MorningWord 1/30/15: That’s the way it goes, but don’t forget it goes the other way too

by Dan January 30, 2015 9:31 am • Commentary

Heading into the last trading day of January with the futures marked down 1% and I think it is safe to say that we will have a down month, with the potential for a 3% loss.  I know there are plenty out there who put some credence in the “January Barometer” that says the year tends to go the same way that January does. We had monster January returns in 2011, 2012 and 2013 of 2.27%, 4.25% and 5% respectively with the S&P closing flat in 2011, up 13% in 2012, and up 30% in 2013. The S&P 500 declined 3.43% in January 2014, before closing up more than 11%.  And in 2010, the S&P 500 closed down 3.82% in January, with the index closing up about 12% on the year. So before you get all beared up, just remember That’s the way it goes, but don’t forget it goes the other way too.

Ignore all the mumbo jumbo, like January effects, and constantly re-evaluate what you own, and why.  On a macro level, I guess it would also make sense to try to poke holes in the thesis if you are Balls long U.S. stocks. Like “Don’t Fight the Fed.” At this point, the Fed could be screwed.  As the world around them seems to be trapped in a deflationary spiral, they are dammed if they do (raise rates) and damned if they don’t.  If they raise rates they threaten the progress that has been made in what can only be called our very fragile recovery. On the flip side if they don’t raise rates soon, and we continue to have a sort of slow and steady economic improvement then ZIRP runs the risk of creating an all out risk asset bubble here in the U.S. that could make 1999 in tech stocks, or the mid aughts in real estate look like a joke.  And we know what happens after that.

So one thing I am fairly certain about, and it is not the direction of the stock market, that we are definitely poised to see a continuation of heightened volatility in the credit, commodity and fx markets, and maybe just maybe we see it spill over into U.S. stocks.  I would add one last point, the post earnings declines in mega-cap stocks like AXP, BABA, JPM, MSFT, UPS, SNDK, QCOM in my mind far outweighs the strong gains in stocks like AAPL, AMZN, BA & NFLX as they seemed much more stock specific, whereas the declines in the prior group had a whole host of market headwinds all wrapped up into a neat little package (dollar strength outweighing lower input costs, dollar strength crimping overseas profitability, and exposure to weak emerging markets).