“As January goes, so goes the rest of the year.” So says the old Wall Street axiom. The market notched its third straight weekly loss and closed out its worst month in a year. For the week, the Dow lost 1.04%, the S&P was off 1.64%, and the Nasdaq fell 2.63%. For the month of January, the Dow lost 3.46%, the S&P fell 3.70%, and the Nasdaq fared the worst at -5.37%.
The January Effect states that if January produces a positive return, the year will be positive, and vice versa. Throughout history, this has proved true more than three out of four times, according to the Stock Trader’s Almanac. Of course, last year was an exception as January closed lower, but the market was significantly higher for the year. Will this year be the same? Only time will tell. What we do know, though, is this year has begun unlike many others. Economic data has come in mostly positive, but policies out of
This week we received more encouraging economic reports. Consumer confidence came in higher than expected. Fourth quarter GDP was solidly positive, as well, but the consumer spending portion underwhelmed. We also had more positive corporate earnings releases. Through Friday, nearly 80% of the S&P 500-listed companies that have released earnings so far have beaten estimates, according to a report from Thompson Reuters. This figure is well above the average of 60%. In ordinary times, these figures would be greeted with enthusiasm. As we mentioned above, these are not ordinary times.
Also this week, the Fed announced its rate will remain unchanged at 0-0.25%. We would like to see the rate rise as it indicates a healthy economy, and these extended low rates can inflate new bubbles. As for now, these low rates are seen as a positive, since inflation is look upon as being needed. Only time will tell if this was the correct prescription.
For the upcoming week, we will be keeping our eyes on several reports with the potential to move the market, in addition to the corporate earnings releases still coming out. Personal income and spending will be released on Monday. Auto sales on Tuesday. The big report we will be watching comes on Friday with the Unemployment rate. All are expected to come in slightly lower than their previous releases. As always, we will be watching closely for any surprises here.
Where are we investing now?
Little change here. The market has come a long way in a short time and we expected to see a pull-back at some point. Just not as fast or as strong as it did! Still, we remain bullish (optimistic) for the short term and are putting 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,
