Market Perspective for August 8, 2014

Index Snapshot

The markets finished on a strong note on Friday in the wake of positive news from Russia; after weeks of concern over the conflict in Ukraine and its potential impact on oil prices, the Russian Security Council announced its intentions to deescalate tensions “very fast.” Friday’s gains left the major indexes slightly positive for the week despite Thursday’s poor performances. The S&P 500 closed up 0.33 percent for the week, the Dow Jones Industrial Average closed up 0.37 percent, and the Nasdaq gained 0.42 percent. Small cap stocks fared particularly well, as the Russell 2000 finished up 1.47 percent. These gains are certainly a step towards offsetting last week’s substantial losses.

Strong Initial Jobless Claims Figure

The Department of Labor announced on Thursday that initial jobless claims had fallen by 14,000 for the week of July 27 through August 2 to 289,000. This represented a greater decrease in jobless claims than expected, though the figure may have been somewhat inflated by manufacturers’ seasonal hiring for summer re-tooling. Unemployment currently stands at 6.1 percent.

Press Conference: European Central Bank President

European Central Bank President Mario Draghi’s Thursday press conference revealed nothing unexpected: interest rates remain unchanged, and the ECB will wait to make any further monetary policy changes. Mr. Draghi characterized Europe’s economic recovery as “fragile” and “uneven,” but the bank will continue to take a wait-and-see approach for the present.

As of Wednesday, the euro was at its weakest point against the dollar in nine months. Flight to the dollar has likely been instigated by the continuing conflict in the Ukraine and Italy’s shrinking second quarter GDP figures released on Wednesday.

Big Week for IPOs May Have Drained Funds from the Major Indexes

The week ended July 31 featured a total of 15 IPOs, which collectively raised a total of $7.3 billion; accounting for other share offerings, underwriters pushed $12.5 billion in new shares into the market over the course of the week. TrimTabs Research theorizes that the substantial losses endured by the major indexes last week may have been as much the result of this sudden addition of new shares to the market as it was the result of investor skittishness elsewhere; the research firm noted an association between spikes in offerings and market declines.

International Conflicts Continue to Stoke Investor Unease; Friday Brings Positive Signs for the Ukraine

The conflicts in the Ukraine and Gaza continue to draw investor and media attention, though there now seems to be hope for de-escalation on the part of Russia.

Hostilities in Gaza resumed within minutes of the conclusion of a shaky cease-fire, with no apparent progress from negotiations in Cairo. Hamas fighters fired rockets into Israel as soon as the cease-fire expired on Friday morning, while Israel resumed its airstrikes into the troubled territory. An estimated 1,875 people have been killed in Gaza thus far, the great majority civilians.

The Ukraine continued to generate concerns among throughout the week. Rebels shot down a Ukrainian MiG-29 fighter plane on Thursday evening with a Russian-made SA-11 missile system, further fueling allegations that Russia has been providing the rebels with weaponry. Russian troops continue to mass along the Ukrainian border, and are now 20,000 strong according to NATO. However, the market responded swiftly and positively to a Friday announcement from the secretary of Russia’s Security Council Nikolai Patrushev that “Russia will continue to make all efforts for a very fast de-escalation of tensions.”

The announcement of U.S. airstrikes in support of Kurdish fighters in Iraq also attracted attention and likely contributed to the precipitous falls experienced by the major indexes on Thursday. Navy aircraft fired missiles at ISIS artillery outside of Erbil on Friday. However, the positive news on the Ukraine and the lack of boots on the ground in Iraq seem to have allowed investors to get past the renewed U.S. involvement in the country.

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