Stocks fell for the week and month as global fears remained front and center and earnings mostly upbeat. The big story for the month was manic action from global central banks. In January, we saw the Swiss National Bank (SNB) shock markets when they did a 180 in policy and removed their peg against the euro. This sent the Swiss Franc (FXF) soaring and put several large funds and currency brokers out of business- in a split second. Elsewhere, the European Central Bank (ECB) fired a huge easy money bazooka and announced their long-awaited version of QE. The ECB said they will buy 60 billion euros a month to help stimulate their lackluster economy. A slew of other central banks also slashed rates to help stimulate their respective economies. Deflation remains a huge threat as a slew of commodities fell last month (mainly energy prices) and that is an ongoing threat that global central banks are watching very closely. With all the chaos in global currency and commodity markets, it is somewhat surprising (and bullish) to see U.S. stocks hold up so well. Volatility picked up quite a bit in January (the vix doubled from mid-December’s low plus capital markets around the world are trading like penny stocks) and the daily ranges for the major averages are much “wider” than they have been for months. The heightened volatility coupled with the sloppy action in global capital markets – after a big move – usually foreshadows lower stock prices. However, stocks deserve the bullish benefit of the doubt- until the market rolls over and breaks support. As of Friday’s close, the S&P 500 is -4.7% below its RECORD High!
Monday-Wed’s Action: Stocks Fall Ahead of Fed Meeting
Stocks edged higher on Monday as investors waited for Wednesday’s Fed meeting. The big news came from Greece after the country held elections over the weekend and the Syriza party won with a large majority. Syriza won by a landslide and formed a new coalition government to “represent a united front” to the rest of the Eurozone. Conversations began immediately between Syriza officials and other European policymakers to determine the best way to move forward. Stocks fell hard on Tuesday and Wednesday as the Fed failed to impress the Street and several large companies reported lackluster earnings. The big news came from AAPL when the company smashed estimates and reported an exceptionally strong quarter! Stocks fell on Wednesday after the U.S. Fed failed to say anything new to excite investors.
Thurs & Fri’s Action: Stocks Pull Back As Month Comes To An End
Stocks positively reversed (opened lower and closed higher) on Thursday after bouncing off support which typically is a healthy sign. News spread that Democratic Senator Barbara Boxer and Republican Rand Paul were working on new legislation that will allow companies to return overseas earnings to the U.S. at a 6.5% tax rate (compared to the 35% rate currently). If passed, the new rule will generate huge revenue for the government and we all know that the government loves to spend, so the increased spending will likely be positive for both Main St & Wall St. Stocks fell hard on Friday as investors digested the latest round of economic and earnings data. Before the open, the government said, U.S. GDP rose 2.6% in Q4 2014 which missed the 3% estimate. Crude oil surged 7% on Friday which is more like how a penny stock trades and not a major global commodity.
Market Outlook: The Central Bank Put Is Alive And Well
Remember, in bull markets surprises happen to the upside. This has been the primary theme since the end of 2012. Keep in mind that the bull market is aging (turned 5 in March 2014 and the last two major bull markets ended shortly after their 5th anniversary; 1994-March 2000 & Oct 2002-Oct 2007). To be clear, the central bank put is very strong and until material damage occurs in the major averages, the market deserves the longer-term bullish benefit of the doubt. As always, keep your losses small and never argue with the tape.