Well, all eyes were on the Federal Reserve statement coming out of its two-day meeting, and there was something for everyone in there.
The removal of the word “patient” signaled that we could see a rate increase at the June Fed meeting, and lowered forecasts for growth and inflation signaled that maybe, just maybe, a rate increase could come later in the year, rather than sooner.
What Janet Yellen said was that the removal of the word “patient” doesn’t mean that the Fed is going to be impatient. The breathlessness around this statement, the parsing of the wording and the predictions of yes or no on a rate increase make for great TV, if you’re into that sort of thing, but it’s nigh on useless for real investors, who are more interested in the impact on individual companies and their business here and abroad than a market-timing call for bonds or stocks.
The dollar’s strength is having a meaningful impact on sales and earnings, and early estimates suggest the first quarter is not going to be a particularly strong quarter for overall earnings, as the biggest companies, which tend to be multinationals, are suffering from weak overseas business and the translation back into a very strong greenback.
In fact, the consensus read is for about a 5% decline in earnings for the S&P 500 companies. Think about some of the largest S&P companies, which count among them several big oils. Now consider the decline in oil prices, add that to other companies with large overseas businesses (Microsoft earns more than half its profits outside the U.S.), and you get the idea.
The market reaction to “Fed day” was swift, with the stock market jumping from a decent loss to a very nice gain and the 10-year Treasury yield falling the most, on a percentage basis, since September 2013, down to 1.93% from 2.05%. The Dow Jones Industrial Average‘s swing from low to high was just 360 points, or 2.2% of the prior day’s close, which is pretty darned high, and makes Wednesday one of just three days so far this year when we’ve seen swings of this magnitude.
The Russell 2000 index of small stocks, the S&P 600 index of small stocks and the S&P 400 index of mid-cap stocks all hit all-time highs Wednesday and again Friday. The dollar also tumbled — but remember, the dollar has been on a very steep trajectory of late. So, any pullback was almost guaranteed to be as precipitous.
Housing data was pretty abysmal for the month of February — which, by the way, was the coldest February on record since 1979, and was a “top-10 coldest February” in 23 states going back to 1895. Retail sales, as you may recall, also suffered in February.
But we might be able to take a bit of comfort in the data from the “Polar Vortex” winter of 2014. Retail sales, for instance, dropped 1.1% in January 2014, then bounced back with a big 1.3% gain the following months.
This year we’ve had three declining months beginning in December. It’s entirely possible that the return of normal weather will bring consumers out again — though there’s no solution to low oil and gas prices creating a bit of havoc with the official headline data.
CNBC ran a big banner earlier yesterday stating that the Dow has seen “triple-digit moves in 9 of the last 10 sessions” as if this was something dramatic or dangerous or even something worth worrying about. My goodness — a triple-digit move in today’s Dow could be just 0.6%. That is definitely not something to be worried about.
And for all the glamour-jabber about Apple Inc. (NASDAQ:AAPL) entering the Dow, AAPL stock fell 0.8% on its first day in the index, more than either the Dow or the S&P 500. With all the gyrations so far in 2015, though, the Dow is up just 1.73% for the year, and the S&P 500 index is up 2.41%.
Editor Dan Wiener and Research Director Jeffrey DeMaso publish The Independent Adviser for Vanguard Investors, an award-winning monthly advisory letter that keeps subscribers abreast of recent developments at Vanguard, and provides long-term guidance for investing in the Vanguard fund family.
