Worries continued this week, over China’s economy and tensions in the Ukraine. As a result those worries weighed on U.S. stocks Thursday, with the Dow posting its worst loss since Feb. 3.
As the week comes to a close it’s obvious the selloff that started after last Friday’s jobs report not only continued but accelerated yesterday. The Dow Jones Industrial Average [DJI:^DJI] closed down 231 points or -1.41%. The S&P [CME:SPH14] closed down 22 points or -1.17% and the Nasdaq Composite [CME:NQH14] closed down -1.46%. The CBOE Volatility Index [VIX] rose 12% to 16.18.
Beginning of the end or pullback?
There are seasons for everything and April and May have a history of twists and turns and sudden reversals. After being up nearly 30% in 2013 the S&P has gotten off to a rocky start. The health of the U.S. economy, the Federal Reserve’s taper process, and anxiety over several global crises have been on traders’ minds. While no new developments came out of Ukraine, the threats of sanctions and renewed Cold War posturing are not good for markets.
DAX down 10% YTD
“Ladies and gentlemen, if Russia continues on its course of the past weeks, it will not only be a catastrophe for Ukraine,” Merkel said. “We would not only see it, also as neighbors of Russia, as a threat, and it would not only change the European Union’s relationship with Russia,” she said. “No, this would also cause massive damage to Russia, economically and politically.” Her stance dismissed any worries that Germany may bend to Russia because of its trading ties.
Merkel made it clear that Germany would go along with the other 27 states of the European Union and the United States if Russia did not open meaningful diplomatic talks. If the West moved to freeze accounts and impose travel bans or restrictions on leading Russian figures, Germany would do so, too. “To make it unmistakably clear,” Ms. Merkel said, “nobody wants it to come to that.” “But we will be decisive and unified in case they become unavoidable,” she said of sanctions.
Sell programs on the half hour
With no new developments, the constant hammering of the China and Ukraine headlines fed the news algos all day long while keeping the premium levels between the S&P cash and the ESH14 far enough apart to trigger them. With so many sell stops built up underneath the markets, the S&P headed in the path of least resistance: down.
The Asian major markets closed mostly lower and Europe is trading lower across the board. Today’s economic calendar starts out with PPI, consumer sentiment and Federal Reserve vice chair nominee Stanley Fischer’s speech to the SIEPR conference in Stanford, Calif. The markets took a beating yesterday and there is probably more of the same coming today.
Our view
Sell the rally was right ,but if you bought for any other reason than covering a short you were lucky if you got out with a profit. Last week the S&P rallied with few pullbacks; now it is dropping with few corrective rallies. I understand China is showing signs of weakness and is weighing on global markets, but I have seen too many times that when the talking heads start talking China weakness it usually ends up a positive.
What we think is weighing down on stocks right now is what’s going on along the Ukrainian border and in Crimea as Sunday’s referendum approaches. The result is a foregone conclusion but just wait until the Sunday victory and the tanks start rolling into the Ukraine. I give it 5 chances in 100 that Putin will pull back. That said, it’s possible the headlines will again consume the markets.
Has the S&P topped out for the first part of the year? There is a very good possibility that we get past next week’s expiration, but it’s the March quarter end that I am worried about. April marks the end of the best six months for stocks. Close range, the big volume has been in the 1848 to 1851 price range. You can take it from there…
- In Asia, 10 of 12 markets closed lower: Shanghai Comp. -0.73%, Hang Seng -1.00%, Nikkei -3.30%
- In Europe, all major markets are trading lower: DAX -0.25%, FTSE -0.12%
- Morning headline: “Stock selloff, flight to safety amid Ukraine worries”
- Total volume: 3.5Mil ESH14 & ESM14 combined and 54.6k SPH14 & SPM14 contracts traded
- S&P Fair Value: 1837.99 (futures 5.51 higher at 1843.5 as of 5:14 AM CT)
- Economic calendar: PPI, consumer sentiment, Stanley Fisher from the Fed speaks.
- E-mini S&P 5001839.75-7.00 - -0.38%
- Crude98.55-0.22 - -0.22%
- Shanghai Composite0.00N/A - N/A
- Hang Seng21539.49-216.59 - -1.00%
- Nikkei 22514327.66-488.32 - -3.30%
- DAX9056.41+38.62 - +0.43%
- FTSE 1006527.89-25.89 - -0.40%
- Euro1.3911
