by Tim Carkin, CAIA, CMT
Senior Vice President
Divergent
This week the market is showing some interesting divergence. The S&P 500 performance is paltry, nearly flat on the year. Technology, biotech and consumer discretionary sectors, which are more heavily weighted in the NASDAQ, started selling off heavily last week leaving the NASDAQ down more than seven percent year to date. This week small cap stocks, which had been performing admirably, sold off more than four percent and are now negative on the year. Citigroup, Morgan Stanley and other large financials also sold off heavily after the Fed’s latest stress test results. On the plus side, emerging market stocks rallied significantly this week in hopes of new Chinese stimulus.
Need for Speed
A few good economic readings came out this week. Last month’s Q4 GDP number was revised up to an annualized 2.6 percent from 2.4 percent. This came as consumer spending in February rose by the most in three years and jobless claims declined last week to the lowest level in four months. Personal consumption expenditures (PCE), a favorite economic indicator of past Fed Chairman Bernanke ticked up 0.1 percent in February. Lower jobless claims and a low inflation rate give the Fed a little cushion to work with when considering stimulus and rate increases.
Rise of an Empire?
The constant media attention of developments in the standoff between Ukraine and Russian is weighing on the market. We did get good news on that front in an announcement from the IMF of $14-18 billion in aid. In addition, our Senate approved $1 billion in loan guarantees and the EU promised more than 10 billion euros in the next few years. On the other hand, Yulia Tymoshenko, former Prime Minister of Ukraine, announced her candidacy for president. This ensures the standoff will remain in the news through the Ukrainian elections on May 25th.
Takeaways for the Week
- Geopolitics is a major overhang to the momentum in the U.S. economy