The stock market has gotten off to a poor start in 2015 as volatility continues to pester stocks. As Chris Kimble noted yesterday, the S&P 500 is coming out of the 3rd worst “Santa Claus” period since 1950. And for the better part of the past few months, investors have seen some wild moves in the market, indicating that things aren’t quite right under the surface. This will likely require some time for the market to settle down and find its footing.
I discussed some of the reasons for the recent bout of stock market volatility and investor uncertainty on FOX talk radio out of Lansing MI yesterday. You can listen to that segment here.
To be fair, there are several reasons that the stock market is spooking investors right now. But I thought it would be good to highlight a few concerns from a global macro perspective that I shared on air yesterday:
1. Collapsing Crude Oil – Any time an we see a collapse of this magnitude in any market, it’s not a good sign. It’s not healthy action. Many headlines will point to lower gas prices and an empowered consumer, but a slowing global economy and deflation concerns are likely driving that ship. Remember, the markets are global.
2. Europe – The Euro Zone economy continues to struggle and confidence in the Euro is vanishing. The Euro has dropped to levels we haven’t seen in 9 years. Deflation is a primary concern here, along with EU member confidence and the possibility for member defections. Stay tuned to the upcoming Greek election on Jan 25 – the results could strain relations with the rest of the EU. And second, stay tuned to the ECB and Mario Draghi – when and how will they decide to stimulate the Euro Zone?
This uncertainty is adding to global stock market volatility as equity investors protect gains, yet try to stay in the game.
3. “Flight to Quality” – Long bonds outperformed equities in 2014 and are well on there way in early 2015, with the 30 year treasury bond posting its “biggest-ever rally to start the year” – could long bonds be entering a blow-off stage (see the 20+ Year Treasury Bond (TLT)). There are a lot of moving parts, but this is definitely a sign that investors are moving toward what they perceive as quality. It should be noted that US Equities performed quite well last year, but under the surface, large caps and dividend paying stocks outpaced small caps.
The equity markets have moved considerably higher over the past two years with limited bouts of volatility. So perhaps the swings in the markets are ushering in a period of price discovery. This adds risk to the market place, but it doesn’t necessarily mean that the markets will go considerably lower; it just means that investor uncertainty may continue for a while longer.
Over the short-term, this environment should favor swing traders and active investors that are skilled at making timely portfolio adjustments. Thanks for reading and stay disciplined.
Follow Andy on Twitter: Â @andrewnyquist
No position in any of the mentioned securities at the time of publication. Any opinions expressed herein are solely those of the author, and do not in any way represent the views or opinions of any other person or entity.
