An unexpected miss in Q4 growth
Weekly market view from LMK Wealth Management
Markets were driven lower in another volatile week of trading, ending the first month of 2015 in the red. For the week, the S&P 500 lost 2.77%, the Dow fell 2.87%, and the Nasdaq dropped 2.58%.
One of the major contributors to the week's losses was an unexpected miss in fourth quarter economic growth. The first estimate of Gross Domestic Product (GDP) showed that the economy grew an underwhelming 2.6% in the last three months of 2014. This is a significant drop from the 5.0% growth the economy saw in the third quarter and below economists' expectations of 2.8%-3.0% growth
However, consumer spending was higher than expected, showing that Americans are still buying. Also, keep in mind that this is just the first estimate of GDP growth. A lot of economic data has yet to be analyzed, and we can hope for upward revisions in the months to come. Earnings season marches onward and the news is mixed. While the reports we've seen from 228 S&P 500 companies show that earnings are up 5.5% over the same period in 2013, revenues are up just 1.7%.
3 Business Roadblocks
Overall, U.S. companies appear to be struggling with three factors: Falling oil prices, which are seriously affecting energy companies and interrelated businesses. The strength of the U.S. dollar, which is hitting companies that depend on foreign demand hard. A strong dollar makes it more expensive to buy U.S. products. Weak global economic growth. This factor is also pressing down forward-moving guidance from companies, many of which are expecting a tough business environment in 2015.
Even if overall earnings numbers may not look inspiring, there are a lot of individual success stories in each sector. Though volatility is stressful, it can provide opportunities for investors who can be flexible. Part of what we do for our clients is look for those opportunities for growth in every market environment.
Oil prices continued to slide though some analysts believe we may be approaching an oil price floor. One industry insider believes that oil prices could double by the end of 2015 as oil companies respond to the supply glut by slowing down production.[
Looking forward, the week ahead is filled with more economic reports, including the January Employment Situation Report, which will hopefully show continual improvement in the labor market. Markets are likely to remain volatile in the days and weeks ahead, but we can hope that positive data might encourage investors to "buy the dip.
ECONOMIC CALENDAR:
- Monday: Personal Income and Outlays, PMI Manufacturing Index, ISM Mfg Index, Construction Spending
- Tuesday: Motor Vehicle Sales, Factory Orders
- Wednesday: ADP Employment Report, ISM Non-Mfg. Index, EIA Petroleum Status Report
- Thursday: International Trade, Jobless Claims, Productivity and Costs
- Friday: Employment Situation
