Turkish Turmoil Fuels the Volatility Machine

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Bulls made money, bears made money. Turkey got slaughtered.

That’s pretty much what happened last week. The S&P 500 began with a steady climb on Monday and continued higher into Tuesday. That’s when the bulls made money. On Wednesday and Thursday, the index stalled near a long-term high and started rolling over. That’s when the bears made money.

Early Friday, Recep Erdogan publicly challenged U.S. President Donald Trump. That’s when Turkey got slaughtered.

Ankara’s spat with Washington triggered a selloff in global markets, sending the lira to its worst levels ever. Anxiety swept European banks and emerging markets. Russia and the ruble also got hammered by Moscow’s own sanction fights with Washington.

All told the S&P 500 closed down 0.25 percent between Friday, August 3, and Friday August 10. It was the first negative week in six.

Apart from the global turmoil, things were pretty quiet in U.S. markets. Retailers climbed as investors awaited the sector’s earnings this week and next. Smaller tech stocks in the e-commerce and fiber-optic spaces also jumped on strong earnings. Domestically focused small caps rose almost 1 percent.

Economic news remained very strong, although there were few headlines. Initial jobless claims, for instance, fell more than expected to remain near a four-decade low. Rail traffic still hummed at multiyear highs. Muted inflation and the Turkish crisis also kept a lid on interest rates — even as the Treasury Department issued record amounts of debt. Goldman Sachs and Morgan Stanley even boosted their estimates for U.S. growth.

Telecom stock CenturyLink (CTL) was the best performing member of the S&P 500 last week, climbing 14 percent on strong quarterly results. Michael Kors (KORS) followed with 13 percent gain as the fashion company’s turnaround strategy continues to bear fruit.

Newell Brands (NWL) wasn’t so lucky. The debt-laden consumer-goods company earnings missed estimates due to unsold merchandise and warned Trump’s tariffs would squeeze profits. That erased 22 percent of its value and landed NWL at the bottom of the S&P 500’s totem pole for the week. Dentsply Sirona (XRAY) was second-worst, cratering 18 percent on weak guidance. Both stocks are at their lowest levels in over five years.

Ford Motor (F), by the way, didn’t fall as much on the week, but it also probed a new five-year low. Everything that can go wrong for the car maker seems to be going wrong: falling monthly sales, global trade uncertainties and currency volatility. Its balance sheet isn’t a bowl of cherries, either.

S&P 500 with potential levels to watch.

The S&P 500 is still within striking distance of its record high, but may have hit resistance near the bearish gap in late January. Can the index break out during the late-August vacation season, or will it consolidate for the time being? That’s a question traders will be asking this week.

They’ll also be watching Home Depot’s (HD) quarterly results and European gross domestic product tomorrow morning.

Wednesday’s agenda brings monthly retail sales from the Commerce Department, Macy’s (M) earnings, the New York Federal Reserve’s Empire manufacturing index and crude oil inventories. Tech companies Cisco Systems (CSCO) and NetApp (NTAP) report after the closing bell.

Housing starts, building permits, jobless claims and Wal-Mart Stores (WMT) follow the next morning. Chip stocks Nvidia (NVDA) and Applied Materials (AMAT) follow in the post-market.

Friday morning brings Deere (DE), a target of global-trade worries, and consumer sentiment.

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David Russell is VP of Content Strategy at TradeStation. Drawing on nearly two decades of experience as a financial journalist and analyst, his background includes equities, emerging markets, fixed-income and derivatives. He previously worked at Bloomberg News, CNBC and E*TRADE Financial. Russell systematically reviews countless global financial headlines and indicators in search of broad tradable trends that present opportunities repeatedly over time. Customers can expect him to keep them appraised of sector leadership, relative strength and the big stories – especially those overlooked by other commentators. He’s also a big fan of generating leverage with options to limit capital at risk.