The U.S. Economy Faces Headwinds from Abroad

U.S. stocks advanced overall in 2014, but sounded a retreat for the first month of the year – not unlike what happened in the markets last January. And even though January was down last year, the domestic equity markets still turned in a decent performance for the year. Many market observers, including Raymond James Chief Investment Strategist Jeff Saut, had predicted a pullback during the first quarter of 2015 amid concerns about slowing global growth, declining oil prices, eurozone deflationary issues and the strong dollar’s effect on American exports.

1/30/15 Close 12/31/14 Close Change Gain/Loss
DJIA 17,164.95 17,823.07 -658.12 -3.7%
NASDAQ 4,635.24 4,736.05 -100.81 -2.1%
S&P 500 1,994.99 2,058.90 -63.91 -3.1%

Performance reflects price returns as of January 30, 2015.

The soft global economy and a stronger dollar have dampened earnings results for a number of U.S. firms, notes Raymond James Chief Economist Scott Brown, but the fundamentals of the U.S. economy remain strong and the labor market is steadily improving. In a January 28 policy statement, Federal Reserve officials repeated the notion that they can be patient before deciding when to begin raising short-term interest rates. The Fed’s decision to tighten policy will depend on a wide range of factors, including the labor market, the inflation outlook, financial conditions and global developments. Both Saut and Brown believe the bull market still has room to run, and any pullback during a longer-term bull market could provide an opportunity for individual investors to rebalance or buy into carefully selected new positions.

The latest gross domestic product report showed the U.S. economy expanded at a slower rate than expected in the fourth quarter – a 2.6% annual rate compared to a 5% pace in the previous quarter. Lower gasoline prices are expected to provide a significant benefit to consumers and business in 2015. Stocks perked up a bit after the European Central Bank announced further stimulus measures, although there is much uncertainty about the situation in Greece. Global developments may continue to add to U.S. market volatility in the near term.

I’m sending you this update in case the latest market news caught your eye. While I believe investors should pay attention to market activity, short-term declines like the ones we’ve seen in recent days should be accounted for in any long-term financial plan. If you’d like to discuss current market events or have any questions about how they may impact you or any opportunities they might offer, please call me. I look forward to speaking with you.

Ian Kiefer, CFP®
Financial Advisor

 

Investing involves risk, and investors may incur a profit or a loss. Past performance is not an indication of future results. Investors cannot invest directly in an index. The Dow Jones Industrial Average is an unmanaged index of 30 widely held stocks. The NASDAQ Composite Index is an unmanaged index of all common stocks listed on the NASDAQ National Stock Market. The S&P 500 is an unmanaged index of 500 widely held stocks. The performance mentioned does not include transaction costs which would reduce an investor’s return.

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