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Weekly Market Commentary 9/3/2013

Weekly Market Commentary 9/3/2013

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Weekly Market Commentary 9/3/2013
Weekly Market Commentary 9/3/2013

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Published by: monarchadvisorygroup on Sep 04, 2013
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Member FINRA/SIPCPage 1 o 3
Jeffrey Kleintop, CFA
Chief Market StrategistLPL Financial
LPL FINANCIAL RESEARCH
Weekly Market Commentary
September 3, 2013
Stocks Likely to Focus on Domestic OverForeign Policy in September
Highlights
The historical pattern or the stock marketaround military actions points to a pre-strikerally recouping earlier losses. However, thecurrent pullback has more to do with domesticeconomic and policy concerns than withoreign policy.
The markets were most ocused on an impending military strike on Syrialast week. While prospects or an imminent strike have aded, the likelihoodo military action in the near uture remains. Unortunately, the past oersus many periods o military action. Looking back at these can help us drawparallels and gain perspective on the most likely outcome or the markets.Although the circumstances surrounding prior conicts have been varied,investors have experienced the same emotional response and, as aresult, the markets yielded a similar outcome. Most military conicts haveprompted a common pattern in the stock market: impending war acted asa negative rom when the United States committed to action until actionbegan; once action began, markets rebounded. The rebound can comequickly, as it did in WWII when Doolittle’s raid in April 1942 retaliating orthe December 1941 Pearl Harbor attack turned stocks higher despite awar that lingered or years. The buildup to the Korean War caused a sharpmarket drop in mid-1950, but losses were quickly reversed as soon as U.S.troops were engaged.In recent decades, the pattern changed slightly, with the stock marketbottoming and starting to recover ahead o the military strike[Figure 1].Examples include:
 
Stocks bottomed on January 9, 1991, just days ahead o the January 17,1991 start o the Gul War. The related 6% decline that began in mid-December 1990 was ully recouped in the ollowing six trading days.
 
Stocks bottomed on December 14, 1998, just days ahead o the December16, 1998 bombing o Iraq. The related 4% decline that began in lateNovember 1998 was ully recouped in the ollowing our days.
1
Pre-Strike Stock Market Rallies
ConfictRelatedDeclineS&P 500BottomedStart oMilitary ActionDays toRecoup Losses
GulWar6%Jan 9, 1991Jan 17, 19916Iraq bombing4%Dec 14, 1998Dec 16, 19984Serbia strikes4%Mar 23, 1999Mar 24, 19999Iraq War13%Mar 11, 2003Mar 19, 200338Libya strikes6%Mar 16, 2011Mar 19, 201126Source: LPL Financial, Bloomberg 09/03/13
Most military conicts have prompteda common pattern in the stock market:impending war acted as a negative;once action began, markets rebounded.
 
WEEKLY MARKET COMMENTARY
LPL Financial Member FINRA/SIPC Page 2 o 3
 
Stocks bottomed on March 23, 1999, just days ahead o the March 24,1999 strikes on Serbia. The related 4% decline that began a ew daysearlier in mid-March was ully recouped in the ollowing nine days.
Stocks bottomed on March 11, 2003, just days ahead o the March 19,2003 strike and subsequent invasion o Iraq. The related 13% decline thatbegan in mid-January was ully recouped in the ollowing 38 days.
 
Stocks bottomed on March 16, 2011, just days ahead o the March 19,2011 strike on Libya. The related 6% decline that began in mid-Februarywas ully recouped in the ollowing 26 days[Figure 2].The historical pattern suggests that i a strike on Syria begins soon, then theS&P 500 may have bottomed last week ater a 4.6% pullback rom its peakon August 2, 2013. However, this stock market pullback began well beorethe August 21, 2013 chemical attack and has more to do with domesticeconomic and policy concerns than with oreign policy.Instead, the outlook or economic and proft growth, along with thepotential or volatility related to the Federal Reserve (Fed) tapering itsbond-buying program and the fscal fghts in Washington, are likely toagain take precedence in the minds o investors. This week’s economicreports, including the widely watched Institute or Supply Management(ISM) manuacturing report on September 3 and the employment report onSeptember 6, provide important data points on the Fed’s decision whetherto begin tapering this month. On the fscal ront, the continuing resolutionunding the ederal government runs out at the end o this month, and thedebt ceiling is likely to be hit in mid-October with Congress jointly scheduledto be in session only nine days in September. The combination o actorsmay contribute to another volatile month or investors in the stock market.
Source: LPL Financial, Bloomberg data 09/03/13The S&P 500 is an unmanaged index, which cannot be invested into directly. The returns do not reect ees,sales charges or expenses. Index perormance is not indicative o any particular investment. Past perormanceis no guarantee o uture results.
2
Classic Pre-Strike Rally Pattern Unolded in 2011 Libyan Strike
Mar 2011Feb 2011Jan 2011Apr 201113851345130512651225S&P 500 Index
Clashes between
opposition
and
Libyan
government forces
Strikes begin
on LibyaStocks make conflict-related
low point
Stocks recoup losses
26 days
after low
The historical pattern suggests thati a strike on Syria begins soon, thenthe S&P 500 may have bottomed lastweek ater a 4.6% pullback rom itspeak on August 2, 2013.

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