Stocks Fall as Ukraine Trumps Jobless Claims

Who cares about falling jobless claims when Russia is massing troops along Ukraine’s border and banning food imports from the U.S.?

European Pressphoto Agency

Not the stock market. The S&P 500 fell 0.6% to 1,909.57, while the Dow Jones Industrial Average dropped 0.5% to 16,367.27 and is now down nine of the past 12 trading days. The Nasdaq Composite declined 0.5% to 4,334.97 and the small-company Russell 2000 dropped 0.5% to 1,119.76.

The losses came even as initial jobless claims fell to 289,000 last week, well below forecasts for a dip to 300,000. The four-week average dropped to 293,500, the lowest since 2006.

RBC’s Robert Stallard quotes the bank’s “geopolitical adviser” General Charles Vyvyan, who thinks the West needs to offer Vladimir Putin a way out:

Putin clearly will not, is not, able to respond to threats; he has invested too much in his nationalist rhetoric. If the West does not want a meltdown in global relations, it is up to them to offer him a lifeline. He knew, even if the vast majority of Russians did not know, that even before the impact of sanctions became apparent, his country was a failing state…I believe that Putin will pursue further offensive strategies in Ukraine which will attract yet more debilitating sanctions; and that he will then blame the disastrous situation in the country on the sanctions, thus absolving himself of all responsibility for a situation entirely of his own making.

It is not in our interests to isolate Russia from international institutions; it is therefore incumbent on us to identify and to facilitate a resolution to the current confrontation – Chancellor Merkel has made it very clear that the only solution is a political solution. That solution must be achieved through the convening of an international conference attended by the interested parties which would formulate structures, principally governance structures, which recognize and protect Russian interests in Ukraine. In the absence of such an initiative, I can only see the stand-off getting worse; and speed and a coherent strategy are of the essence.

The S&P 500 has dropped 3.9% from its July 24 high, and the VIX has jumped to 16.7 with it. Credit Suisse’s Ed Tom and Mandy Xu think investors might be overreacting:

With the recent geopolitical turmoil, equity volatility has spiked. The VIX is up more than 5 vol pts over the past week to a high of 17.0%. Yet when we survey other asset classes, volatility remains benign there. Wk/wk, 1M implied vol actually fell for interest rates while they remained unchanged for FX (G7) and gold…

S&P 1M implied correlation also surged to a 1-year high last week, as macro risks have completely overshadowed single stock earnings. However, both cross-asset correlation and volatility contagion still remain at below average levels. This, combined with the high VIX, suggests equity investors may be overpricing near-term macro and geopolitical risks.

We can only hope so.