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The Markets This Week

September 3, 2014 | Weekly Commentary

“What, me worry?” In the face of escalating geopolitical tensions, the stock market offered the rallying cry made famous by Mad magazine’s Alfred E. Neuman. Apart from a brief slip Thursday, after Ukraine accused Russia of invasion, the market was so unfazed that the Standard & Poor’s 500 index finished the week at an all-time high.

Continued strong U.S. economic data, combined with the close of a better-than-expected second quarter earnings period, trumped the worries, even the threat of war. Trading, however, was light ahead of the Labor Day holiday Monday, and by Friday many market participants had slipped off to an early start of the weekend.

The market doesn’t discount the same thing over and over again, even violence. From a purely investment perspective, trouble in the Middle East for U.S. markets is more important than in Ukraine because of its potential effect on oil markets and energy prices, says Joseph Amato, the chief investment officer of Neuberger Berman. Market action suggests investors are paying attention to the geopolitical tensions but not expecting an energy crisis, he adds.

The current level of tensions is relatively low for the market and “dwarfed” by the potential impact on stocks of actions by the Federal Reserve and the European Central Bank, he says. Last week, the Dow Jones Industrial Average rose 97 points, or 0.6%, to 17,098.45, and the S&P 500 climbed 15 to a record 2003.37. It rose nearly 4% in August. The Nasdaq Composite index advanced about 42 points, or 0.9%, to 4580.27.

Things might get bumpy by October, as the Fed winds down its U.S. Treasury bond buying, says Benjamin Halliburton, the chief investment officer at Tradition Capital Management. As that happens, investors will be on pins and needles, and volatility could increase.

(Source: Barrons Online)

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