With earnings season winding down (about 80% of the S&P 500 has reported), a month until the next Fed meeting, and important economic data a little sparser over the next week or so, this week is bound to be a news vacuum, where small things can make bigger waves.
That being said, it didn’t take long to have what could be something — or nothing — fill that void. Between Biden’s surprise trip to Kyiv, concerns of Russia’s response to his visit, and evidence emerging that Iran may have just below the enrichment threshold for weapons-grade uranium for a nuclear weapon, it’s enough to give the market pause after a rally since the start of the year (in addition to less of the technical support discussed a couple weeks ago).
Historically speaking, geopolitical tensions don’t tend to make a lasting impact on the markets. So despite all this, if I look away from the geopolitical anxiety, there are some positives out there from an investment perspective:
China's pro-market policy initiatives (reopening, less probing of technology firms, and fiscal/monetary stimulus) are supportive for investment opportunities in this region.
Valuations still aren’t quite appealing, but in many ways, this is a shorter-term block to appreciating the progress that has been made. Disinflation* (even if it slows for now) has been real, central banks, including the Fed, are nearing the finish line, and earnings/growth have been resilient — thanks to companies cutting costs for the future. This latter point can be seen as recently as yesterday’s earnings reports from retailers that showed somewhat disappointing results but better management of their inventory. More generally, this also shows in the milder reaction to “EPS Misses” for this earnings season in some sectors such as communication services and consumer discretionary (see the chart we built to track this below).
So while I am finding it tough to be excited about the US stock market right now, any dips may provide a good opportunity given the progress from last year’s conditions. Of course, what’s right for anyone always depends on their specific circumstances.
*Disinflation is defined by falling inflation, as opposed to deflation, which is falling prices.
Chart Sources: Robinhood Financial, Bloomberg