuesday with twin surprises: British Prime Minister Theresa May’s call for a “snap” general election in June and U. S. financial giant Goldman Sachs’ first quarterly earnings disappointment since 2015. IBM added to the angst Wednesday with a weak earnings report.
And no list of global financial market fears would be complete without mentioning the uncertainty surrounding the outcome of the first round of French elections Sunday. That event could propel controversial candidates to the top of the polls and ratchet up the Wall Street worry meter even more.
But despite these fears, the stock market has held up relatively well, shrugging
off most of the shocks thrown its way. After a modest loss of 0.17% Wednesday, the broad Standard & Poor’s 500 is just 2.4% shy of its March 1 record close.
And while there’s no denying recent news has caused the stock rally to stall, the market’s stability during this turbulent time — at least so far — is sending a positive message.
“When a market is able to shrug off ostensibly bad news, it’s a sign of strength,” said Doug Ramsey, chief investment officer at The Leuthhold Group.
Stock investors, Ramsey said, are focusing on less gloomy things, like firstquarter earnings for U.S. companies, which are shaping up to be the best forprofit growth since 2011, according to Thomson Reuters I/B/ E/ S data. Investors, he added, are also focusing on what they see as the first broad, global economic upturn in many years. For now, it appears, the bet on better business conditions is winning out over fears about potential conflicts abroad and what might go wrong.
Not everyone on Wall Street, however, is as dismissive of the geopolitical storm clouds over markets. Peter Cardillo, chief market strategist at First Standard Financial, blames the market’s recent weakness and inability to make new highs on the global strife.
“The worsening political situation is mostly behind the decline,” he argued in a report, adding that he thinks the stock pullback could pull prices down 6% to 8%.
Politics at home also have investors on edge, as Wall Street awaits the Trump economic agenda, which has been delayed due to political discor. Signs of stress are evident. The price of gold, viewed as a haven in turbulent times, is trading around $ 1,280 an ounce, within striking distance of $ 1,300 for the first time since early November, when investors were unsure of the outcome of the presidential election and its potential market impact.
A closely watched Wall Street fear gauge, dubbed the VIX, has soared 40% in the past nine trading sessions to its highest level since Election Day.
So why aren’t stocks down even more, especially with the increasing hostility between North Korea and the U. S. and lots of lose talk about nuclear confrontation?
More often than not, similar geopolitical tensions in recent years have turned out to be “false alarms” in recent years, and investors seem to react as if “they’ll never materialize,” said Nick Sargen, chief economist at Fort Washington Investment Advisors.
David Kotok, chief investment officer at Cumberland Advisors, said he takes military confrontation and jawboning seriously, but adds that “betting on a war coming is mostly a losing bet.”
Still, a nervous Kotok admits he would raise cash quickly if a “shooting war was imminent.”
An up- and- down market volatility should be expected during periods of negative news flow, he added, especially when you get a surprise like the UK’s decision to call for nationwide election three years ahead of a vote previously scheduled for 2020.