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Markets Fall on Ukraine Fears, Still End Positive

Despite a late-week selloff due to renewed concerns about the situation in Ukraine, the major indices ended the week on a positive note. For the week, the S&P 500 gained 1.22%, the Dow grew 0.66%, and the Nasdaq added 2.15%.[1]

Geopolitical tensions in Europe ratcheted up when Ukrainian forces engaged an armored Russian column that crossed the border. Russia denies that any military vehicles entered Ukraine and that the mission was humanitarian. Although the full picture has yet to emerge, investors are worried that the engagement may cause further escalation of tensions.[2] Retail sales slumped in July as consumers took a break from buying automobiles. However, with employment growth on a steady upward trend, economists think that sales will likely rebound later in the quarter.[3]  The weak retail data begs the question: How are U.S. retailers doing? Not so well, it turns out. Overall, many retailers are suffering from low consumer demand and low margins in an intensely competitive promotional environment. Online retailers like Amazon have forced competitors to lower prices and offer special discounts, eroding margins and hurting earnings.[4]

Low-cost retailers like Wal-Mart (WMT) and Family Dollar are also struggling, mirroring the economic struggles of their largely working-class customers. Many low-income consumers have yet to fully recover from the financial crisis and stagnant wage growth is limiting their buying power. Though its overall Q2 earnings were respectable, Wal-Mart slashed its forward guidance, indicating that the giant is mired in a nationwide slowdown.[5]

This week, investors will be focusing on the release of the Federal Reserve Open Market Committee meeting minutes on Wednesday, as well as a major gathering of central bank leaders in Jackson Hole, Wyoming. Fed chair Janet Yellen and embattled European Central Bank President Mario Draghi will both speak at the meeting. Given Europe’s weak Q2 economic results, investors will be waiting to see whether Draghi has the stomach to step in with stronger quantitative easing strategies.[6]

ECONOMIC CALENDAR
Monday: Housing Market Index
Tuesday: Consumer Price Index, Housing Starts
Wednesday: EIA Petroleum Status Report, FOMC Minutes
Thursday: Jobless Claims, PMI Manufacturing Index Flash, Philadelphia Fed Survey, Existing Home Sales

Notes: All index returns exclude reinvested dividends, and the 5-year and 10-year returns are annualized. Sources: Yahoo! Finance and Treasury.gov. International performance is represented by the MSCI EAFE Index. Corporate bond performance is represented by the DJCBP. Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly.

HEADLINES

Jobless claims tick upward to six-week high. Applications for unemployment benefits climbed slightly last week, interrupting the positive trend we’ve seen the last few weeks, though most economists still think employment trends are moving in the right direction. Weekly data is often noisy, and economists prefer to look at longer-term trends.[7]

EU economic growth fades. Economic activity in the Eurozone slowed in the second quarter as Germany’s economy slid into reverse and France stagnated. Economists’ worry that sanctions against Russia will damage the fragile EU recovery, putting more pressure on Europe’s economic recovery.[8]

Low doc loans return. So-called “stated income” mortgages are returning as lenders chase applications that they can no longer afford to ignore. These mortgages, which allow applicants to show bank statements instead of pay stubs or tax returns may help expand the pool of mortgage applicants as lending volume falls.[9]

Consumer sentiment falls, but the news isn’t all bad. Sentiment among U.S. consumers fell to its lowest level since last November, but a gauge of current economic conditions remains positive. While lowered sentiment could threaten demand, economists believe consumer spending could still grow this year.[10]

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Investing involves risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values.

Diversification does not guarantee profit nor is it guaranteed to protect assets The Standard & Poor’s 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general.

The Dow Jones Industrial Average is a price-weighted average of 30 significant stocks traded on the New York Stock Exchange and the NASDAQ. The DJIA was invented by Charles Dow back in 1896.

The Nasdaq Composite is an index of the common stocks and similar securities listed on the NASDAQ stock market and is considered a broad indicator of the performance of stocks of technology companies and growth companies.

The MSCI EAFE Index was created by Morgan Stanley Capital International (MSCI) that serves as a benchmark of the performance in major international equity markets as represented by 21 major MSCI indexes from Europe, Australia and Southeast Asia.

The Dow Jones Corporate Bond Index is a 96-bond index designed to represent the market performance, on a total-return basis, of investment-grade bonds issued by leading U.S. companies. Bonds are equally weighted by maturity cell, industry sector, and the overall index.

The S&P/Case-Shiller Home Price Indices are the leading measures of U.S. residential real estate prices, tracking changes in the value of residential real estate. The index is made up of measures of real estate prices in 20 cities and weighted to produce the index.

The 10-year Treasury Note represents debt owed by the United States Treasury to the public. Since the U.S. Government is seen as a risk-free borrower, investors use the 10-year Treasury Note as a benchmark for the long-term bond market.

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1 http://goo.gl/joLJDT

2 http://www.cnbc.com/id/101906428

3 http://www.reuters.com/article/2014/08/13/us-economy-retail-idUSKBN0GD14320140813

4 http://www.zacks.com/stock/news/144048/why-retail-sector-woes-continue

5 http://www.corvuswire.com/us-news/walmart-announces-earnings-hugely-negative-forward-guidance/3490/

6 http://www.cnbc.com/id/101922670

7 http://www.bloomberg.com/news/2014-08-14/jobless-claims-in-u-s-rise-more-than-forecast-to-six-week-high.html

8 http://www.reuters.com/article/2014/08/14/us-eurozone-economy-idUSKBN0GE0J220140814

9 http://www.reuters.com/article/2014/08/14/us-usa-banks-loans-analysis-idUSKBN0GE09Z20140814

10 http://www.cnbc.com/id/101922730

11 http://www.realsimple.com/food-recipes/browse-all-recipes/fluffy-mashed-potatoes-00100000108111/index.html

12 http://www.irs.gov/uac/Newsroom/Job-Hunting-Expenses

13 http://www.golftipsmag.com/instruction/iron-play/quick-tips/from-150-yards-out.html?start=2#.U-1FG4BdVsI

14 http://www.aarp.org/health/conditions-treatments/info-2014/skin-cancer-nancy-snyderman.html

15 http://www.greenlivingtips.com/articles/repurposing-old-jeans.html

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