State of the Stock Market Analysis for the Week Ending January 31st, 2015 (January Closes With Unhappy Investors 01-31-2015)
Bulls had been hoping for a positive close on Friday that would have finished out January trading with a win, but that was not in the cards. The lackluster fourth-quarter GDP number showing 2.6% versus the expected 3.2% was a big letdown, and it was also quite a bit down from the impressive 5% increase we saw in December’s third-quarter report. That news combined with the Fed’s Jim Bullard saying that he saw Fed interest rate hikes coming this year to put investors in a bad mood on Friday, which caused January to close on a negative note. After Friday’s dust had settled, we saw weekly declines of 2.9% for the Dow, 1.0% for the Nasdaq and 2.8% for the S&P 500.
The old adage of “As January Goes, So Goes the Rest of the Year…” did not fare so well this month either, as we saw monthly losses of 3.7% for the Dow, 2.1% for the Nasdaq and 2.8% for the S&P 500. Bulls were particularly disappointed to see a late-Friday swoon, as well as the fact that the S&P 500 closed out the week below the high-profile 2,000 level. The S&P 500 is now more than 30 points below its 50-day moving average of 2,030, but is still holding solidly above its 200-day moving average of 1,967. Again, it was discouraging to see the stock market fade into a Friday close at or near its lows of the day (and the month).
What made the late-Friday decline so remarkable was how it occurred as oil prices surged. Oil rose more than 7% for the day, and while oil price declines had been such a monkey on the back of the stock market, it was interesting to see a spike in oil coincide with a steep selloff in the stock market. Oil remains on our radars, though, and now that U.S. companies are closing many domestic U.S. rig operations, you have to wonder if the oil market might suddenly be already pricing in future shortages. The Friday oil price spike was strange nonetheless, so we will have to wait and see what sort of pricing plays out next week.
The Greek elections from last Sunday set the tone for this week, and the election of the hard-hitting leftist party weighed heavily on global financial markets this week. With the new Syriza party in power, it wasted no time in blasting the ECB and the EU power structure by saying Greeks were tired of austerity and actions that it feels really prolongs the economic catastrophe that Greeks have faced for years. Syriza even reached out to Russia for help, and Russian rhetoric was amicable back toward the new Greek leadership. Greece is definitely one of those wild cards that global financial markets will continue to monitor closely in the weeks and months ahead.
Fear and uncertainty are in the air, though, and we saw safe-haven global money snatching up German bonds and U.S. Treasuries. The yield on the 10-year German bund is now down around 0.33% and the yield on the U.S. 10-year even dipped down to as low as 1.65%. Those are pretty amazingly low yields just to have the certainty that you will get your money back. Many shorter-term yields in Europe are actually negative! So again, that shows that worry levels remain high in global financial markets as we head further into 2015.
To add to the strangeness of this week, we saw U.S. Consumer Sentiment come in at 98.1 versus the expected 98.2, which shows that consumers are more optimistic than they have been in about 10 years. The low gas prices at the pumps are obviously having a positive effect on consumers, even if those same low oil prices are squeezing U.S. global multinational corporations as well as some domestic companies (particularly oil shale and other energy-related concerns). But consumers are happy, and that should help retail sales in the “consumer economy” that supposedly drives U.S. GDP so much. We will keep an eye on retail sales to see if this “momentum” carries over into the real U.S. economy.
In the meantime, we do have the Super Bowl from Glendale, Arizona this weekend, and aside from the “deflate-gate” controversy with the Patriots, it should be a fairly good matchup. Even if you are not a huge football fan, the spectacle offers around 100 million U.S. viewers an eye into what the “vibe” is in the U.S. commercial spots are at a record $4.5 million for a 30-second spot, and many viewers have as much fun with the commercials as they do with the game itself or the party they might be attending. It is a spectacle, though, and it actually could be a decent game, especially with the Patriots coming in looking like the Evil Empire in many fans’ minds.
Another bit of Wall Street madness we saw this week was a red hot IPO from New York-focused hamburger chain, Shake Shack (SHAK), which only has just over 60 restaurants (and apparently pretty good food). The SHAK IPO promptly doubled at its open, and now Shake Shack is sporting a roughly $1.3 billion market cap. Not a bad day for a fairly new and small burger chain! This IPO occurred the same week McDonalds (MCD) fired its CEO of two years, after stagnant earnings and a menu that is really looking a bit tired and dated. McDonalds still has a market cap of around $90 billion, so while it is probably not all that worried about Shake Shack, it should probably be taking note.
It was a tough month for the stock market, and January suggests that it could be a very challenging year. Enjoy the weekend and the Super Bowl if you are so inclined, and get ready for February. It is sometimes nice to have a trading month end on a Friday, since it gives investors the weekend to relax and reflect on what might be around the next bend in the road. The Gorilla wishes each and all a great weekend, and we will be back in action on Monday morning. By the way, there have been so many changes in teams and leagues over the years that the Super Bowl Indicator of AFC or NFC has lost a lot of its luster as a bullish or bearish predictor for the rest of the year. Anyway, enjoy the weekend!
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