|Dow||+43.63 to 17,031.14|
|S&P 500||-1.41 to 1,984.13|
|Nasdaq||-48.70 to 4,518.90|
|10-YR Yield||-.023 to 2.591%|
|Gold||+$3.20 to $1,234.70|
|Crude Oil||+$0.56 to $92.83|
Some weeks are just more eventful than others. And boy, does this one ever stand out! There’s so much going on, I’d be doing you an injustice if I didn’t try to cover all three of the major market drivers you should have on your radar screen. So here it goes …
First, the battle against the ISIS terrorist group is intensifying thanks to a global diplomacy push. U.S. Secretary of State John Kerry has been crisscrossing the Middle East and Europe in an attempt to drum up support for more aggressive military action against ISIS in Iraq and Syria.
Australia has pledged to contribute 600 soldiers and fighter jets to the effort. The Brits under Prime Minister David Cameron are likely to contribute military assets, humanitarian aid, intelligence and more, especially in the wake of ISIS’ beheading of the British aid worker David Haines.
Multiple Arab nations are also poised to offer flyover rights and potential air bases. Plus, Saudi Arabia and the UAE may go a step further and actually fly planes and drop bombs on ISIS themselves.
The goal is to rollback ISIS’ recent gains, and to “internationalize” the fight against the group. But it clearly raises the risk of more counter-attacks from ISIS, more inflamed tensions between Sunni- and Shiite-dominated nations in the Middle East, and more chaos overall.
Second, the Federal Reserve is meeting Tuesday and Wednesday amid widespread talk that officials will adopt a more hawkish stance on policy. Simply put, interest rates have remained too low for too long despite widespread evidence the U.S. economy is improving steadily (if not strongly).
Fed officials already announced plans to dial back QE in late 2013, just as I predicted at the time. They have since slashed the program dramatically, and are close to eliminating it altogether.
Next up, in my view? An acceleration of the timetable for actual short-term interest-rate hikes. That should begin Wednesday with the Fed eliminating its pledge to keep rates low for a considerable period of time — and sounding an optimistic tone on U.S. growth. You can expect actual hikes as soon as early 2015.
|“There are a lot of potential fireworks this week — events that could ignite even more vicious shifts of capital around the globe.”|
Third, threats to European growth are intensifying! The widely followed Organization for Economic Cooperation and Development just lowered its growth outlook. It cited a potential Scottish secession vote, the ongoing Ukraine conflict and the resulting sanctions against Russia and slumping inflation.
The OECD now says Europe’s economy will grow just 0.8 percent this year. But with Russian President Vladimir Putin showing no signs of backing down in Ukraine, and new European sanctions against state banks, oil, and defense companies taking effect over the weekend, that looks optimistic to me.
Remember: Europe is much more closely linked to Russia by geography, trade and investment flows. So I wouldn’t be surprised at all if it slipped into recession even as our economy hangs in there.
And what if Scotland votes to secede from the U.K.? Then look for even more turmoil in the European and U.K. currency and stock markets as investors frantically re-price the financial and social risks associated with that event. Don’t forget that a secession vote could also encourage other secessionist movements, including in the Catalan region of Spain. That, in turn, could darken the outlook for Europe’s economy even further.
|Europe is much more closely linked to Russia by geography, trade, and investment flows. So it could easily slip into recession even as our economy hangs in there.|
Bottom line: There are a lot of potential fireworks this week — events that could ignite even more vicious shifts of capital around the globe.
So you might want to take a little capital off the table to see how things soft out. You’ll definitely want to stay glued to Money and Markets for my latest updates on all these and other developments.
What do you think of the latest events in the Middle East? The Fed’s hawkish shift? And the ongoing political tensions in Europe?
Are you worried about the ramifications? Or do you think the U.S. markets can keep sailing along regardless? What steps (if any) are you taking in your portfolio to adjust to these new developments? Let me know at the Money and Markets comments section below.
|Our Readers Speak|
My Friday morning column about the American Dream of homeownership inspired many of you to post thoughtful, valuable comments at the website.
Reader Brandon was relatively negative on the outlook for housing, citing a variety of reasons. His comments: “I am 30 years old, and married with a 15-month son and for the past 6 yrs, we are continually trying to save money for a house. Stability of work has been harsh to say the least and I know many others who would say the same.
“So yes, apartment living is the new standard now for new or young families and couples. There was a time when you didn’t even have to work that hard and you could still afford a decent home, but not anymore, nor ever will be, I’m afraid. The American dream is gradually dying or becoming increasingly harder to achieve.”
Reader Bill B. also cited employment as a possible detriment to traditional homeownership. But he felt the weak demand environment is predominately a demographic issue. His comments:
“The current generation is marrying later, if at all, and without a stable relationship and the prospect of children in the future there is less need for a home. In addition, many are remaining more mobile to address a fluid employment environment.”
As for Reader Trish, she said that owning still does have an advantage over renting — from both a financial and non-financial standpoint. Her view:
“When we returned to the USA from living overseas, we planned to rent for a year while shopping the housing market. Then we discovered we could save $500 per month and get more house by purchasing rather than renting.
“Yeah, maintenance is a pain but we can paint the walls whatever color we want and remodel rooms to fit our lifestyle without asking anyone’s permission. We’ve ripped out nasty wall-to-wall carpet and refinished hardwood floor found underneath. We’ve built and hung cabinets in bathrooms for additional storage. After years of living in government-owned housing while overseas, I love the freedom and choices of home ownership!”
Again, this is the kind of thoughtful debate and discussion I love to see. So please make sure you take advantage of the Money and Markets comment section to add your own views.
|Other Developments of the Day|
- Is “Merger Monday” coming back? That seems to be the case today. Germany’s ZF Friedrichshafen said it would shell out $13.5 billion to buy TRW Automotive Holdings (TRW, Weiss Ratings: A) to expand its car parts business. It’s going to pay $105.60 in cash, 16 percent more than TRW shares closed at on July 9 when rumors of a transaction first surfaced.
- Meanwhile, SABMiller (SBMRY, Weiss Ratings: Not rated) reportedly attempted to buy Dutch beer brewer Heineken for an unspecified price. Heineken’s market worth is about $44 billion, compared to $55 billion for SABMiller, so any transaction would undoubtedly run into the tens of billions of dollars. Heineken reportedly wants to remain independent. But it’s possible Anheuser-Busch InBev NV (BUD, Weiss Ratings: B-) could make a play for it … or even launch its own $120 billion-plus bid for SABMiller. That’s a lot of beer money!
- On the economic front, industrial production slipped 0.1 percent in August. That was a bit below expectations. But a separate index that tracks factory activity in the New York region surged to 27.5 in September from 14.7 in August. That was the best reading in five years.
- Hard to believe, but the U.K.’s Prince Harry turns 30 years old today. For someone who has been in the media spotlight — for both good and bad reasons — over the years, he’s reportedly celebrating in a low-key way. Happy birthday!
Reminder: You can let me know what you think by putting your comments below.
Until next time, Mike Larson
P.S. If you missed Martin’s briefing earlier today there is still time to view it! He revealed the investment strategy that he personally built from the ground up — the strategy that could have multiplied your portfolio more than seven times over with a 613 percent return since 2005. Click here to watch now!