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Market Update

Ukraine Peace, Greece Progress Cheer Stock Bulls

February 12, 2015

Ukraine had been all but eliminated from business press headlines in recent weeks. Not so early Thursday. Stock indicators point up and one of the major drivers is the report of a brokered, if still tentative, peace between Russia and Ukraine—a conflict  whose economic and commodities market reach extended well beyond the contested border land.

Now whether it’s the bulls simply looking for something to grab onto or whether sincere optimism for the end of a deadly dispute and eventual restoration of European and U.S. trade pacts with Russia can help fuel another climb for the broader stock market, the news is factoring into short-term trading. The S&P 500 (SPX) looks ready to try for 2074 and after that, there’s little in the way up to 2100. In addition to global stocks gains, oil rallied 3% to nose back above $50 a barrel, while gold got a small pop. Remember, the underlying tensions were one of the factors that propped up demand for U.S. government bonds and had held down market interest rates even at a time when the Federal Reserve maintains a bias toward raising interest rates. Ukraine may also be filling the Street’s news feeds as Greece and the broader European Union, meeting to tackle the Mediterranean country’s hefty debt load, said they need more time.

FIGURE 1: RESISTANCE CLEARED. The S&P 500 (SPX) muscled through resistance at 2050-2060. Early indications show a possible move above 2074, and a close above that line leaves little in the way between current levels and 2100. Data source: Standard & Poor’s. Chart source: TD Ameritrade’s thinkorswim® platform. For illustrative purposes only. Past performance does not guarantee future results.

Kicking the Can? Greek debt talks reportedly are making some progress but not enough for an announcement, which now may come on Monday. Hopes for a deal had led to choppy U.S. stock trading Wednesday, including a late move higher. Europe’s finance ministers told The Wall Street Journal they’re receiving mixed messages from the new government in Athens. The biggest disagreement at Wednesday’s talks was over whether Greece should request an extension of its existing 240 billion euro ($272 billion) bailout, which expires at the end of the month. The largely anti-austerity government of Prime Minister Alexis Tspiras is resisting an extension, saying the cuts and overhauls it requires will push the country’s economy further into crisis, the WSJ and other outlets note.

Flat Spending Not Good Enough. Perhaps the week’s biggest economic report, this morning’s retail sales data showed little cash register activity even when the obvious drag of falling gasoline sales were excluded. Retail sales declined by a seasonally adjusted 0.8% last month after an unrevised 0.9% drop in December. Sales at gas stations slumped 9.3%, the biggest pullback since 2008, amid a plunge in oil prices. Excluding gas stations, overall retail spending was flat. Sales rose for Internet stores and restaurants, which are two of the largest retail categories. Spending on cars and furniture lagged. The report crunches a few more scenarios, but they too disappointed: sales minus autos fell 0.9% in January, while sales minus autos and gasoline rose a slender 0.2%.

Variety in Earnings. Quite the basket of companies reporting earnings late Wednesday and early today, with, you guessed it, mixed results. Tesla (TSLA) stunned the Street with a Q4 adjusted loss of $0.13 per share, but that didn’t stop its fearless leader from talking a big game. CEO Elon Musk said Tesla’s market cap may match Apple’s (AAPL) in 10 years. A different investor reaction followed the results of potential technology and global economic indicator Cisco (CSCO). Its shares jumped after Q4 earnings nearly doubled to $2.4 billion, or $0.46 a share. Chinese search engine Baidu (BIDU) fell after its earnings missed Street expectations but upscale grocer Whole Foods Markets (WFM) gained after it beat industry analyst expectations.

Good trading,

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