Stocks are lower this morning amid ongoing tensions in Iraq and Ukraine.
S&P 500 futures are off about 0.2 percent. Europe is down more sharply, led by drops of 0.8 percent and 0.9 percent respectively in the higher-risk countries of Italy and Spain. Asia was mixed overnight, with Tokyo down 1.1 percent but Shanghai up 0.7 percent.
Sunni Islamists made further advances in northern Iraq and posted graphic images of national soldiers they claimed to have killed. The success of the rebels is now prompting collaboration between the United States and Iran. In Ukraine, pro-Russian rebels shot down a military transport on Saturday, killing 49. Today, Moscow cut off natural-gas supplies to Kiev.
The main concern in both situations is that the conflicts will escalate into broader wars. Without that happening, it's unclear how the tensions will impact equities because neither threatens to undermine the reason that stocks have been advancing. If anything, they could help energy stocks, which have emerged as the strongest sector in the last three months.
The S&P 500 broke out to new highs in late May, hit 1950 a week ago and has been pulling back since. It's now trying to hold support around the same 1925 level where it consolidated between May 30 and June 3, which could make some chart watchers expect further gains. Other technicians may expect a deeper pullback toward the old high around 1900.
Our researchLAB market scanner also shows strength in solar energy, Chinese Internet stocks, and gold and silver miners. Several subgroups have also emerged within the energy sector, especially ocean drillers, liquefied natural-gas producers, and wildcat drillers. Airlines and European banks have pulled back in the last week.
Merger news also continues and remains a positive tailwind for equities. Medtronic agreed to buy medical-device maker Covidien yesterday for $42.9 billion in stock and cash. COV surged 34 percent on the news. Today it was announced that SanDisk will buy Fusion-IO for $1.1 billion in cash, while Level 3 agreed to purchase TW Telecom in a $5.7 billion deal. International Game Technology, the target of buyout speculation on Friday, confirmed it was in talks to be acquired by Italy's GTECH.
Today's calendar brings the New York Federal Reserve's Empire manufacturing index at 8:30 a.m. ET. Industrial production and NAHB's housing-market index follow at 9:15 a.m. ET and 10 a.m. ET respectively. Real-estate remains in the news tomorrow with housing starts and building permits.
The big event for the week comes Wednesday afternoon when the national Fed announces monetary policy. Adobe Systems announces results tomorrow afternoon, followed Wednesday morning by FedEx. Oracle follows Thursday afternoon.
Currencies and commodities are not reflecting much fear given the headlines from overseas. Oil is down slightly, while gold and natural gas are both up 0.5 percent and copper is gaining 0.8 percent. The Japanese yen, often an indicator of market bearishness, posted only small gains.
Disclosure: I own COV shares.
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