Geopolitical risk is back up, Dow back down
Just when the market was trying to find its footing, geopolitics rocked the Dow again. This time it was renewed fears that Russia might invade Ukraine.
Whether the fears are simply rumor or innuendo, or real fears taken from a Bloomberg report citing comments from Poland’s foreign minister that Russia troops are poised to invade Ukraine, investors opted to reduce their risk exposure and dumped stocks, says Alan Skrainka, chief investment officer at Cornerstone Wealth Management.
The Dow closed down 140 points, or 0.9%, to 16,429 and the Standard & Poor’s 500 index fell 19, or 1%, to 1920.
“Yes the Russia invasion story caused the bear to come back out of the den,” says Ann Miletti, portfolio manager at Wells Fargo Advantage Funds.
Geopolitical risks in Ukraine and the recent fighting between Israel and Hamas has rattled markets for weeks. Earlier today, Israel pulled troops out of Gaza as part of a cease-fire.
Any Russian military move into Ukraine would mark a massive escalation of the crisis there, which worries markets as it is likely to hinder an already weak European economy and ratchet up tensions between Russia and the West.
Erik Davidson, deputy chief investment officer at Wells Fargo Private Bank, cited the market’s midday slump to “Ukraine-related sabre-rattling concerns.”
“This region has significant strategic implications for the global balance of power,” says Davidson. “So investors should prepare for market-impacting news flow from that region for some time to come. With energy flow, especially natural gas, being a big part of the dynamics, the tension could carry into — and heighten — in the autumn and winter months.”
Investors were also put off Tuesday by a weaker-than-expected reading on China’s services industry, says Skrainka, adding that U.S. investors seem to be shrugging off good economic news at home. The U.S. services sector hit its highest level since December 2005 and July factory orders topped forecasts.
The sell-off Tuesday, which follows the broad market’s worst week in almost two years, is the latest sign that the market’s latest pullback has yet to run its course.
“A correction in the market was well over-due,” says Skrainka. “Corrections are a normal part of the investing process.”
The last full-fledged correction for the benchmark Standard & Poor’s 500 was back in 2011.
Bill Hornbarger, chief investment strategist at Moneta Group, said the latest flare-up in tensions related to Ukraine, was the latest excuse for jittery investors to sell. But investors are also starting to price in interest-rate hikes from the Federal Reserve, he adds.
“I think specifically today the excuse is related to Russia/Ukraine tensions, but it appears stock investors are starting to prepare for a potentially less-accommodative Fed,” says Hornbarger.
An already nervous market got even more nervous after confronting the prospect of heightened Russian involvement in Ukraine, adds Mark Luschini, chief investment strategist at Janney Montgomery Scott.
“Already heightened market anxieties were exaggerated by news about Russia’s (troop) movement,” Luschini said, adding that the market’s recent turbulence is “washing out nervous” stock investors.
Source: Usatoday
