The tensions in Ukraine ratcheted up a notch or two late this week when leaders of the nation’s Russian-occupied Crimea region said they will hold a vote in 10 days on unilaterally seceding from Ukraine and becoming part of Russia. Geopolitical situations of this potential magnitude typically weigh heavily on global markets, with nervous investors moving quickly to get risk off the table. So what’s different this time around?
Fed Chair Janet Yellen’s testimony February 27 on Capitol Hill provided a signal that the market wanted to hear: Policymakers are looking closely at the data to determine if bad weather is truly to blame for the recent weak reports on unemployment and other economic indicators. If it’s not the weather, she said they’re open to the idea of reconsidering the taper.
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Even as the Federal Reserve approved the second round of its monetary tapering last month, it reassured jittery investors that short-term interest rates would remain at near-zero levels well into the future. But the minutes from that January meeting, released to the public this week, tell a different story.
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As of this week, more than 70% of the companies in the Standard & Poor’s 500 have reported earnings for the latest quarter, revealing a few trends that create some concern about U.S. equities in 2014. Revenue growth is well short of earnings growth and has shown no signs yet of picking up.
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Recently I was asked to discuss the state of the market so far in 2014 and to offer some thoughts on where we see opportunity. It is certainly a challenging market with complications provided by the Fed’s necessary but disruptive move to taper its monetary stimulus and the extremely cold weather across the United States. Despite this year’s rocky start, investors are still overwhelmingly bullish even as fundamental valuations are getting stretched ever tighter.
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