Scary headlines, calm markets: Stocks shrug off a world of worry – USA TODAY

If you look at how the stock market has behaved lately, it’s as if investors haven’t been watching the unsettling events unfolding on the news.

By any measure, so-called “headline risk,” largely in the form of anxiety-provoking news from around the globe, has been on the rise. There was the U.S. missile strike in Syria, the mega-bomb America dropped on ISIS in Afghanistan and President Trump’s war of words with North Korea. The list of things to worry about grew longer Tuesday with twin surprises: British Prime Minister Theresa May’s call for a “snap” general election in June and U.S. financial giant Goldman Sachs’ first quarterly earnings disappointment since 2015. IBM added to the angst Wednesday with a weak earnings report.

And no list of global financial market fears would be complete without mentioning the uncertainty surrounding the outcome of the first round of French elections on Sunday. That event could propel controversial candidates to the top of the polls and ratchet up the Wall Street worry meter even more.

But despite these fears, the stock market has held up relatively well, shrugging off most of the shocks thrown its way. After a modest loss of 0.17% Wednesday, the broad Standard & Poor’s 500 is just 2.4% shy of its March 1 record close.

And while there’s no denying recent news has caused the stock rally to stall, the market’s stability during this turbulent time — at least so far — is sending a positive message.

“When a market is able to shrug off ostensibly bad news, it’s a sign of strength,” said Doug Ramsey, chief investment officer at The Leuthhold Group.

Stock investors, Ramsey said, are focusing on less gloomy things, like first-quarter earnings for American companies, which are shaping up to be the best forprofit growth since 2011, according to Thomson Reuters I/B/E/S data. Investors, he added, are also focusing on what they see as the first broad, global economic upturn in many years. For now, it appears, the bet on better business conditions is winning out over fears about potential conflicts abroad and what might go wrong.

Not everyone on Wall Street, however, is as dismissive of the geopolitical storm clouds over markets. Peter Cardillo, chief market strategist at First Standard Financial, blames the market’s recent weakness and inability to make new highs on the global strife. “The worsening political situation is mostly behind the decline,” he argued in a report, adding that he thinks the stock pullback could pull prices down 6% to 8%.

Politics at home also have investors on edge, as Wall Street awaits the Trump economic agenda, which has been delayed due to political discord on Capitol Hill. 


Some signs of market stress are evident. The price of gold, viewed as a haven in turbulent times, is trading around $1,280 an ounce and within striking distance of $1,300 for the first time since early November in the days before the presidential election when investors were unsure of the outcome and potential market impact. Similarly, the price of the 10-year U.S. Treasury note, another asset investors flock to when markets get volatile, has also been rallying, pushing the yield, which moves in the opposite direction, down to a five-month low and briefly below 2.20%. And a closely watched Wall Street fear gauge, dubbed the VIX, has soared 40% in the past nine trading sessions to its highest level since Election Day on Nov. 8.

So why aren’t stocks down more, especially with the increasing hostility between North Korea and the U.S. and loose talk of nuclear confrontation?

More often than not, similar types of geopolitical tensions have turned out to be “false alarms”  in recent years, and investors seem to react as if “they’ll never materialize,” said Nick Sargen, chief economist at Fort Washington Investment Advisors.

Investors also don’t think the scary headlines emerging from places like North Korea or Syria will “result in disruptions to global trade or economic growth,” said Kate Warne, market strategist at Edward Jones. She also downplayed making too much of one bad earnings report from Goldman Sachs, given that the current profit reporting season is expected to be a good one. Profit growth for the S&P 500 for the first three months of 2017 is currently estimated at 10.8%, which would mark the best growth since the third quarter of 2011, according to Thomson Reuters.

“A market retrenchment during earnings season isn’t likely,” Warne says. “It would require many more high-profile earnings misses that seem to be indicative of future difficulties, rather than a big miss by one company (Goldman Sachs) that seems to be an outlier in its industry.”

Goldman’s rival Morgan Stanley’s earnings topped expectations early Wednesday, bolstering Warne’s theory that Goldman’s miss was a one-off event.  But she warned that an “increase in other negatives” could weigh onstock prices as earnings season winds down in a few weeks.

David Kotok, chief investment officer at Cumberland Advisors, said he takes military confrontation and jawboning seriously, but that “betting on a war coming is mostly a losing bet.”

Still, a nervous Kotok admits he would raise cash quickly if a “shooting war was imminent.” An up-and-down market should be expected during periods of negative news, he added.

Wall Street is also betting that despite all the tough talk between the U.S. and North Korea, “diplomacy will eventually succeed,” said Sam Stovall, chief investment strategist at CFRA.

Another plus is that Trump’s recent meeting with Chinese President Xi Jinping seems to have gone well, and investors are hoping, like Trump, that China will help calm tensions with North Korea, said Chris Zaccarelli, chief investment officer for Cornerstone Financial Partners.

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