- Ukraine situation becoming more serious.
- Any European “risk-off” positive for U.S. assets.
- U.S. stocks should hit new highs before end of this year.
The situation in Ukraine is becoming more and more serious, and Russian forces could advance west into Ukraine proper. While this could cause a slowdown in the ongoing European economic recovery, stemming from the subsequent disruption of gas supplies, I do not believe it will be enough to derail the expansion taking place on the continent.
What does all this mean for the U.S. investor? Any kind of "risk-off" trade in Europe should be positive for U.S. assets, in particular bonds. I expect to see more capital flowing into the United States as a safe haven trade. As for U.S. equities, the New York Stock Exchange Advance Decline line reached a new high last week, meaning any sell-off will likely be muted. I maintain my view that we will be at new highs before the end of this year. This topic was discussed heavily at the Milken Institute Global Conference.
Turmoil in Ukraine Causing Flight to Safety
It appears that amid continued geopolitical uncertainty, a flight to safety is occurring in global financial markets. We use Russian government bond yields to measure the degree of uncertainty regarding Ukraine, and the average correlation between traditional safe haven assets to measure flight to safety. These indicators show that over the last several months, the situation in Ukraine has caused investors to increasingly seek out safer assets, and due to the likelihood of continued, or increased, instability in Ukraine, safe assets such as U.S. Treasuries stand to benefit.
This material is distributed for informational purposes only and should not be considered as investing advice or a recommendation of any particular security, strategy or investment product. This article contains opinions of the author but not necessarily those of Guggenheim Partners or its subsidiaries. The author's opinions are subject to change without notice. Forward-looking statements, estimates, and certain information contained herein are based upon proprietary and non-proprietary research and other sources. Information contained herein has been obtained from sources believed to be reliable, but are not assured as to accuracy. No part of this article may be reproduced in any form, or referred to in any other publication, without express written permission of Guggenheim Partners, LLC. ©2014, Guggenheim Partners. Past performance is not indicative of future results. There is neither representation nor warranty as to the current accuracy of, nor liability for, decisions based on such information. Past performance is not indicative of future results. There is neither representation nor warranty as to the current accuracy of, nor liability for, decisions based on such information.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.