All eyes on this key player in the natural gas market
Market View from LMK Wealth Management
Stocks shook off the winter gloom and rallied for most of last week, ending February with another record high for the S&P 500. For the week, the S&P 500 gained 1.3%, the Dow rose 1.4%, and the Nasdaq grew 1.1%.
The market rally faded later in the week on news that Ukraine’s political instability may lead to a fight with Russia. Russian troops moved into Crimea, an autonomous region within Ukraine, last week and appear ready to take an active role in protecting Russian interests. Ukraine plays an important part in global natural gas supplies, and traders are jittery about possible disruptions if the saber rattling escalates into outright war between the two nations.
Fed chairman Janet Yellen testified before the Senate Banking Committee this week (after winter weather delayed her visit) and largely mirrored the remarks she made before the House. She stated that the taper is likely to continue at a measured pace but emphasized that the pace is dependent on progress in the labor market and overall economy. She noted that recent softness in economic data might be attributable to seasonal weather factors and that the Fed would watch carefully to ensure that future data falls in line with long-term trends. She also assured Senate members that interest rates are likely to remain low even after the unemployment rate dips below 6.5%; Yellen made the important point that 6.5% doesn’t meet the Fed’s definition of full employment, but rather a threshold for discussions about policy changes.
Looking ahead, we’ve got some important pieces of economic data being released this week. Investors will be interested in the Employment Situation report for February, which will be released on Friday. We’ll get a preview of the jobs numbers in the private sector ADP report, which will be released on Wednesday.
Analysts will also be looking for more news on the Ukraine situation. While it’s probable that any fighting would stay local, neighboring countries Poland, Lithuania, and Latvia, former Soviet territories, are members of NATO and will not welcome any Russian incursions into the region. A showdown between Russia, the U.S., and Europe over strategic interests could cause another selloff in emerging markets as investors think hard about risks. The price of oil and natural gas could rise as markets react to possible disruptions in supply.
While we’re hopeful that both sides will take a step back and ratchet down their belligerent stances, we’re not sure how it’s going to play out. However, keep in mind that U.S. investors have seen these geopolitical flash fires before. While we can’t use the past to predict the future, we can look to history for hints of what might come. Remember the shipping showdown with Iran in 2012? How about when Russia and Ukraine faced off in 2009 over a natural gas pipeline? The point is that while markets may react nervously in the short term, these flare-ups generally don’t have lingering effects on global markets. Instead of worrying too much, let’s take a moment to count our blessings and think about the suffering of those caught up in political upheaval and hope for a peaceful resolution.
ECONOMIC CALENDAR:
Monday: Motor Vehicle Sales, Personal Income and Outlays, PMI Manufacturing Index, ISM Mfg. Index, Construction Spending
Wednesday: ADP Employment Report, ISM Non-Mfg. Index, EIA Petroleum Status Report, Beige Book
Thursday: Jobless Claims, Productivity and Costs, Factory Orders
Friday: Employment Situation, International Trade
