Some market watchers hold that January sets the tone for the rest of the year. If this January is any indication we are in for a bumpy ride. The markets have reacted to cross winds both international and domestic.
On the international scene we’ve seen three hot spots putting investors on edge. First we see fighting erupting between Ukrainians and rebel soldiers. Russian sanctions and the plunge in the price of oil are wrecking havoc on the Russian economy. The Russian Ruble fell again as did the Russian stock market. The Russian Central Bank suddenly cut interest rates 2% from 17% down to 15%. Meanwhile S&P cut Russian bonds and notes to Junk.
Europe is seeing deflation take hold with prices down .2% from a year earlier. This forced European Central Bank President, Mario Draghi to initiate a program of quantitative easing by buying European bank bonds.
Greece is fighting back on austerity. The ruling Syriza party is refusing to discuss their next bailout round, insisting the Troika of the European Union, European Central Bank (ECB) and the International Monetary Fund (IMF) forgive some of Greece’s debt. The German bankers are saying: Get Real.” Money is fleeing from Greece putting pressure on investments and banking.
Saudi Arabia’s king Abdullah dies and a new king, Salman, assumes power. He has vowed to continue Saudi Arabia’s oil policies.
Domestically, we see a mixed bag also. Gross Domestic Product (GDP) fell to 2.6% in Q4 from a robust 5% in Q3. Offsetting this drop was an increase in consumer spending. It rose 4.3%. This was the catalyst for the jumps in earnings by Visa and Master Card.
On the earnings front 76% of companies reporting beat analysts’ expectations.
Contrast this with the expectations of American CEOs. They are the most bearish on sales and revenues since 2008. The number of companies cutting budgets and expenses outnumbered the number increasing their spending by 8.6%
The hardest hit were the large international companies. The strong US dollar is hurting exports. Procter and Gamble that receives 2/3 of its revenue outside the US missed earnings estimates. Catepillar had the biggest drop in three years. Earnings were down 13% from a year earlier. Pfizer and DuPont also missed estimates.
Google missed analysts’ estimates by a fraction. Net income rose 41% to $4.76 billion. However, their “clicks” fell by 3% and they generated less revenue per click.
Amazon had the first profit dip in 12 years. Its net declined by 12% but sales rose by 15%. It was their service area that gained sales.
The markets saw a January drop. The S&P index fell 16% in January. A whopping $700 billion was erased from share prices. We saw increased volilatility with the VIX index up 19% to a high of 23.43 during the month.
The US Federal Reserve tried to maintain a calm. They reassured us that the economy was healthy and growing at a steady clip
So here we are in February. As an investor you have your hands full making investment decisions for the rest of the year. The volatility may be with us for some time. It may be difficult to find the right investments going forward.