Stock Report For Week Ended August 8, 2014
Smaller-caps outperform in volatile week
Stocks registered gains for the week, with small- and mid-caps outperforming large-caps. The major indexes were volatile as investors reacted to political turmoil overseas, and as relatively light trading volumes accentuated price swings.
Ukraine worries weigh on sentiment
Markets got off to a positive start on Monday, recovering a portion of their sharp losses from the end of last week. Sentiment quickly reversed, however, sending the markets sharply lower on Tuesday. The causes of the reversal were murky, but heightened worries over the situation in Ukraine may have been partly to blame. Indeed, on Wednesday, the Russian government announced that it was banning food imports from the U.S. and European countries in retaliation to sanctions imposed by the West.
Eurozone worries continue
While most experts anticipated the bans to have only a minimal direct impact on European economies—and an even smaller one on the U.S.—new worries arose during the week about the overall health of the eurozone. Figures released Wednesday showed that Italy had lapsed back into recession for the third time in recent years. German manufacturing orders also declined sharply, which some observers traced to heightened caution due to the Ukraine crisis. An index of manufacturing activity in Germany showed a slight increase in July, however.
Markets end week on positive tone
Some reassuring news on Ukraine helped markets end the week on a more positive note. On Friday morning, a Russian news agency reported that Russian officials were prepared to mediate in talks between the Ukrainian government and pro-Russian separatists, and Russian officials announced later in the day that they were ending military exercises along the border. These developments coincided with news of limited U.S. air strikes in Iraq, which investors seemed to take largely in stride.
Good news on productivity
Encouraging news on the U.S. economy may have also played a part in the late rally. The Labor Department reported a surprisingly large rise in labor productivity in the second quarter, along with a remarkably small rise in unit labor costs. The data may have eased the concerns of some investors, who interpreted hints of rising wage costs in recent weeks to mean that the Federal Reserve might act sooner than expected to head off any inflationary pressures by raising short-term interest rates.