It should have been all systems go for another good week on the stock market, with Wall Street powering to another all-time high on the S&P 500 index, but the dark shadow of Vladimir Putin has cast doubt on what stocks might do this week.
War clouds
On Friday, the New York Stock Exchange recovered from negative territory with 30 minutes to go to power into a positive close. Technical work from the likes of Gary Stone gave him the green light to go “fully invested” in the US S&P 500. But none of his market readings could have factored in Vladimir Putin.
Before all of this, the SPI said the local market should open up 16 points in the positive but enthusiasm for equities was dented a tad with Russia rolling into the Crimea.
Am I getting too dramatic about this Ukraine skirmish? Well, have a look at what The Guardian ran with around 8am Sydney time: “Vladmimir Putin tightens grip on Crimea, bringing region to brink of war!”
Geopolitically crazy events like this can spook stock markets. And yep, it did hurt the S&P/ASX 200 with the index starting down about 6 points – so Putin has robbed us of 22 points and a positive start to the week.
But it won’t be all Crimea concerns this week for stock market investors, with an enormous run of important economic data set to be put on show. This show and tell will be huge in both the USA and here.
From the States we will see key manufacturing and services sector readings, car sales, the Beige Book, which snapshots the economy, and the all-important jobs report.
Coming in from the cold
All of these readings will be adjusted for the polar snap that has been hitting the USA, but late last week both housing and consumer sentiment numbers showed the economy was doing OK against Jack Frost.
Remember the run of data will affect views on tapering and then this will affect US stocks and then the greenback. That in turn will hit the Oz dollar and will help or hurt our stock prices.
I argue a lower dollar will be good for our index and for those dollar-sensitive stocks, such as CSL and Resmed.
Already the threat of war has pushed the Oz dollar down to 88.99 US cents, with international fears always good for the US dollar and gold, which is up about $11 in early trade to $US1,333.31.
Also weakening the dollar was the latest China manufacturing reading, with the purchasing managers’ index (PMI) falling to 50.2 – an eight-month low – in February, which means it is still expanding but at a slower rate.
This is still an OK reading, so don’t get too stressed about this one.
Meanwhile, in Australia, it will be huge on the economic reporting front. We will get business indicators, our Performance of Manufacturing report, home prices, the balance of payments, an RBA interest rate decision, building approvals, economic growth, car sales and retail trade.
Playing Putin
OK, so how do you invest for this Putin play?
Remember that without the Ukraine, problem stocks would have headed up until the run of economic data kicked in. If the data was leaning to the positive, stocks would have kept spiking.
If the US and local data is more good than bad, then any sell-offs linked to this Crimean craziness could well be another buying opportunity.
The expected short-term rally could be hit, but even after September 11 rocked stocks, the market rebounded back!
If it wasn’t for Putin, I’d be very bullish for the short-term ahead of another sell-off, which would be a buying opportunity again. However, for now, I will be waiting to see how stock prices respond to this uncertainty but I will be looking for value to be created by this new dose of European madness.
Important: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. Consider the appropriateness of the information in regards to your circumstances.
Also in the Switzer Super Report:
- Rod Jones – From the top – Navitas [1]
- Paul Rickard – Our high-income stock portfolio for 2014 [2]
- Rudi Filapek-Vandyck – Buy, sell, hold – what the brokers say [3]
- Greg Fraser – Radio gaga – APN success story [4]
- James Dunn – Earnings season wraps with top marks [5]
- Barrie Dunstan – Buffett’s circle of confidence [6]
- Penny Pryor – Some stability in property market [7]