By Rodrigo Campos
NEW YORK, March 16 U.S. stock investors will
start the week on edge as markets worldwide react to the
referendum that appears to back Russia's claim to Ukraine's
Crimean peninsula, even if the vote result is not
U.S. stocks closed on Friday with their largest weekly drop
in the last seven weeks as the worst confrontation between
Russia and the West since the end of the Cold War continues to
unfold. Markets were also haunted by concerns over a slowdown in
Dozens of Russians involved in Moscow's gradual takeover of
Crimea face U.S. and European Union travel bans and asset
freezes on Monday. Russian state media quoted an exit poll as
saying 93 percent of voters supported union with Russia.
The White House rejected the referendum and called Russia's
actions "dangerous and destabilizing."
"There's an open question as to who suffers most," said Sam
Wardwell, investment strategist at Pioneer Investments in
Boston, about the planned economic sanctions.
"The EU is dependent on Russian natural gas; it's an
economic mutually assured destruction."
Last week's record decline in foreign holdings of U.S.
Treasuries has led some to speculate that Russia has been
cutting its dollar reserves ahead of possible sanctions from the
"It will be harder to make a new high (on the S&P 500) with
these global and geopolitical effects overhanging," said Andre
Bakhos, managing director at Janlyn Capital in Bernardsville,
"I don't know if these warnings signs result in dire
results, but they are certainly to be considered when making a
The S&P 500 closed last week down 2 percent after
hitting a record close on March 7. The decline in U.S. stocks
was smaller than in other major markets but investors have been
protecting their bets with other instruments.
The CBOE Volatility index VIX jumped near 10 percent
to 17.82 on Friday, its highest level since early February, as
investors were willing to pay more for protection against a drop
in the S&P 500.
"Maybe the average investor isn't acting worried, but I sure
think option traders are bracing for some fireworks next week,"
said Ryan Detrick, senior technical strategist at Schaeffer's
Investment Research in Cincinnati.
The trading volume on spot VIX options was more than twice
the norm on Friday, with the most active trades in the March and
July 20 calls. The VIX has closed above 20 just one day this
year, on Feb. 3.
FED TO STAY THE COURSE ON TAPER
The U.S. Federal Reserve is also on investors' radars for
next week as a two-day meeting of its policy-setting committee
kicks off on Tuesday.
The Fed could use the meeting, the first with Janet Yellen
as chair, to map out its plan for rate rises, whether in the
formal statement it issues afterward or in Yellen's news
The Fed has said that the first rate rise is likely to come
around the middle of next year, as long as the U.S. economy
"Our anticipation is the Fed will taper again, maintaining
the schedule they have. There seems to be a high hurdle for them
to alter that schedule," said Pioneer Investments' Wardwell.
Recent weakness in economic data has been attributed in part
to weather issues, and markets do not expect the Fed to veer its
course of winding down its asset-purchase program by another $10
billion, bringing the monthly purchase total to $55 billion.
Market-sensitive data on tap for next week include housing
starts and consumer inflation data on Tuesday and the Philly Fed
survey, weekly jobless claims and home resales on Thursday.