Stocks fell for a third consecutive week as deflation and global economic malaise weight on asset classes across the globe. On Thursday, the Swiss National Bank (SNB) shocked markets and did an about face when they stopped pegging their currency to the euro. This sent caused an immediate panic in currency markets across the globe and the Swiss Franc immediately soared 30%! Typically, a 1% daily move in a major currency would be considered a big move. 30% in one day is the single largest daily move in recent history! The huge move hurt confidence, created more uncertainty and caused a slew of asset classes across the globe to fall. If this was a small country in the middle of no-where it would be big news but the fact that an enormous percentage of the world’s wealth is located in Switzerland caused ripples in every corner of the globe.
Monday-Wed’s Action: Stocks Fall As Earnings Season Begins
Stocks fell on Monday after the crude oil continued to implode and earnings season officially began. Crude oil prices, which have been falling for months, resumed their violent decline, falling another 5% on Monday. That hurt confidence and added more fear that the deflation spiral will intensify. Stocks opened higher on Tuesday but experienced a very large and ugly violent negative and outside reversal to the downside. Sellers showed up after KB Homes (KBH) gave a dismal outlook for 2015 in their post earnings conference call. KBH homes plunged 16% on Tuesday alone and sent a slew of housing stocks lower. Separately, a German newspaper Merkur said the head of the German banking association does not support the large scale bond asset purchase program expected to be announced by the European Central Bank (ECB) next week. Volatility has picked up substantially in 2015 which is not ideal, especially after a BIG multi-year rally. Stocks fell on Wednesday after retail sales and nearly every major big bank missed estimates. December retail sales in the U.S. slid by -0.9% from the prior month, missing estimates for decline of -0.1%.
Thurs & Fri’s Action: Earnings At Big Banks Fail To Impress
Stocks fell again on Thursday after Switzerland’s central bank (SNB) surprised markets and did an about face and removed the artificial peg they placed on their currency with the euro. Markets around the world immediately went bonkers as the Swiss Franc surged over 16% against the euro. Minyanville reported that, “Market participants witnessed something historic today. The Swiss National Bank (SNB) shocked the market early this morning and said that it was abandoning its 1.20 peg Swiss Franc (CHF) against the Euro, and lowered its interest and deposit rates to -0.75%. SNB President Thomas Jordan said that because of a substantial increase in safe haven demand flows and divergences in international monetary policy, the central bank decided to abandon the cap, although it will continue to be active in foreign exchange markets.” FXCM needed to be bailed out on Friday because of how violent the move was on Thursday in several currency markets. Gold prices soared on the news. Stocks rallied on Friday but still ended lower for the week.
Market Outlook: The Central Bank Put Is Alive And Well
Remember, in bull markets surprises happen to the upside. This has been the primary theme for the last 18 months. Keep in mind that the bull market is aging (turned 5 in March 2014 and the last two major bull markets ended shortly after their 5th anniversary; 1994-March 2000 & Oct 2002-Oct 2007). Until material damage occurs, this market deserves the longer-term bullish benefit of the doubt. As always, keep your losses small and never argue with the tape.
As of Friday’s close, here how the major averages are performing in 2015:
- Dow Jones Industrial Average -1.8% YTD
- S&P 500 -1.9% YTD
- Nasdaq Composite -2.2% YTD
- Russell 2000 -2.5% YTD