An increasing populist message out of the White House frightened investors and contributed to a sharp selloff in stocks this week. At the close on Friday, the Dow was down 4.12% for the holiday-shortened week, the S&P was off 3.90%, while the Nasdaq fared the best at -3.61%.
What a wild - and ultimately disappointing - week it was. Stocks were up sharply on Tuesday with the anticipation of Scott Brown winning the important Senate election in
The markets continued lower Thursday when President Obama announced plans to limit bank involvement in proprietary trading-a major revenue source to many banks. This is on top of the new “responsibility fee” being imposed on banks. Of course this news did not sit well with investors and the effects continued into Friday. Also contributing to the losses Friday were analyst downgrades in the tech sector, a flight to safety, and a fear the Fed chairman, Ben Bernanke, would not be reappointed to another term.
Despite these negative macro events, an overlooked statistic has emerged this week. About 20% of the S&P stocks have reported so far and nearly 80% of them have beaten estimates, per a report from Thompson Reuters. Yet as we have seen with earnings releases this week, investors have such high expectations that even a modest beat in earnings is met with a sharp sell-off.
There are a lot of events going on this week that have the potential to impact the market. Of course, we are still in the middle of earnings season, so we will receive a lot of information from them. On top of that, Monday we will get the existing home sales report which is expected to come in lower than the November reading. Tuesday is the release if the consumer confidence numbers and are expected to come in higher than last month. Wednesday is the Fed rate decision and no one expects to see a change from the 0-0.25% rate currently in place. The big news will come on Friday with the release of the fourth quarter GDP number. It is anticipated that it will come in substantially higher than the third quarter numbers. Any surprises with these numbers will certainly impact the markets.
Where are we investing now?
Despite the volatile week we just had, we are still unchanged in our investment approach. We remain bullish for the short term and are looking to put some money to work on these big market dips. For equities, we are focusing on higher-quality and multi-national stocks. We are still bullish on commodities and believe the dollar will continue its trend lower. TIPs continue to be a favorite, as we expect inflation to increase in the future. Consequently,
