What geopolitical headline impacts stocks the most?

Posted by | May 30, 2018 | Newsletters | No Comments
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Geopolitical uncertainty affected stocks last week and this week already, as the historic summit between the U.S. and North Korea began to look less likely. On Thursday, May 24, President Trump announced that the summit was off, and stocks stumbled in reaction. The next day, Trump said the meeting might still occur next month, leaving investors questioning the eventual outcome.1

Yet, over the weekend, it looks like the Summit may be ‘back on’.

If there is not international news, add Italy to the list of uncertainties.

Investors are worried that political turmoil in Italy could panic beyond the country's borders. The yields on Spanish, Portuguese and Greek debt surged early this week… This is a ‘boomerang” story, that we have covered here a number of times.

Italy is heading for new elections after populist politicians failed to form a government. Radical parties could gain even more ground, and investors are worried that the vote will turn into a referendum on staying in the Euro (Is another ‘exit’ brewing?).

Also, on the geopolitical front, an announcement that Saudi Arabia and Russia would consider easing back oil supply restrictions affected stocks. U.S. crude oil prices dropped in response, pulling energy stocks down with them.2

Despite these developments, major domestic indexes increased last week. The S&P 500 gained 0.31%, the Dow added 0.15%, and the NASDAQ grew by 1.08%.3 International stocks dropped, with the MSCI EAFE decreasing by 1.60%.4

What kept U.S. stocks in positive territory last week?

Solid corporate earnings helped drive upward movement.

A number of companies experienced double-digit stock growth last week after releasing their latest data. This strong performance helped balance the declines and uncertainty that the week’s geopolitical headlines created.5

What other economic perspectives did we receive?

From durable goods to home sales, various data came out last week:6

  • The factory sector could drive economic growth, as steel and aluminum tariffs are contributing to rising value of orders and inventories for metals.
  • Business confidence and 2nd-quarter investment could increase, as strong core durable goods orders may indicate good news for companies.
  • Housing is underperforming, as growth in home sales volume and prices have softened recently.

Overall, last week provided a mix of insight about the current economic strength and geopolitical environment. In this week’s 4 trading days, we’ll gain more perspectives on consumer confidence, Gross Domestic Product, manufacturing, and employment. We will use this data to continue building our understanding of what may lie ahead in the markets—and how to prepare our clients for the future. If you have any questions, we are here to talk.

Sources

The information in this article is not intended to be tax or legal advice, and it may not be relied on for the purpose of avoiding any federal tax penalties. You are encouraged to seek tax or legal advice from an independent professional advisor. The content is derived from sources believed to be accurate. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. This material was written and prepared by Emerald. © 2014 Emerald Connect, LLC