Barcelona attacks, Charlottesville violence rattle markets

In this week’s edition of Market Week in Review, Rob Cittadini, regional director, consultant relations, chatted with Mark Eibel, director, client investment strategies, on the effects of recent geopolitical events on financial markets.

Market reaction to events in Spain and U.S.

In the U.S., politics dominated the news—and the markets noticed, Eibel said. The U.S.-North Korea situation, the violence in Charlottesville, Virginia and the terrorist attacks in Spain all led to an uptick in volatility. “This certainly moved the markets,” Eibel stated, noting that the three major U.S. stock benchmarks—the Dow Jones Industrial Average, the S&P 500® Index and the NASDAQ Composite Index—were all down more than 1% on Aug. 17 for the first time in four months.

Overall, financial markets may start paying more attention to geopolitical events, Eibel said, especially given that it’s still summer, when trading volumes are lighter and there’s less economic news to focus on. In his and other Russell Investments strategists’ view, there’s likely to be a little more chop in the markets in the near-term.

Weak inflation numbers weighing on Fed

The discussion turned to the U.S. Federal Reserve (the Fed) and its recent release of minutes from a July meeting of the Federal Open Market Committee. The notes showed that there was a discussion among committee members around the current weakness in inflation—and debate over whether it’s a temporary or longer-lasting problem. According to Eibel, the news from the minutes was hardly dramatic, but—just like recent political events have demonstrated—the end result for equity markets may be the same.

“The Fed may or may not raise interest rates a third time this year,” Eibel said, “but it’s the uncertainty surrounding this that could lead to some more market volatility.” He added that in his view, markets are less likely to be concerned with this than with recent geopolitical events or potential corporate tax reform.

Good economic data from Europe

Transitioning to economic news, Eibel noted that Europe continues to be a bright spot in regards to growth. What’s particularly encouraging, he said, is that the gross domestic product (GDP) growth rate for the region is close to matching that of the U.S., at nearly 2.5%, according to data from Eurostat. Moreover, Eibel emphasized, the growth isn’t confined to just Germany, with Italy and the Netherlands also experiencing an uptick in production. “A broader economic expansion is starting to take shape in Europe,” Eibel concluded. “The slow blocking and tackling, so to speak, of monetary policy throughout Europe appears to be working.”

Watch the video.