S&P 500 falls below 2,000 as fear returns

The Ukraine crisis festers and other fresh concerns boil to the surface, knocking down markets and giving volatility some life.

By InvestorPlace Aug 28, 2014 6:32PM

Credit: © John Moore/Getty Images
Caption: Traders work the floor of the New York Stock Exchange on July 30, 2014By Anthony Mirhaydari


Some fear returned to the stock market on Thursday and the Standard & Poor's 500 Index ($INX) dipped back below 2,000 on growing evidence that Russian forces have moved into Ukraine with significant military assets.


NATO released satellite images of what it identified as Russian artillery battalions cross the border and setting up offensive positions against Ukrainian forces.


And after the close, President Barack Obama said Russia's "ongoing incursion" into Ukraine was responsible for the violence there and that the latest events would bring "more costs and consequences for Russia."


This comes as the summertime lull looks set to end (traditionally, after the Labor Day holiday) with stocks looking vulnerable perched at new highs (barely) amid collapsing volume and fresh signs of concern.


Investors need to take notice.

The CBOE Volatility Index ($VIX), or the VIX -- Wall Street's "fear gauge" -- is testing back over its 50-day moving average as it looks ready for its first significant uptrend since July. And high-yield junk corporate bonds, the hinge on which the market turned lower back in July, is stalling at its June highs and looks set for a reversal lower.


Investors have enjoyed calm in the market over the last few weeks as the economic data, especially on inflation, diminished what had been a big bugaboo in late July and early August: the specter of sooner-than-expected interest rate hikes from the Federal Reserve.


And while this issue has been moved to the back burner for now, fresh concerns are boiling up.


The situation in Ukraine looks ready to escalate has Moscow has little option but to more forcefully intervene in Ukraine now that pro-Russian separatists in the east have suffered a series of military defeats and have been knocked back on their heels.


But there's more.


Political risks are on the rise heading into the November midterm elections, setting the stage for another round of contentious budget battles between the White House and Congress of a type we haven't seen since 2012. The Fed's QE3 bond purchase stimulus is set to end in October, leaving the market without a steady flow of cheap money for the first time since 2012. Prior periods of no Fed purchases in 2010 and 2011 were accompanied by periods of market weakness.


And finally, the last few days has seen expectations rise for next week's upcoming European Central Bank policy meeting. The risk of disappointment is high as the ECB legally isn't able to launch the type of Fed-style QE bond buying program, despite growing expectations that such a program is imminent as Europe struggles with deflation and unemployment.


Fresh opportunities are appearing in defensive assets, with precious metals in particularly looking ready to benefit from the fresh wave of fear. The iShares Silver Trust (SLV) is cutting up and out of its tight two-month downtrend channel.


In response, I've recommended the VelocityShares 3x Long Silver ETN (USLV) to clients. If you're less aggressive, the unleveraged SLV would be a good choice.


With trading volumes set to rise to more normal levels after the long holiday weekend, Thursday's pullback could be a preview of a bumpy September for a comfortable and complacent stock market.


More from InvestorPlace

Anthony Mirhaydari is founder of the Edge and Edge Pro investment advisory newsletters, as well as Mirhaydari Capital Management, a registered investment advisory firm.

29Comments
Aug 29, 2014 2:00AM
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This is getting just stupid, now.  Mere HOURS ago, there was an article saying that the economy has rebounded.  The S & P hit record highs.  Etc.   Its all ****.
Aug 28, 2014 11:43PM
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USA didn't ask Russia's permission to invade Iraq and Afganistan but if Russia invades another country it pisses off the USA. Am i missing something here?   Putin is a good chess player....he knows the USA is living on borrowed time with a massive 17.3 trillion dollar national debt and growing fast with Obama in the oval office.  When the dollar collaspes, Russia will still be in good shape.

Ironic the USA polices the world but leaves the mexican border wide open so tens of thousands of illegals cross into the USA to get all the social welfare freebies.  Our government is full of morons!
Aug 28, 2014 8:53PM
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Keep Barry on the golf course and let the pros take care of global relations

Aug 29, 2014 5:00AM
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It is disturbing to know that the private sector in America is more wealthy than the country they live in!
Aug 29, 2014 4:54AM
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Get ready for the big screwing. I for one am ready! Once again this government has turned a blind eye towards the real problems and a deaf ear to the People. We the PEOPLE for the PEOPLE.....Well where are those PEOPLE?
Aug 28, 2014 11:31PM
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I don't see a line up of millionaires on Wall st. just waiting to invest their hard earned money. It's the Fed pumping money into the markets trying to sustain a false ride on a bull. This creates a currency war in the global markets that makes everyone nervous so precious metals become the flavor of the month. This is all about resources, export and trade. We're getting down to the nitty gritty on the world map. Obama's licking his chops to go in and join the fight but he's got no money from Congress or support from his administration. This could get ugly if China's economy starts to recline when consumer spending slows in the fall.
Aug 29, 2014 6:09AM
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To all the commentators ...........at least you take the time to be heard but who is listening?? It surely is not our elected officials, major television network owners, or big business.  Before the internet and venues like this one the American public had no ability to voice our feelings.........we were kept in the dark and ignorant.......maybe we were better off?.........of course not!


 If the American public really wants to be heard.........STOP WATCHING MAJOR NETWORK NEWS, especially those morons on CNN. What do we expect the rest of the world to think of America when most of us are addicted to idiotic reality TV programs and other day-time stupidity like tabloid television.........thanks for starting this crap Jerry Springer!..........

This rant may not seem to have anything to do with this MONEY article.........but it does! Why?

Because we feed the Billionaires like Soros by being zombies in front of the damn TV.

Think about it folks!

Finally, yes all your comments have varying degrees of validity but purporting the Apocalypse of America doesn't help.........What will help is when each of us take control of our own lives and stop letting major network television lead us around by our noses.

Aug 31, 2014 2:46PM
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The S & P is over 2003.   They  obviously    don''t     know anything about finance  and  they  don't  know  much more about what  people want in a computer   operating  system.   I  recently   bought  a new lap top with Windows  8.1,   but took it back to the store and got  my money  back. waiting   for   windows 9 that hopefully will be somewhat  more user  friendly  or am saving  for a MAC 
Aug 28, 2014 10:48PM
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The Fed's QE3 bond purchase is set to end in October. This phony bubble market will come to an end without the cheap Fed money. Russia knows Obama like main street knows Obama. All talk and no walk. Top spy verses top liar. Not a good situation. You got to know when to hold them and when to fold them. The difference between making a fortune or ending up with what the lawyers give you.
Aug 28, 2014 8:38PM
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The Usa is $4 trillion in debt and the Fed. is $4trillion in debt no dought bankruptcy is coming. So buy in to the bull s--t market.
Aug 29, 2014 10:44AM
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I wish the analysts would stop trying to find any excuse on why the market is up or down.  When Russia was going to invade the Ukraine, the market only drops slightly but when it seems they aren't going to invade then the market soars.  About a month ago the DOW had dropped over 600 points but the scumbags of Wall St quickly pumped it back up again.  This who market is nothing but a joke and our gov supports it.  What a sham.  Stop all the gov intervention and free money and let the market stand on it's own and then we'll see how strong our economy is. 
Aug 29, 2014 8:27AM
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Putin isn't a great Chess Player. He has seen the Western Nations closing in on his borders for decades and he hasn't been able to prevent any of it from happening. Furthermore his worst nightmare, Becoming China's -B-, instead of the other way around also has him totally frustrated.

Instead of investing from their vast Energy Resources in preparing for this well known coming showdown for over a decade, Putin and other Russian leaders have clearly ill prepared there Nation for what has happened. If Putin actually knew what he was doing, the almighty Dollar wouldn't still be the World's ultimate Reserve currency. If Putin actually had a clue, he would already have had alternate plans in place to prevent any sanctions from controlling what moves he must now make.

Putin is as trapped as are the Central Banks. The Euro-Zone can't afford another Crisis. However, This isn't our Fight, let Europe solves their own problems. They want our Corporations to base there instead of HERE. Well they can then fight their own battles and FUND them as well. We can use the cost savings and start investing in America.

Concerning Fear returning, say that when see 300 point down moves continually in the DOW. Right now, it's hardly a Blip on the Radar. Fear is returning, where. When it truly does come back, it will be of Epic proportions.

Aug 28, 2014 10:38PM
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With all this turmoil kicking off around the globe, you would think Obama would be jumping at the chance to enter a conflict. Why the hesitation, the U.S military should be hopping all over these conflicts. But the cash strapped U.S.A is battle weary and unable to afford another fight. Putin and the rest of the BRIC nations are tired of supporting the American economy. If America can't pays it debt then the other countries of the world will start using other payment methods for export and trade instead of using the U.S greenback. This cuts the Americans out of the Global banking game and sends the country into an economic spiral down the drain for a few decades. Russia is securing resources in the Ukraine to keep them out of the hands of the west. This mess is out of Obama's hands, the European leaders, Russia and China are all deciding weather or not to sink the U.S economy. Obama has no one to blame and no way out of the problem. He's reluctant to join the game, because he knows he has no money in his pockets to make the minimum bet. Putin knows he's bluffing!
Sep 1, 2014 9:05PM
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Google " Gold Trading Academy ", it's about trading oil, you won't regret it, these guys are doing it right by me.

Aug 29, 2014 8:14AM
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A lot more fear to come once people pull their heads out of their aszes.
Aug 30, 2014 10:54PM
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yea the economy is being propped up by the government and when it crashes get ready because it is going to get real messy. The market usually crashes in setpember or october so get ready the government is out of options.
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