The 4 Biggest Stories to Watch in Q2

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When it comes to the biggest stories to watch in Q2, the future is not what it used to be.

quarterly review and outlookJust a year ago, not many investors would have thought that the biggest stories to watch for between April and June 2015 would involve currencies, plunging energy prices and diverging central bank policies around the globe.

Moreover, who would have thought that the earnings here in the U.S. could be the victim of the currency situation, and not the beneficiary of the currency wars?

If you have money at work in this market (and don’t we all?), then you need to tune your radar to the circumstances and potential outcomes that could have a materially effect on your portfolio over the next three months. The first step to doing just that is to identify the storms brewing that could send your worry meter into the red.

Here are the four biggest stories to watch in Q2.

Biggest Story to Watch #1: Fed Rate Hike Lift Off

federal reserve
Source: GrabPress

While the Federal Reserve gave us a little bit more clarity in March regarding the eventual rate hike “lift off,” it also managed to inject even more confusion.

Yes, leave it to the Fed to do something such as omitting the word “patient” from the Federal Open Market Committee meeting and, at the same time, essentially moving the bar higher in terms of the “data” (employment and inflation) required to trigger that first rate hike in what has been seven years of virtually zero interest rates.

As of right now, the Fed has almost certainly removed a rate hike from the June meeting, and the smart money these days is betting that Janet Yellen and company won’t seriously consider a rate hike until the September meeting. One thing we can say for certain is that the chatter “dovish” versus “hawkish” chatter that comes out of Fed officials and their proxies in the financial media between now and June is likely to create a lot of noise in the markets.

While this noise may be relatively low in terms of volume, it will be a buzz in the ear of every trader at every major trading desk around the globe in Q2.

Biggest Story to Watch #2: The Dollar and Earnings

Hands and Dollars
Source: iStock
The dollar has been the bossiest currency on the playground over the past year.

The PowerShares DB US Dollar Index Bullish (NYSEARCA:UUP), an exchange-traded fund that pits the greenback against a basket of the biggest rival currencies including the euro and the yen, is up 19.5% over the past 52 weeks, and year to date (as of Mar. 27) UUP has surged 7%.

The problem with the rise in the dollar during Q1 is that it has the potential to materially affect the earnings picture on many of the biggest companies traded today.

According to market analyst Tom Essaye of The 7:00’s Report, “We witnessed this already in with the Q4 2014 results (out in January and February), which were materially affected by a stronger dollar.” In the weeks to come, we will see what kind of impact the higher dollar will have on Q1 2015 earnings season, but, here’s something to consider when we get those numbers.

The value of the Dollar Index in Q1 2015 was much higher than it was during Q4 2014. That means the dollar’s rise could really impact bottom lines much more than it did three months ago, and, if we see further reduction to 2015 full-year earnings-per-share because of weak Q1 earnings, that will represent a significant headwind on stocks.

Biggest Story to Watch #3: Oil Prices and Geopolitics

gas prices

The plunge in oil prices is one of the biggest stories to hit markets in years, and for good reason. The current value of crude oil, as measured by the iPath S&P GSCI Crude Oil Total Return (NYSEARCA:OIL), is down 57% from the same time last year. And, that price has taken a precipitous plunge in 2015, down 17.6% year to date.

The decline in oil prices is good for some sectors of the economy, particularly consumer discretionary names such as those found in the Consumer Discretionary SPDR (ETF) (NYSEARCA:XLY). Lower energy costs mean lower more money to for consumers to spend at Amazon.com, Inc. (NASDAQ:AMZN), Home Depot Inc (NYSE:HD) and Walt Disney Co (NYSE:DIS) theme parks.

Unfortunately, lower oil prices also have hurt stocks in the energy space, with big oil stocks such as Chevron Corporation (NYSE:CVX) and Exxon Mobil Corporation (NYSE:XOM) making marked declines in 2015.

In Q2, geopolitics and could play a big part in oil prices, as any significant increase in the fighting in Yemen could cause oil prices to spike (it did just that last week). Yemen isn’t a big oil producer, but it does sit along the Strait of Mandeb, and that’s one of the biggest routes for Saudi Arabian oil transport.

On the flipside is the potential for a U.S./Iran nuclear deal, which could allow Iran to once again begin exporting oil. If this happens, then look for more oil supply into an already serious supply glut in crude. That will keep prices down, and that is likely to keep weighing down energy stocks and related sectors.

Biggest Story to Watch #4: Biotech and Semiconductors

BiotechDNA185

One thing to watch for anytime in markets, but particularly in the mature stages of a bull market, is the price action in market leadership. Two of the biggest sector leaders over the past year, biotech and semiconductors, can be considered canaries in the Q2 coal mine.

For example, the biotech sector, as represented by the iShares NASDAQ Biotechnology Index (ETF) (NASDAQ:IBB), has seen its value rise nearly 53% over the past 12 months and more than 15% so far this year.

Semiconductor stocks, as represented by the Market Vectors Semiconductor ETF (NYSEARCA:SMH), also are leaders, albeit up more modestly (+20% over the past 12 months and 59% over the past two years).

If we start to see price action in IBB and/or SMH start to tumble due to profit taking, earnings concerns or a general “risk off” sense stimulated by global growth concerns, plunging oil prices, rising geopolitical tensions, a rising dollar, etc., then that could be the first real sign of trouble for this current bull rally.

If and/or when the leading market sectors see a significant capital flight, that’s when it’s time to for you to start thinking about getting protective in your portfolio, and following the smart money to greener pastures.

As of this writing, Jim Woods did not hold a position in any of the aforementioned securities.


Article printed from InvestorPlace Media, https://investorplace.com/2015/03/4-biggest-stories-watch-q2/.

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