Stocks quietly rose yesterday amid optimism that tension between Russia and Ukraine will ease and American airstrikes will push back militants in Iraq. The question at hand are geopolitical risks waning or is this just a pause. Obviously all hope the former.
Many have been stating a correction is needed and have suggested one was in the offing. The S & P 500 has fallen about 3.9% from its apex. As I wrote last week, ifwe have just experienced the much talked about correction, this has been the most painless correction in history.
Reiterating a major reason why I cannot become bearish is the massive amount of cash searching for a more efficient use. Every data point suggests cash balances are massive, the ratio of productive assets to cash is at an all-time low and for the exception of the government, corporate and personal balance sheets have delevered considerably.
Crisis and bear markets typically occur in the inverse environment…growing debt and strong optimism.
There is little on today’s economic calendar thus trading may be dictated by geopolitical headlines which are typically “fluid” in an environment similar to that of today. The possible outcomes of war are infinite.
Last night the foreign markets were mixed. London was down 0.04%, Paris down 0.42% and Frankfurt down 0.39%. Japan was up 0.20% and Hang Sang up 0.18%.
The Dow should open nominally higher as all are starting to live and adopt to an uncertain geopolitical environment. The 10-year is off 1/32 to yield 2.43%.
Chief Economic Strategist Managing Director
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