Market Update for March 3, 2014

Last week China was at the center of attention. Even with the yuan further devalued last week, the Chinese mainland markets rallied on Monday as investor fear turned to Europe. The situation in Ukraine, where Russian forces entered the Crimean peninsula, sent European markets lower at the open, with German shares down more than 2 percent in early trading.  Russian stocks plunged 10 percent on the day, a loss that could hit many European focused funds as well as emerging market funds with heavy Russian exposure (particularly funds invested mainly in the BRICs). The stock market losses come on top of currency losses in Ukraine and Russia.

Investors should be cautious about getting swept up in the panic. We have often seen political turmoil mark the bottom for stocks and this situation in Ukraine could be the same, considering the Americans and Russians do not want to escalate the situation. If any type of political solution is hinted at, if any type of deal is mentioned or even if the various sides simply sit down and talk, fear could quickly evaporate. Given the political nature of the situation, however, there’s no way to predict when or how events will proceed. Certainly, if an investor was looking to buy Russian shares, a 10 percent off sale is attractive, but as a pure speculation play it pays to wait.

Back in the U.S., investors got some bad news on Friday when 2013 Q4 GDP growth was revised lower, from 3.2 percent to 2.4 percent. This wasn’t terrible news, since the economy is still growing at the fastest rate since 2010 but it does deflate the hopes for further growth acceleration. The center piece of the acceleration story was the buildup in inventories in the third quarter of 2013. Optimists believed it signaled a pick-up in economic activity, pessimists noted that if growth didn’t pick up, the buildup would likely lower growth in future quarters.

Economic data will take a back seat to international politics this week though. Hopefully, the situation in Ukraine is resolved soon, or at least moves from the front burner to the back burner. If it does not, stocks could be in for a volatile week.

Economic Reports: Auto sales, manufacturing, services, productivity, and the unemployment rate for February are all out this week.  Personal income, consumer spending, factory orders, the trade deficit and construction spending for January are also reported this week. Of these, auto sales, unemployment and, if it is surprising, the trade deficit, will be the numbers to watch.

Earnings: Costco (COST), Kroger (KR) and Staples (SPLS) headline a light week for earnings reports. The solar sector has two reports, one from SolarCity (SCTY) and one from Trina Solar (TSL)

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