January 11, 2015
Weekly Market Outlook
By Keith Schneider
The markets ushered in 2015 with some exceptional volatility. We rounded up the usual suspects and placed them in a lineup trying to pinpoint the real culprit for the increased volatility which at one point had the market down 3% in the first few trading days of the year. Others pundits (including Cramer) felt this might be the buying opportunity of 2015. There is plenty of evidence for both the bulls and bears.
The looming threat of Greece leaving the Euro and then spreading like Ebola to Spain, Portugal and Italy, thereby causing a global economic slowdown is a leading suspect for the Bears.
Yet another suspect for the Bears is the ongoing showdown between the West/NATO with Putin/ Russia over control of the Ukraine. Some global leaders including former Soviet president Mikhail Gorbachev feel that the current Western efforts to convert the Ukraine to join NATO is going too far and could escalate into a war that leads to a nuclear confrontation.
Along with economic warfare and the plunge in oil (it accounts for 50% of Russia’s federal budget) the pressure on Putin is intense, and he and his oligarch buddies might need to do something radical like start a war, which would jack up the price of oil and his massive stockpile of gold. Of course, If Gorbachev’s fears play out, we are likely to have a global economic slowdown that lasts until we can colonize Mars.
Another leading suspect that got Bears out of hibernation is the spate of horrific terrorist attacks by Islamic militants carried out in France and the worry that this can spiral out of control throughout the West.
Ok, enough of the bad stuff, what about the positives? First, all the above suspects have been lined up, interrogated and let go many times before. The US Equity markets have stared this down before, and every time the bear comes out of the woodwork, the result has been that the selloffs have become great buy opportunities in the face of unstoppable market momentum, which is still mostly in place.
The US economy is strong with corporate profit margins at record levels thanks to very low rates with the unemployment rate improving too. Interest rates continue to drop. With the strong dollar and deflationary pressure mounting, lower rates might be around for longer than expected.
The increased volatility, relative strength in Gold, and with GOOG and AMZN dropping below 500 and 300 respectively, we have the yellow caution flag blowing for the moment. This week’s video will highlight at what levels we might take it down.
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