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Jeff Saut: Even as World Cup Fever Takes Hold, Keep a Watchful Eye on the Markets


Despite high spirits across the globe, it may be time to start hedging your bets.

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This past Sunday's emotional World Cup draw between the United States and Portugal was the most-watched soccer match in US history, according to several news sources. The televised scenes of parks and bars throughout the country packed to the brim with prideful, red-white-and-blue-clad fans were simply astonishing. America's "got a fever" (temporarily at least), and the only prescription is more soccer. You may see volume dry up a bit in the domestic markets tomorrow around noon EDT, as the nation keeps its collective eye on the climactic match with Germany. The US team will attempt to make it out of the group stage and into the "knockout" rounds for the second straight tournament, the odds of which are much more favorable now than they were two weeks ago. According to Bloomberg Sports, the US has a 77% chance to advance going into Thursday's match, and the stock markets may be cheering on the US Mens' National Team right along with the rest of the country if a recent report from Goldman Sachs is to be believed. In GS's May 30 piece, The World Cup and Equity Markets, Goldman stated that, on average, the tournament's winning nation "outperforms the global market by 3.5% in the first month..." And while America is still considered very much a long shot to win the whole thing (even by their own coach), a boost to the stock market would be a welcomed externality considering that our country's markets are beginning to see some sputtering near these recent all-time highs.

Indeed, while the world looks forward to the beginning of the knockout stages Saturday, it was the Middle East, once again, that provided a knockout to the stock market yesterday. The morning was greeted with optimism, as both Consumer Confidence (85.2 Actual vs 83.5 Estimated) and New Home Sales (504K Actual vs 440K Estimated) beat consensus, but continued tension in Iraq was enough to extinguish any early gains and drop the Dow Jones Industrial Average (INDEXDJX:.DJI) down 119.13 points by the end of the session. The S&P 500 (INDEXSP:.INX), as well, marginally closed below the 1,950 level that should have acted as technical support, and now it's time to look to 1,925 to stop any further decrease over the coming days.

I would also like to point out that the S&P 500 Volatility Indicator (INDEXCBOE:VIX) has jumped about 17% since the low last Friday. A couple of weeks ago, it seemed everyone was talking about the low VIX readings and the trouble that portended. It's still at historically low levels, but I haven't seen or read nearly as much from the doomsayers predicting some black-swan event given the complacency in the markets, which actually worries me more. Declines rarely happen when the consensus expects, so now that the media appears to have moved on to other topics, just keep a watchful eye on those portfolios in case more weakness begins to appear here.
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