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How the Spillover Effect from Global Events will Influence the U.S. Market

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Given all of the geopolitical turmoil of late that’s rocked many of the biggest emerging markets in the world, it’s logical to ask ourselves if there will be a spillover effect — some call it “contagion” — here in the U.S. equity markets.

During the past month, stocks in the S&P 500 have maintained their upward bias in the face of geopolitical tumult, climbing about 2.6% in the past four weeks. And though we have seen some selling in stocks during the past couple of days, that selling certainly hasn’t been anywhere close to the selloff we’ve witnessed in those markets closest to the latest political upheaval.

For example, in perhaps the most inflamed hotbed of geopolitical turmoil, Russia, we’ve seen stocks tumble nearly 15% during the past month. In just the last five trading sessions, the Market Vectors Russia ETF (RSX) has plunged 6.3%. The chart here of RSX clearly shows the damage done to Russian equities since tensions with Ukraine began earlier this year.


But the Russian bear isn’t the only market that’s seen a big pullback of late. There also has been some extreme selling in Chinese stocks, as serious concerns over that country’s faltering economic growth, as well as fears that the so-called “shadow banking system” has come under pressure, have caused stocks in the benchmark iShares FTSE China 25 Index (FXI) to tumble well below their 50- and 200-day moving averages.


Flying somewhat under the radar in terms of mainstream news coverage are the myriad problems in Turkey, particularly the latest drop in that country’s debt market. That nation’s yield curve now has inverted, meaning that long-term debt instruments now have a lower yield than short-term debt instruments of the same credit quality. This kind of situation is what has been historically present right before major recessions.

If there is a spillover effect in Turkey that negatively affects Europe, or if the troubles in Russia and/or China persist, it may not be long before the U.S. bull market stumbles.

On Money and Energy

“Money is neither my god nor my devil. It is a form of energy that tends to make us more of who we already are, whether it’s greedy or loving.”
— Dan Millman

Money is a tool of exchange, and the pursuit of money and the freedom it brings certainly is something of the utmost importance to a life well lived. However, money doesn’t determine who a person is. The substance of who you are is based on your thoughts, beliefs, actions and the myriad other ways you express yourself. Yes, money can amplify your traits, for good and bad, but as the saying goes, money doesn’t make the man.

Wisdom about money, investing and life can be found anywhere. If you have a good quote you’d like me to share with your fellow Making Money Alert readers, send it to me, along with any comments, questions and suggestions you have about my audio podcast, newsletters, seminars or anything else. Ask Doug.

In case you missed it, I encourage you to read my e-letter from last week about how stocks bounced back after January’s losses and where they are headed next. I also invite you to comment about my column in the space provided below.

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About Doug Fabian

Doug Fabian is the editor of the monthly investment newsletter Successful ETF Investing, and is the host of the syndicated radio show "Doug Fabian's Wealth Strategies." He also recently began writing the weekly trading service ETF Trader’s Edge. Taking over the reins from his dad, Dick Fabian, back in 1992, Doug has continued to uphold the reputation of the newsletter as the #1 risk-adjusted market timer as ranked by Hulbert’s Investment Digest. Doug published the book "Maverick Investing," and has appeared as a commentator on CNBC, Fox News, and CNN. He also has been quoted in the Wall Street Journal, USA Today, Barron's, and other publications. For more information about Doug’s services, go to http://www.fabian.com/

View all posts by Doug Fabian →


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