Eight months ago each Euro could be exchanged for $1.40; today, one Euro will bring only $1.05. This severe decline of the Euro is, in part, due to the European Central Bank’s announcement to kick off the European version of Quantitative Easing (“QE”) which in turn reduces interest rates in Europe. European exporters have suddenly become much more competitive due to the lower Euro.
Other export nations like China and South Korea will not stand still and watch the European exporters take market share through the lower Euro. China and South Korea have already reduced their interest rates thus attempting to make their currencies weaker, and more competitive against the weaker Euro. We can expect Brazil, Mexico and Canada to follow suit. The end result is a possibility of a worldwide currency war. What happens several years down the road is not clear, but the outcome is unlikely to be good.
Most of the time the U.S. stock market looks to 3 factors (call them the “pillars” that support the stock market) to support its upward trend – let’s grade each of the pillars.
CONSUMER SPENDING: This grade is an A (very favorable) due to the favorable effect of lower gasoline and heating oil prices.
THE FED AND ITS POLICIES: We continue to grade this factor an A+ (extremely favorable) because the FED cannot do much more than it is doing to support the stock market and asset prices.
BUSINESS PROFITABILITY: This factor’s grade has been reduced to a C (average). Many forecasters are starting to think earnings will be flat in 2015 thanks to the dollar’s potentially painful influence. Negative first quarter earnings warnings will begin soon and the March quarter at least will be terrible for energy companies, poor for most big companies, and weak in general.
OTHER CONCERNS: The “Heat Map” is indicating the U.S. stock market is in OK shape ASSUMING no international crisis. On a scale of 1 to 10 with 10 being the highest level of crisis, we rate these international risks collectively as a 2, the same as last week. These risks deserve our ongoing attention.
Last week,Bonds increased but Foreign Stocks and U.S. Stocks declined. During the last 12 months, STOCKS outperformed BONDS.
Returns through 3-13-2015
1-week
Y-T-D
1-Year
3-Years
5-Years
10-Years
Bonds- BarCap Aggregate Index
.5
.7
4.6
2.7
4.2
4.8
US Stocks-Standard & Poor’s 500
-.8
.2
13.5
16.2
14.7
7.6
Foreign Stocks- MS EAFE Developed Countries
-1.7
2.7
-1.7
8.3
5.9
4.3
Source: Morningstar Workstation. Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly. Three, five and ten year returns are annualized excluding dividends.
“Your Financial Choices” The show airs on WDIY Wednesday evenings, from 6-7 p.m. The show is hosted by Valley National’s Laurie Siebert CPA, CFP®, AEP®. This week Join guest host, Rodman Young, CPA\PFS, CFP® and his guest Jaclyn Cornelius CFP®, EA – Assistant Vice-President of Valley National Financial Advisors who will discuss: “Using your tax return for financial planning”
Rod and Jackie will take your calls on these topics and other inquiries this week. This show will be broadcast at the regular time. Questions may be submitted early through www.yourfinancialchoices.com by clicking Contact Laurie. WDIY is broadcast on FM 88.1 for reception in most of the Lehigh Valley; and, it is broadcast on FM 93.9 in the Easton and Phillipsburg area; and, it is broadcast on FM 93.7 in the Fogelsville and Macungie area – or listen to it online from anywhere on the internet. For more information, including how to listen to the show online, check the show’s website www.yourfinancialchoices.com and visit www.wdiy.org.
“I want to come in and help them (the Pittsburgh Steelers) be productive on offense. Whether that means me coming off the bench, giving the offensive line water, making sure Ben Roethlisberger’s towel is dry so he can wipe his hands and throw the ball better – whatever it takes for us to win a Super Bowl, I’m willing and able to do it.”
– “DeAngelo Williams, who spent his first nine seasons in the NFL for the Carolina Panthers, and who just signed a two-year contract with the Pittsburgh Steelers Friday.
Stocks backpedaled last week, pressured on one side by a strengthening U.S. dollar and on the other by falling energy prices. Shares of large-cap firms in particular—thanks to foreign exposure—suffered most from the downward pressure, while more domestic revenue-oriented small caps bucked the trend and rose sharply.
Some investors lightened up on equities in anxious anticipation of the Federal Open Market Committee meeting this week. No rate hike is expected just yet, but investors fear wording changes in the FOMC’s press release Wednesday that could spook the market.
Oil prices again lost ground, after a few weeks of stability, reigniting worries about energy stocks, which fell 3%, and deflation anxieties. Oil fell 10% to $44.84 per barrel. U.S. economic data ran the gamut from weak, like February retail sales, to good, like weekly jobless claims, but played a background role.
Last week, the Dow Jones Industrial Average lost 108, or 0.6%, to 17,749.31, while the Standard & Poor’s 500 index fell 18 points to 2053.40. The Nasdaq Composite dropped 56, or 1.1%, to 4871.76. The small cap Russell 2000 index gained 1.2% to 1232.13.
A strong dollar is better for Corporate America long term, adds Halliburton, but “in the current world, investors are at most interested in the next 12 months.” The dollar index is on course for a 13.8% gain in the first quarter, the largest quarterly jump since the 1992 European monetary crisis, according to Bank of America Merrill Lynch.
Headlines bemoan the dollar, but the U.S. is a net importer, so the average Joe and Jane see greater purchasing power and lower inflation. U.S. companies have to get leaner and meaner. While U.S. exports cost foreigners more and the translation hurts earnings comparisons in the short term, U.S. firms have more buying power overseas. A stronger dollar makes U.S. assets more attractive to foreigners. The February producer price index released Friday declined 0.5%, weaker than anticipated.
Though the market expects a Fed hike around June, Scott Colyer, CEO of Advisors Asset Management, demurs. The PPI shows no sign of inflation. “The downside to the Fed of doing nothing is pretty minimal, while a hike could threaten the recovery,” says Colyer, who believes the Fed won’t raise interest rates until 2016.
Whether it’s June or January, it’s hard to see the market moving sustainably higher until the Fed drops the veil.
