It’s long been said on Wall Street: “ As goes January, so goes the year”. Statistically that has been the case only 75% of the time since 1929. This has been the worst January for the DOW and S&P since 2009, as they both declined 6% to start the year. Both rallied to end the month. Although we still expect the choppiness to continue, we see more signs that the second half of the year should be much better than the first.
The Bank of Japan shocked global markets overnight by adopting negative interest rates for the first time ever, in a desperate attempt to kick start the 3rd largest economy in the world. The BOJ said it will extend the policy “as long as it is necessary.” Stocks jumped while the Yen currency fell. No surprise, the Dollar was higher on the news. This is geared to help Japanese exports. It won’t help US exports. This announcement came just 1 day after the surprise resignation of Economy Minister Akira Amari. Our Fed indicated a much slower approach to more interest rate increases this year at its January meeting. At this stage, they might not raise at all in 2016. The European Central Bank already said they’re sticking with their aggressive monetary support. Central Bank influence just took a new turn. Both stocks and bonds are responding well, but it’s certainly not the healthiest news. The global economy is still struggling.
Back home, the US economy continues to grow, albeit slowly. Fourth Quarter GDP increased just 0.7%. The slower growth rate was expected because the stronger US Greenback hurts our exports. Additionally, the warmer winter weather back east pushed out seasonal shopping. For the full year 2015, the US economy grew at a 2.4% rate. Consumer spending, which accounts for nearly 70% of the US economy, grew 2.2% in the corner. Not too shabby! The Fed did acknowledge the slower growth in Q4 at their meeting this week. Economic activity is expected to pick up later this year. The strong Dollar shaved about 0.5% from GDP growth. Expect that pressure to continue with the global struggles.
Earnings season is showing that things might not be as bad as feared. The strong Dollar is providing a headwind, but companies are taking it in stride. It’s still very early in the process, but even the disappointments are not that bad, and some of it is do to really high expectations, which was the case with Amazon. 20% revenue growth is pretty darn good in this environment. Growth has been hard to find.
Despite the tough start to the year, we still think we end the year higher. It’s a bumpy road, but we’ll get there in good shape.
Have a nice weekend. We’ll be back, dark and early on Monday morning.