|Dow||+190.86 to 17,511.57|
|S&P 500||+26.75 to 2,019.42|
|Nasdaq||+63.56 to 4,634.38|
|10-YR Yield||+0.04 to 1.82%|
|Gold||+$11.40 to $1,276.20|
|Crude Oil||+$2.08 to $48.33|
Mike Larson is off today. His column will return on Tuesday. Mike Burnick is filling in with his look at what stocks have done so far this year.
We’ve just passed the halfway mark for January — typically a strong month for the stock market — and it’s already clear that 2015 has NOT picked up where 2014 left off.
Volatility is on the rise, not just in stocks, but in multiple global financial markets including commodities, currencies, even bonds. For instance:
The CBOE Market Volatility Index (VIX) — the so-called fear gauge for stocks — has quietly soared 60 percent since Dec. 1.
Crude oil prices have plunged 38 percent over that same period, and oil is down over 60 percent from its peak above $100 a barrel last summer.
The euro has dropped 15 percent in value against the dollar over the same period, and as my colleague Mike Larson pointed out yesterday in Money and Markets, the Swiss franc just surged 15 percent — in a single day!
Extreme moves like this are certainly not the norm; it’s a sign of rising stress levels in financial markets worldwide.
|Extreme moves like we’re seeing now are a sign of rising stress in the financial markets.|
A Bloomberg story this morning hints at the potential fallout to come as a result of the Swiss franc swan dive.
FXCM Inc. (FXCM), the largest retail foreign-exchange dealer in the U.S., said it could be on the hook for $225 million in client losses as a result of the sudden, adverse currency moves, and the firm may require a bailout.
FXCM may not be alone. In the past month, financial markets appear to be moving back into risk-off mode once again, if only temporarily.
And the choppy market conditions we’ve seen in recent weeks stand in stark contrast to the serene but steady advance in both stocks and bonds during 2013 and 2014.
With the New Year not even 3 weeks old, the S&P 500 Index is already down 3 percent (before today’s nice gain) in what has historically been a strong month for stock returns. In fact, stocks sailed through 2014 without a single losing streak of four down days in a row. But already in January we’ve experienced two streaks of five straight down days!
What’s going on here and why have markets suddenly turned volatile?
Well, there is a long list of worries, which is always the case, and many of these are well documented already. But what it really comes down to is the ongoing tug-of-war between the forces of inflation and deflation. This battle has been raging since the financial crisis in 2008.
Some economies, most notably the U.S., have recovered nicely and are growing at a solid pace again.
|“In a risk-off market, it’s not a bad idea to selectively take some profits, and raise cash.”|
Others, including most of the European continent and Japan have never fully recovered; and are now backsliding into a state of recurring recession.
Emerging market nations are somewhere in between, with Asia performing well, while Latin American economies struggle through this climate of uneven growth.
The bottom line is there are a number of tricky cross-currents impacting markets early in 2015, and there is a great deal of noise for investors to contend with.
Stay on your toes, and be prepared for more volatile market moves in the weeks ahead. In a risk-off market, it’s not a bad idea to selectively take some profits, and raise cash, because choppy markets have a wonderful way of producing unexpected buying opportunities to put that dry powder back to work again.
|Our Readers Respond|
Mike Larson is out today, but he is looking at your comments and will respond when his regular column returns Tuesday after the holiday.
|Other Developments of the Day|
Driven down by lower energy prices, U.S. consumer prices posted their largest decline in six years in December — falling 0.4 percent, the most since December 2008. Analysts said it will increase chances that the Federal Reserve will hold off raising interest rates until late this year. The core CPI, which eliminates food and energy, was unchanged in December — just the second time since 2010 that it didn’t increase.
Goldman Sachs (GS), the last of the big banks to report for the week, posted slightly better-than-forecast fourth-quarter results, boosted by cost-cutting measures as revenue was weaker. Goldman reported earnings per share of $4.38 on revenue of $7.7 billion. That was a touch above Wall Street forecasts of $4.36 and $7.66 billion. “We are pleased with our performance during a year characterized by mixed global economic and financial conditions,” CEO Lloyd Blankfein said. “The depth of our global client franchise and our continued discipline on expenses and capital management produced a solid return for our shareholders. Looking ahead, we see evidence of a continued pick up in momentum for the global economy that will improve the opportunity set for 2015.”
Oil prices got a lift in the morning after the International Energy Agency (IEA) forecast the current selloff would end, although analysts quoted by Reuters said a strong rebound soon was unlikely as output continued to outweigh demand. The IEA agreed with analysts, saying the market could fall further before a recovery. But it added that there were already signs lower prices were beginning to reduce production in some areas, including North America.
New York Gov. Andrew Cuomo wants to put some of the windfall received by the state from recent settlements with financial institutions to work. He is proposing a $1.5 billion contest in which seven upstate N.Y. regions will compete against each other to come up with the best proposals for the money to spur economic development. The three winning regions will get $500 million each. “I believe in competition,” Cuomo said. “If I just gave you the money, you wouldn’t do all the hard things you have to do to get the money. The competition amongst yourselves brings up the performance of everybody.”
A five-member panel will review the regions’ strategic plan submissions in the upstate revitalization competition. The seven eligible regions are the Finger Lakes, the Southern Tier, central New York, the Mohawk Valley, the Capitol Region, the mid-Hudson valley and the North Country.
Too much weed? The Associated Press reports that Washington State legal marijuana growers are suffering through a glut of the product, as a flood of producers surfaced after pot was legalized last summer. An especially big harvest has forced down prices, creating an “economic nightmare,” according to an executive at Dutch Brothers Farms in Seattle. The AP says there are about 270 licensed growers in the state, but there are only about 85 shops open to which they can sell their product. The Dutch Brothers exec says he sold his first crop of 22 pounds for just under $21 a gram. He’s about to harvest his second crop, but this time he expects to get just $4 a gram.
Meanwhile, the collapse in oil prices is great for drivers at the gasoline pumps, but there are negatives, of course. One of those relates to jobs, and Schlumberger Ltd. (SLB) confirmed that fact: The oilfield services giant said it plans to slash 9,000 jobs — nearly 8 percent of its 120,000 workforce. “In this uncertain environment, we continue to focus on what we can control,” CEO Paal Kibsgaard said. “We have already taken a number of actions to restructure and resize our organization that have led us to record a number of charges in the fourth quarter. We are convinced that performance must now be driven by an accelerated change in the way we work through our transformation program.”
Remember, you can comment on these or any other matters by clicking here. We at Money and Markets are interested in knowing if any of you have directly felt the negative effects of lower oil prices. Click here to comment.