|Dow||-291.49 to 17,387.21|
|S&P 500||-27.53 to 2,029.56|
|Nasdaq||-90.26 to 4,681.50|
|10-YR Yield||-.003 to 1.825%|
|Gold||+$15.40 to $1,294.80|
|Crude Oil||+$0.86 to $46.01|
Will That Lead to Its Demise?
The earnings results from late last week looked fairly solid. But the ones we got today? Not so much … and a key driver of the lousy results is one I’ve been talking about for months — the surging U.S. dollar!
Take chemicals giant DuPont (DD, Weiss Ratings: B). The firm warned that it would earn between $4 and $4.20 a share in 2015 — well below the $4.46 a share that analysts were expecting. It said the greenback’s climb would reduce profit by a whopping 60 cents a share this year.
That, in turn, will force DuPont to ramp up its cost-cutting goal to $1.3 billion a year from $1 billion. So we’re undoubtedly going to see lots of pink slips being handed out in the coming months.
Meanwhile, profits at consumer products giant Procter & Gamble (PG, Weiss Ratings: B) plunged 31 percent in the fiscal second quarter to $2.37 billion, or 82 cents a share, from $3.43 billion, or $1.18 a share, in the year-ago period. That missed analyst estimates of $1.13 a share by a country mile.
Procter wasted no time in blaming the dollar’s rise for the disastrous quarterly results, saying the “unprecedented” move slashed five percentage points off of its sales. The company isn’t expecting things to get better, either! It said the dollar’s rise could lop $1.4 billion off of earnings in 2015!
|Caterpillar was just one of the companies to fall off a currency-related cliff.|
The giant industrial and mining equipment firm Caterpillar (CAT, Weiss Ratings: B) fell off its own currency-related cliff, too! It reported a 25 percent plunge in fourth-quarter earnings, and said profit per share this year could be as low as $4.75 after restructuring charges. That compares with an average analyst forecast of $6.67 a share.
What caused so much weakness? A slump in mining and drilling activity tied to falling metals and energy prices. And what has helped drive those prices lower? A rising dollar!
The jet engine, elevator, and helicopter company United Technologies (UTX, Weiss Ratings: B+)? It blamed the dollar for a reduced 2015 earnings outlook, too. Diaper and toilet paper firm Kimberly-Clark (KMB, Weiss Ratings: A-)? Same story!
But in the past couple of weeks, I said things were really getting out of hand. Sentiment was getting so wildly bearish on the euro, and bullish on the dollar, that I thought it was time to bag profits on short-euro trades. I talked about it again just last Friday, saying that just about any catalyst could lead to a big unwinding of the huge trades that had been built up.
Now we have Corporate America getting more and more vocal about the negative effects of a rising dollar. We have investors massively short the euro and long the dollar, and some of the most recent U.S. economic data cooling a bit.
That raises the possibility that central bankers here could start griping about dollar strength, and that could be just the excuse investors need to switch sides. That big potential shift could be what markets like gold and oil are sniffing out, too!
Heck, we’ve already seen a $150-an-ounce rally off the lows in gold. We’re also seeing some early stabilization and/or basing in the energy charts. Many energy stocks were barely down earlier today even as the Dow Industrials were plunging by almost 400 points.
|“It may be time to shift your thinking and investing strategy.”|
Or in other words, it may be time to shift your thinking and investing strategy. Stocks, currencies, and ETFs that have been working for the last several months may stop working … while stocks currencies and ETFs that have NOT been working for the last several months may start doing so!
Thoughts? Am I totally off base here? Or do you think I’m on to something? What sectors and stocks are you most bullish about here? And which are you most bearish on? Do you think the dollar is running out of gas, and if so, why?
Hit up the Money and Markets website and add to the discussion!
|Our Readers Speak|
Meanwhile, you had quite a bit to say about the outlook for oil prices and stocks overnight.
Reader B.F.P. said OPEC’s projection of higher oil prices isn’t worth a hill of beans. The comment: “If we start to believe the Secretary of OPEC and his forecasts, let us also go to buy some beachfront property in Arizona.”
But Reader Richard took the opposite view, suggesting buying after a crash is a solid investment approach. His take: “Do you know who is afraid to buy oil at today’s prices? The same folks who were afraid to buy Florida real estate in 2010.”
Reader Gary essentially split the difference, pointing out that energy stocks could have a hard time for a while because of the Saudi strategy. But oil prices will likely bottom out around here, then resume a climb over the next couple of years. His view:
“This to me is a replay of the mid to late 80s as far as the energy sector is concerned. Saudis fighting back for market share, etc. High cost producers and alternative energies without massive subsidies are doomed.
“Oil will settle at $40 plus/minus for 6-18 months, then climb its way back into the $60s until the next boom in 5-10 years.”
Finally, Reader Tom D. provided a longer-term perspective based on his own experiences in the oil patch. Here was his take:
“The September energy swoon was the worst I have encountered in my 65 years in the business. That tells me that with many of the MLPs that are around and yielding in some cases double digits (with commensurate tax benefits), the sector should continue to be overweighted for a recovery.”
As for the broader markets and the implications of the recent wave of mergers, Reader Billy had this to say:
“M&A usually occurs at the END of bull markets. It is NOT a good sign, especially with where this bull market is, the massive deflation that is spreading worldwide, major geo-political problems with the fast ramping of the war cycles, Greece and others likely to leave the EU shortly — putting EXTREME pressure on the European sovereign debt crisis.
His warning: “This is THE time to get out of most stocks while it is still calm.”
So are you as worried as Billy about the broad averages? Or are you more opportunistic in sectors like energy the way Tom D. is? Or do you think neither of them is on the right track? Let me know at the website!
|Other Developments of the Day|
New York City didn’t get socked as badly from the big bad blizzard, with less than a foot of snow likely to have fallen when all is said and done. But further up the coast in Massachusetts, Rhode Island, and Maine, it was pretty ugly.
Speaking of ugly, durable goods orders here in the U.S. tanked 3.4 percent in December. That was far worse than the 0.3 percent rise that economists were looking for. Even if you exclude the volatile transportation sector, you get a decline of 0.8 percent. One measure of core business spending also slumped for the third month in a row.
This Bloomberg story offers some more insight into the potential for a large wave of oil and gas M&A activity, given depressed energy prices. It focuses on the “other Warren” — energy billionaire Kelcy Warren — and what he and other energy tycoons might do to take advantage of all the bargains out there. Worth a read.
Terrorism hit the Libyan capital of Tripoli today, with attackers using a car bomb and guns to raid a hotel there. At least eight people died in the attack, which targeted a hotel used by many foreigners who have business in the splintered, North African nation.
If these or any other news stories you’ve come across have you pondering the investment implications, don’t keep your thoughts to yourself. Share them at the website with me and your fellow investors!
Until next time,