Stocks closed down again Friday ahead of the long holiday weekend after disappointing earnings, more China worries, and plunging oil prices added to fears about slowing global growth. For the week, the S&P 500 dropped 2.17%, the Dow fell 2.19%, and the NASDAQ lost 3.34%.[1]
Persistent lows in oil prices due to the combination of a supply glut and slowing global demand for oil. After plummeting for more than a year, oil prices have now hit 12-year lows below $30/barrel.[2] Cheap oil is a boon to consumers who pay less at the pump, but it hits oil producers and ancillary sectors hard.
A Chinese economy in transition from a manufacturing and export-led high-growth period to a more stable, mature model based on services and domestic consumption.[3] We've never seen a hybrid economy quite like it - halfway between Communism and Capitalism - undergo such a shift. The issues at stake are serious: Can Chinese leaders usher in a new period of growth without sending the economy into recession? Can China's immature financial sector keep up? Answers will come eventually, but we can expect a lot of uncertainty along the way.
We should also keep in mind that markets have enjoyed multiple years of fairly reasonable volatility. Since volatility events tend to occur in clusters, it's not so surprising that we're seeing back-to-back events in financial markets.[4]
Have stocks hit bottom? We can't know for sure. This week, we'll probably see more poor data out of China that could continue to rattle markets.[5] However, it's possible that earnings season may help turn the tide. While Q4 profits are expected to be down on lower revenues, the bar may already be set so low that earnings surprises could give stocks a boost.[6] When negativity is already baked into stock prices, even small surprises can shift investor sentiment.
Bottom line: Market corrections happen. They can be stressful and can test your resolve as an investor, but they are normal and healthy. We don't know how long this correction will last or how low markets will go, but we are continually monitoring markets and will suggest prudent changes to investing strategies as necessary. If you have questions or concerns about your portfolio, please reach out to us, we'd love to hear from you.
ECONOMIC CALENDAR:
Monday: U.S. Markets Closed for Martin Luther King, Jr. Holiday
Tuesday: Housing Market Index, Treasury International Capital
Wednesday: Consumer Price Index, Housing Starts
Thursday: Jobless Claims, EIA Petroleum Status Report, Philadelphia Fed Business Outlook Survey
Friday: PMI Manufacturing Index Flash, Existing Home Sales
Notes: All index returns exclude reinvested dividends, and the 5-year and 10-year returns are annualized. Sources: Yahoo! Finance and Treasury.gov. International performance is represented by the MSCI EAFE Index. Corporate bond performance is represented by the DJCBP. Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly.
HEADLINES:
Gasoline prices drop below $1 per gallon. Residents in some parts of Michigan officially became the first Americans to buy gas for less than a dollar in over a decade. High oil supplies and low demand may lead to more cheap gas this year.[7]
Retail sales disappoint. December retail sales slumped unexpectedly as warmer weather cut into sales of winter gear and cheap gasoline weighed on service station business. After a 0.4% rise in November, sales dipped by 0.1% in December.[8]
Consumer sentiment ticks upward. Despite stock market pullbacks and global worries, Americans' view of the economy and their financial prospects improved slightly in January. Hopefully, that optimism will translate into more spending this quarter.[9]
Business inventories fall. U.S. businesses sold through their stockpiles rather than replenishing as sales slipped. The decline in inventories could weigh on economic growth in the fourth quarter.[10]
These are the views of Platinum Advisor Marketing Strategies, LLC, and not necessarily those of the named representative, Broker dealer or Investment Advisor, and should not be construed as investment advice. Neither the named representative nor the named Broker dealer or Investment Advisor gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. Please consult your financial advisor for further information.
Investing involves risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values.
Diversification does not guarantee profit nor is it guaranteed to protect assets.
The Standard & Poor's 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general.
The Dow Jones Industrial Average is a price-weighted average of 30 significant stocks traded on the New York Stock Exchange and the NASDAQ. The DJIA was invented by Charles Dow back in 1896.
The Nasdaq Composite is an index of the common stocks and similar securities listed on the NASDAQ stock market and is considered a broad indicator of the performance of stocks of technology companies and growth companies.
The MSCI EAFE Index was created by Morgan Stanley Capital International (MSCI) that serves as a benchmark of the performance in major international equity markets as represented by 21 major MSCI indexes from Europe, Australia and Southeast Asia.
The Dow Jones Corporate Bond Index is a 96-bond index designed to represent the market performance, on a total-return basis, of investment-grade bonds issued by leading U.S. companies. Bonds are equally weighted by maturity cell, industry sector, and the overall index.
The S&P/Case-Shiller Home Price Indices are the leading measures of U.S. residential real estate prices, tracking changes in the value of residential real estate. The index is made up of measures of real estate prices in 20 cities and weighted to produce the index.
The 10-year Treasury Note represents debt owed by the United States Treasury to the public. Since the U.S. Government is seen as a risk-free borrower, investors use the 10-year Treasury Note as a benchmark for the long-term bond market.
Google Finance is the source for any reference to the performance of an index between two specific periods.
Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance.
Past performance does not guarantee future results.
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