State of the Stock Market Analysis for the Week Ending August 16th, 2014 (Ukraine and Russia Powered Market’s Movement 8-16-14)
Ukraine and Russia Powered Market's Movement

News of the attack by Ukraine on Russian military vehicles powered the market’s movement today, but after an early selloff, the stock market bounced back enough to finish flat and mixed for the day. It is a rough backdrop for stocks right now, especially when you consider that it is basically Mr. Putin’s move as to how Russia might respond. As with the recent airliner shot down, there is a fair amount of confusion as to what exactly happened. They say that the first casualty of war is the truth, so it is up in the air as to where things go from here over in Ukraine.

Some traders were surprised that there was not more of a selloff, but then again, Russia is not exactly a rogue nation that might overreact to anything too soon. Vladimir Putin is a smooth and shrewd politician, and it will definitely be interesting to see how Russia responds to these Ukrainian attacks on what might have been the “humanitarian” convoy of vehicles headed to help pro-Russian forces in Eastern Ukraine. The price of oil did spike on the news, while U.S. and German bond yields fell, so it is clear that global markets are paying close attention.

It was not that bad of a week for U.S. equities, though, as all three of the major indices finished in positive territory for the week, with the Dow up 2.2%, the Nasdaq up 0.7% and the S&P 500 up a respectable 1.2%. It was a mixed week for economic news, and we saw a strong number early in the week in terms of hiring. Retail sales were weak, though, and we capped off the week with an ugly-looking consumer sentiment number. The University of Michigan report came in at 79.2 versus the 82.3 that analysts had expected. The number was sizably below July’s 81.8, and it marked the lowest level in confidence in nine months.

So, what is a bull supposed to make of all of these economic cross currents and global shocks? The good news is that there was not more damage done this week given all of the negatives. Seeing all three of the major indices finish higher this week was impressive, and it shows that this nearly six-year-old bull market has a bit of “Teflon toughness” that is protecting it from a lot of worrisome news and events. Longtime bulls have been extremely impressed by just how resilient the broader stock market remains in the face of so much adversity thrown at it day after day, after day.

The bad news for the bullish camp is the fact that all of these pockets of economic weakness, like retail sales and consumer sentiment, are still in the spotlight. The stock market has had a tremendous run, and yet the broader economy has not. It is a strange disconnect that most bulls think should have run its course by now. The stock market has been “channeling” that the economy is improving and on the mend for years now, but the economy is still unable to get off the mat. It is good, but it is far from great, and that is the conundrum facing bullish investors.

So, if global shocks and economic news are unable to move financial markets in a big way, then what can? Well, the Federal Reserve can move markets in a big way, and the Fed will be on the radar next week. The annual Jackson Hole, Wyoming pow-wow gets underway, and we will also get the Fed’s minutes on Wednesday from their July meeting. The Fed has been on the back burner in terms of the economic spotlight, so it should be telling next week as to just what Janet Yellen and her crew are thinking.

One strategist referred to the Fed’s annual Jackson Hole meeting as a “Woodstock for Economists,” so maybe we will get some new insight from it next week. Likewise, Janet Yellen should be speaking. So again, maybe we will get some market-making clarification as to which way the economy (and the stock market) might be heading. The Fed has not raised interest rates since 2006, and if anything is going to rile up global financial markets, it is commentary from the Fed. Stay tuned as it should be an interesting week up in the Grand Tetons.

The Gorilla wishes each and all a relaxing summer weekend. We are halfway through August already, and we are nearing that October-November time of year, which is often loaded with “thrills and chills.” November elections are right around the corner as well, so be rested and ready for anything. This week’s market strength was very encouraging to the bullish camp, so we will just have to see how the rest of August and autumn unfold. Again, have a great weekend, and we will be back in action on Monday.

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