Signs of Concern for the Stock Market
As I start to put together my commentary for the month of March, one thing that’s become apparent is that the market has weakened significantly. In February, we saw a dip at the start and then a strong recovery, but this month we’re pretty much flat, which conceals several significant ups and downs.
We’ve seen four upticks—each hitting or getting close to new highs—but, each time, the gains eroded over the next couple of days. As the month went on, the gains were smaller and the losses quicker. It seems like the market is trying to move higher but just doesn’t have the energy.
I’m not a big fan of trying to time the market on a short-term basis, but this kind of behavior seems to indicate that we may at least have a pause here. Make no mistake, the longer-term indicators are still healthy, but I’m concerned about this pattern of jumps followed by declines.
Fed to Citi: Get Your Risk Controls in Order!
I don’t often say this, but hooray for the Fed! The real question about the big banks has been whether they’ve essentially captured the regulators—whether too big to fail means too big to control. That issue certainly hasn’t been resolved, but the decision to deny Citi’s dividend and buyback plans due to deficiencies in the bank’s risk controls and planning shows that the Fed has some teeth.
One of the real worries as leverage starts to build again, and as banks remain basically the same as they were before the financial crisis, is whether we’ll face another Lehman moment. By monitoring the system, and showing that even the largest institutions can be denied a basic self-management decision, the Fed has indicated that it’s at least paying attention.
The Recovery Continues
The upward revision to the size of the economy at the end of last year—along with another drop in initial unemployment claims, back to the lows at the end of last year, before the snowdown—shows that the recovery remains on track. Consumer confidence rose to the highest level since February 2008, at the start of the crisis, and personal consumption rose 3.3 percent, much higher than expected.
Much of the rise in consumer confidence came from improved expectations, which suggests that future conditions will be even better. The combination of improved expectations and higher spending could indicate that growth is poised to accelerate; although the first-quarter results will certainly be damaged by the weather, the second quarter should be much stronger.
Ukraine Continues to Rattle Markets
The situation in Ukraine continues to decay, with Russian troops massing on the border and also positioning themselves in Transnistria, a breakaway part of Moldova. While Washington tries its best to rattle Russia, Europe is unable to agree on a comprehensive approach.
Market complacency seems to be eroding as Russian intentions become less clear by the day. After the invasion of Georgia in 2008, which carved off areas similar to Crimea, there is both precedent and means if Putin wants to take more territory, and the absence of a real reaction so far has to encourage him to do so if he wants.
This situation is far from resolved, and recent market action suggests that the reaction could be significant if it gets worse.