3 Big Market Problems Ukraine Raises

 | Mar 03, 2014 | 3:00 PM EST
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What investors must realize is that Ukraine's uprising and the subsequent maneuvers by Russia are what are called a headline risk. But so often a headline risk such as this becomes a fundamental risk to investor portfolios.

Here are a couple reasons why I would be concerned in the short-term about the market.

  1. Europe's economic recovery has been plodding along. We learned throughout the recent earnings season that U.S. multinationals from Clorox (CLX) to carpet and paint sellers are starting to raise prices in beat-up European countries (Italy, Portugal, etc.), and gain some sales volume strength. The market was expecting continued strengthening of the European economy in 2014. The Russia/Ukraine issue calls that into question at least near term.  Prolonged war or unrest will cause the Street to adjust and lower earnings estimates for the first quarter of this year by the end of March.
  2. Stock portfolios are overweight companies with north of 25% of sales coming from Europe. Any prolonged war could lead investors to re-rethink positions in these companies, with any selling scaring retail investors with weak stomachs that only recently entered the market at its new highs.
  3. A big risk is if investors exit their European dominant positions. That money could fly into many hot-money areas of the market, making them even hotter and more dangerous for a bubble pop. A great example would be Tesla (TSLA) and assorted social media stocks. Bubble pop would scare out retail investors.

Again, these are some dramatic assumptions. But it's how investors at home need to think as they watch this news cross their social media feeds.

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