Is it a “market correction?”
This morning’s Update looks at the possibility in light of some very important elements that are happening alongside the last couple of week’s market moves. Kathy’s cooking gets a glowing mention, as well (though she may not think so!).
For us long term investors, the current situation may be a nice chance to put in additional funds.
Our best,
Lee and Jeremy
PS- VERY IMPORTANT: If you’ve not done so yet, please reply to this email to us as soon as possible with your guess about the Dow Jones Index close for 2014. Lee says 18,100 and Jeremy says 17,587—your guess, if closest, gets dinner on us!
This Week’s Quote:
“I really didn't say everything I said. [...] Then again, I might have said 'em, but you never know.” –Yogi Berra
JL Davis Thoughts This Week:
Like the gentle malaise our family might feel shortly after (over) consuming one of Kathy’s magnificent holiday meals, global markets seem to have a case of mild indigestion at the moment.
The U.S. and Europe combined account nearly three-quarters of global stock and bond markets. So far, after a roaring past 12 months, no clear investment trend has emerged so far in 2014...if you don’t count the 3% plus decline in the U.S. stock market. Ouch.
Around here at JL Davis, we follow corporate earnings in order to gage the true health of things. Of the 123 S&P 500 companies who reported fourth quarter results as of Friday, 68% have beaten earnings expectations while 67% have beaten their revenue expectations. That’s good! The blended earnings growth rate for the fourth quarter stands at 6.4%, according to FactSet, sharply higher than the third quarter’s 3.6%. While that clearly didn’t send markets up in the short term, it can’t hurt.
This week might just provide direction in the U.S. as the earnings season crests, the President delivers his State of the Union Address, Ben Bernanke chairs his last Fed meeting and the Commerce Department releases its first estimate of 4th quarter GDP… which we believe will be robust, if somewhat off its peak. We’ll see.
It is also a critical time in Europe as investors assess momentum moving into the New Year and the European Central Bank considers the risk of deflation—not inflation. The Bank of England will be reacting to a surprising faster-growing U.K. economy. Asia, especially China, may be marking time.
We enjoy exciting times like these as we look at ways to take advantage of dips by investing. As continual optimists, we’re on record saying we think 2014 will turn out to have some nice gains. Unlike one of our favorite “quote machines”, Yogi Berra, we really did say everything we said!**
Market Week: January 27, 2014
The Markets
A double whammy helped trigger a selloff in equities last week. Weaker-than-expected manufacturing data from China helped fuel concerns about the global impact of potential additional Fed tightening next week and a stronger U.S. dollar. Some lackluster earnings reports didn't help, though profit-taking in the wake of last year's strong rally also could have been a factor. After declines in several emerging-market currencies, the Dow and S&P 500 dropped below their 50-day moving averages; the Dow lost 318 points on Friday alone. The Nasdaq, the small caps of the Russell 2000, and the Global Dow joined them in negative territory for the year. The global jitters had investors seeking the relative safety of Treasury bonds as the benchmark 10-year yield fell for the fourth straight week.
Last Week's Headlines
• Global markets became concerned about the potential implications of a tightening in China's monetary policies after a survey showed that the manufacturing sector there contracted in January for the first time in six months. The Markit/HSBC Purchasing Managers' Index dropped to 49.6 from 50.5 (anything below 50 represents contraction).
• After three months of declines, sales of existing homes rose 1% in December, according to the National Association of Realtors®. Even better, the NAR said sales for all of 2013 were higher than they've been in any year since 2006, and were up 9.1% from 2012's annual figure.
• The Argentinian peso joined several other emerging-market currencies in declining last week. The Argentine government devalued the country's currency in an attempt to stimulate growth, but other currencies, including the Turkish lira and the Indian rupee, have suffered recently because of fears about the global impact of future tighter monetary policies.
• The International Monetary Fund raised its forecast for global economic growth this year by 0.1% to an annual rate of 3.7%, saying that projected U.S. growth of 2.8% in 2014 will be extremely important to that forecast.
Eye on the Week Ahead
The whole world's watching: Wednesday's Fed announcement--Ben Bernanke's last as chairman--could include further cuts in the Fed's bond purchases and have repercussions in global markets. Also on tap are more earnings reports, the first look at Q4 economic growth, and data on the U.S. housing market, manufacturing, and personal spending.
Data sources: Economic: Based on data from U.S. Bureau of Labor Statistics (unemployment, inflation); U.S. Department of Commerce (GDP, corporate profits, retail sales, housing); S&P/Case-Shiller 20-City Composite Index (home prices); Institute for Supply Management (manufacturing/services). Performance: Based on data reported in WSJ Market Data Center (indexes); U.S. Treasury (Treasury yields); U.S. Energy Information Administration/Bloomberg.com Market Data (oil spot price, WTI Cushing, OK); www.goldprices.org (spot gold/silver); Oanda/FX Street (currency exchange rates). All information is based on sources deemed reliable, but no warranty or guarantee is made as to its accuracy or completeness. Neither the information nor any opinion expressed herein constitutes a solicitation for the purchase or sale of any securities, and should not be relied on as financial advice. Past performance is no guarantee of future results.
The Dow Jones Industrial Average (DJIA) is a price-weighted index composed of 30 widely traded blue-chip U.S. common stocks. The S&P 500 is a market-cap weighted index composed of the common stocks of 500 leading companies in leading industries of the U.S. economy. The NASDAQ Composite Index is a market-value weighted index of all common stocks listed on the NASDAQ stock exchange. The Russell 2000 is a market-cap weighted index composed of 2,000 U.S. small-cap common stocks. The Global Dow is an equally weighted index of 150 widely traded blue-chip common stocks worldwide. Market indices listed are unmanaged and are not available for direct investment.
Prepared by Lee Davis** and Broadridge Investor Communication Solutions, Inc
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