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Global Concerns Weigh on Markets - March 17, 2014

March 17, 2014

Equities experienced a rocky week as worries mounted about China's economic state and tensions escalated in Ukraine. While investors were not panicking, the pessimistic mood contributed to the Nasdaq posting its first drop in six weeks. For the week, the S&P 500 lost 2.0%, the Dow lost 2.4%, and the Nasdaq lost 2.1%.[1]

Tensions in Ukraine ratcheted up last week as Western leaders, including U.S. Secretary of State John Kerry and German Chancellor Angela Merkel warned Russia against annexing Crimea. Despite the threat of sanctions, Russia launched military exercises near its border with Ukraine and has moved thousands of troops into Crimea and neighboring areas.

The crisis in Ukraine matters to an international audience because a diplomatic and military showdown between Russia and the West could have long-term consequences in Europe. Europeans fear a return to Soviet-era invasions of Eastern Europe as Putin's interventionist foreign policy dreams become clear.[2] Any sanctions against Russia could be very costly for Europe (less so for the U.S.). Europe relies on Russia for approximately 30% of its natural gas; Russia is also its largest trading partner, a relationship that is worth nearly $461 billion in imports and exports every year.[3] Investors worry that a deterioration of the relationship between Russia and the rest of the world could affect the business environment.

Concerns about China also weighed on markets. A February report showed that exports fell 18.1% from the previous year; this is problematic because exports are a major driver of the Chinese economy.[4] Worries about the Chinese economy were intensified by weaker-than-expected retail and industrial data, which showed that China might be slowing down.[5] The recent first-ever debt default by a Chinese company also created new reservations about the health of China's financial system.[6] Investors fear that slowing economic activity in China may spread around the globe and cut into corporate profits.

One way to term investor reactions to these global concerns is a "flight to quality," where investors are fleeing emerging market securities in search of quality investments in the developed world. Realistically, it's unlikely that these concerns will go away quickly, meaning we can expect additional uncertainty and market volatility.

On a more positive note, new unemployment claims unexpectedly fell to a three-month low last week, raising hopes that the winter doldrums may be past. Even better, the four-week moving average, a less volatile measure, fell to the lowest level since early December.[7] Analysts will be looking closely at next week's unemployment claims for hints about the monthly job numbers.

The Fed will take center stage this week as the Federal Open Market Committee (FOMC) meets to determine its next monetary moves. There is little doubt on Wall Street that the Fed will stay the course on tapering and announce another $10 billion cut to its quantitative easing programs, bringing monthly bond purchases down to $65 billion. Analysts will be watching especially close as this will be new Fed chair Janet Yellen's first turn in the hot seat.[8]


Monday: Empire State Mfg. Survey, Treasury International Capital, Industrial Production, Housing Market Index
Tuesday: Consumer Price Index, Housing Starts
Wednesday: EIA Petroleum Status Report, FOMC Meeting Announcement, Fed Chair Press Conference
Thursday: Jobless Claims, Philadelphia Fed Survey, Existing Home Sales

Notes: All index returns exclude reinvested dividends, and the 5-year and 10-year returns are annualized. Sources: Yahoo! Finance and International performance is represented by the MSCI EAFE Index. Corporate bond performance is represented by the DJCBP. Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly.


Consumer sentsssiment slips. A measure of consumer confidence fell in early March. However, most of the slip was attributed to cold weather, which gives analysts hope that confidence will improve once the weather warms.[9]

Record drop in bond holdings points to Russia. A surprising decline in foreign holdings of U.S. Treasuries has led some experts to speculate that Russia is cutting its dollar reserves ahead of potential sanctions from the West. Foreign central banks sold $104.5 billion in Treasuries last week - more than three times the previous record amount.[10]

Retail sales rise slightly in February. Higher than expected retail sales show that Americans shopped more in February. Data shows that retail receipts rose 0.3% in February, ending two straight months of declines.[11]

Business inventories climb in January. U.S. business inventories rose at the beginning of the year as businesses restocked after the holiday shopping season. However, a drop in sales means that inventories are piling up in warehouses, forcing businesses to buy less in the first quarter.[12]

These are the views of Platinum Advisor Marketing Strategies, LLC, and not necessarily those of the named representative, Broker dealer or Investment Advisor, and should not be construed as investment advice. Neither the named representative nor the named Broker dealer or Investment Advisor gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. Please consult your financial advisor for further information.

Investing involves risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values.

Diversification does not guarantee profit nor is it guaranteed to protect assets.

The Standard & Poor's 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general.

The Dow Jones Industrial Average is a price-weighted average of 30 significant stocks traded on the New York Stock Exchange and the NASDAQ. The DJIA was invented by Charles Dow back in 1896.

The Nasdaq Composite is an index of the common stocks and similar securities listed on the NASDAQ stock market and is considered a broad indicator of the performance of stocks of technology companies and growth companies.

The MSCI EAFE Index was created by Morgan Stanley Capital International (MSCI) that serves as a benchmark of the performance in major international equity markets as represented by 21 major MSCI indexes from Europe, Australia and Southeast Asia.

The Dow Jones Corporate Bond Index is a 96-bond index designed to represent the market performance, on a total-return basis, of investment-grade bonds issued by leading U.S. companies. Bonds are equally weighted by maturity cell, industry sector, and the overall index.

The S&P/Case-Shiller Home Price Indices are the leading measures of U.S. residential real estate prices, tracking changes in the value of residential real estate. The index is made up of measures of real estate prices in 20 cities and weighted to produce the index.

The 10-year Treasury Note represents debt owed by the United States Treasury to the public. Since the U.S. Government is seen as a risk-free borrower, investors use the 10-year Treasury Note as a benchmark for the long-term bond market.

Google Finance is the source for any reference to the performance of an index between two specific periods.

Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance.

Past performance does not guarantee future results.

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Consult your financial professional before making any investment decision.

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