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Market Update

Today’s Word is Caution as Geopolitical Concerns, Earnings Picture In Focus

April 12, 2017

(Wednesday Market Open) Geopolitical concerns keep stalking the markets, helping so-called “safe haven” investments and putting pressure on equities ahead of the fast-approaching earnings season.

The cautious stance that prevailed earlier this week seemed to continue Wednesday, judging by some key indicators. For instance, the Japanese yen reached five-month highs against the dollar. The yen is sometimes thought of as a safety play in times of investor fear.

Gold – another so-called “risk-off” investment – reached multi-month highs as well, climbing above $1,275 an ounce. Concerns about U.S./Russia relations, Syria and North Korea, the coming French election, and U.S. politics may all play into investor caution.

Though the markets ended Tuesday close to where they started, volatility continues to climb, with VIX hitting its highest levels since November. The rising volatility may reflect those same geopolitical worries, and could also hint at some trepidation ahead of earnings season. That said, the S&P 500 (SPX) on Tuesday managed to close above the recent pivot point of 2350, and perhaps found some technical support at the 50-day moving average of 2349, according to We’ll see if support in that area can hold again today.

Speaking of earnings season, Thursday marks the start of the quarterly bank earnings parade, with Citigroup (C), JP Morgan (JPM), and Wells Fargo (WFC) all due before the open. Last time out, these three put pretty good wood on the ball and helped cheer the broader markets.

Q1 earnings expectations for the financial sector are high. According to FactSet Research, earnings are expected to grow at 14.8% year-over-year in the first quarter, the highest earnings growth projection across all 11 sectors.

One question is how the continued strength in bonds might affect the financial sector. Ten-year U.S. Treasury yields are stumbling, moving below key technical support of 2.3% early Wednesday. The bond market rally came despite a better than expected Job Openings and Labor Turnover Survey (JOLTS) report Tuesday that showed 5.743 million job openings in February, a gain of around 100,000 from the prior month. Keep an eye on Friday’s retail sales report, which may provide insight into how the jobs picture may be affecting consumers. There isn’t much economic data on the calendar today, however.

Trading has generally been pretty light this week, and that was the case Tuesday as well. With the markets closed for a holiday on Friday, people may be a little bit nervous to add on to their positions.

VIX, S&P 500


The VIX, tracked here through Tuesday on the thinkorswim® platform from TD Ameritrade, reached new intraday highs for the year near 16, but the S&P 500 (purple line) ended up barely moving on the day. Remember that VIX is a forward-looking indicator, and hints at investor concerns including geopolitics, earnings, and fiscal policy. Data source: CBOE, Standard & Poor’s. For illustrative purposes only. Past performance does not guarantee future results.    

Mark the Calendar: Once Congress returns from recess, it faces a deadline with possible ramifications for the stock market. On April 28, the current continuing resolution that keeps the government running expires, meaning Congress needs to act quickly to keep doors open at national parks and federal agencies for the five months left in the fiscal year. In the past, shutdowns and the possibility of shutdowns helped create volatility in the markets, and if a shutdown did occur, it could mean delays in some key government economic data. But with Republicans in control of both the White House and Congress, a shutdown scenario seems less likely than back in 2013 when we last saw one. Even so, it could be prudent for investors to keep this on their radar and watch Washington to see if Congress can resolve a few key issues that go into avoiding any interruption.

Marquer le Calendrier: That means “mark the calendar” in French. And the date to watch is April 23, the French election. Normally, elections in France don’t tend to have huge market impacts here in the U.S., but this one is a bit different. That’s because it features Marine Le Pen, of the far right National Front party, who currently leads several other candidates in the polling, news reports say. This is only the first round, but if polls are right, it looks like Le Pen may have a good chance of making it to the next round. It’s early to predict how this might play out, but a strong performance by Le Pen could perhaps give the dollar a boost against the euro and bring back more memories of Brexit, when England decided to leave the European Union. Any sign of major political change in Europe deserves attention from U.S. investors, simply because Europe is such a huge trading partner and also a key player in geopolitical stability.

Caught on Camera: We've seen again this week how an incident captured with a phone camera and posted on social media can negatively affect a major stock. There’s not a lot an average investor can do to avoid one of his or her companies being embarrassed on social media, but that said, some sectors, by their very nature, could be more susceptible than others. These include sectors where operations are right out front for everyone to see and easily capture, including energy and consumer discretionary. There’s no sense in avoiding these sectors, which can be important in maintaining a well-diversified portfolio, but it’s also smart to be prepared for any possibility and also not to lose your head when something bad happens and the stock goes down. It might make more sense in that situation to look closely at the company from a broader perspective and see if it’s well positioned from an industry and financial perspective, and also watch to see what sorts of measures it takes publicly to avoid such incidents in the future. Sometimes a bad day for a stock can turn out to be a good wake-up call that helps strengthen the company down the road.

Good Trading,

Economic Calendar



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