AS headlines about an apparent escalation of the conflict in eastern Ukraine hit traders’ screens, selling was the word on Wall Street. Once again, though, for many it looked like nothing but another buying opportunity in United States stocks.
Benchmark US Treasury yields hit their lowest in 14 months on Friday after Ukraine said its forces had attacked and partly destroyed a Russian armoured column that entered Ukrainian territory overnight.
The S&P 500 ended last Friday down a mere fraction of a point. The three major US stock indexes posted a second straight week of gains after a correction that evaporated following a brief drop of four per cent.
An escalation of the conflict in eastern Ukraine will likely bring stronger economic sanctions against Russia from Europe and the US — and harsher retaliation from Moscow.
Business sentiment is already on edge in Germany as Europe’s largest economy deals with reduced trade with Russia. An index of Russian equities has dropped six per cent for the year so far. Against that backdrop, US stocks — backed by earnings — still look like the best option for investors in developed markets.
US-based stock funds that invest in European equities have marked nine straight weeks of outflows, according to Lipper, a Thomson Reuters company. Flows into US stock funds in that time have come to about US$3 billion (RM9.46 billion).
“If you’re concerned about increased tension in Ukraine, that’s the trade — at least for now,” said Art Hogan, chief market strategist at Wunderlich Securities.
“We are the cleanest shirt in the hamper,” he said of the US stock market.
During the selloff on Friday, the utilities sector remained strong, rivalled only by energy stocks, with investors focusing on high-dividend payers as US Treasury bond yields fell.
Looking forward, though, unless something else happens to upset markets, investors seem more focused on the re-emergence of leadership from the healthcare, biotechnology and tech sectors. The Nasdaq Biotech Index ended up 0.9 per cent on Friday, gaining 4.6 per cent for the week.
Brian Reynolds, chief market strategist at Rosenblatt Securities, here, believes tech, healthcare and large-cap biotechs are in position to lead the US stock market higher for the next several weeks. He sees the S&P 500 rising today if tensions do not become worse.
“If Russia does not escalate, stocks are likely to open above the 1,960 they were at earlier on Friday as people who put on knee-jerk shorts cover,” he wrote.
At a 4.6 per cent rate, revenue growth for S&P 500 companies is expected to be higher than estimates going back to October last year. Even as economic figures remain somewhat mixed, investors still remain positive about overall US demand.
“These are horrible human tragedies and that’s worthy of mention every time this comes up,” said Lawrence Creatura, portfolio manager at Federated Investors in Rochester. “However, the economic impact (in the US) has been small.” Reuters