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Stocks experienced another rollercoaster week, pummeled by a dismal global growth forecast and missed earnings reports. However, markets ended a four-day losing streak on Friday with a “relief rally” as energy prices rebounded slightly.1 For the week, the S&P 500 lost 1.26%, the Dow fell 1.27%, and the Nasdaq dropped 1.48%.2
The World Bank underscored investors’ concerns about the global economy by slashing its global growth forecast for 2015 and 2016. Citing disappointing growth in Europe and concerns about some emerging markets, the development organization cut its predicted global economic growth rate to 3.0% from 3.4% in June.3 Though U.S. growth remains strong, slowing demand overseas may hurt U.S. firms.
December holiday sales reports arrived, and the news wasn’t very jolly, showing that overall retail sales dropped 0.9%. Cheaper gas, earlier shopping, and significant discounts all contributed to the drop, and retailers have chosen to call the season a win. The National Retail Federation says that overall holiday spending rose 4.0%, making it the best season since 2011. Investors were less enthusiastic about the data, which could indicate weakness in consumer spending.4
EARNINGS
Earnings season shifted into high gear last week, bringing total S&P 500 company reports to 37. So far, the news isn’t great. Financial companies are the first large group to report in, and although there are some individual success stories, the Major Banks sector (which includes companies like JP Morgan, Wells Fargo, and Citigroup) dragging, with earnings down 13.7% since the same time last year. However, outside the Finance sector, the picture is brighter, with total earnings up 17.4% so far on higher revenues.5 Though it’s still early in the season, S&P Capital IQ predicts that overall earnings for the S&P 500 increased 6.5% in the fourth quarter.6 Though the U.S. demand picture appears to be strengthening, external factors like oil prices and the dollar’s strength relative to other currencies is likely to significantly affect company performance this year.
Does January’s rocky start bode poorly for the rest of 2015? It probably does not. Right now, Wall Street is preoccupied with the murkiness of recent data. Macro issues like oil prices; the dollar’s strength, central bank moves, and global growth forecasts are overriding individual company data, which makes it hard to pick winners and losers. Fundamental trends within the U.S. economy haven’t changed: U.S. firms are hiring, Americans are more confident about their prospects, and many sectors of the economy are showing improvement. Markets were closed on Monday, but the week ahead is filled with more earnings reports as well as Tuesday’s State of the Union address by President Obama.
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