Painful January

Friends

Ok, glad that’s over. January 2014 was a difficult month. It was the first down January we have had since 2010. One thing we can say about 2014 so far, volatility is back. After dropping more than 230 Dow points by midday, stocks tried to stage a late afternoon rally bringing the Dow to within 40 points of breakeven, only to tumble once again into the close of trading. Global currency concerns and mixed earnings results are the chosen reasons for today’s selling, but guess what-there were more sellers than buyers. Doesn’t really matter why.

By the close, the Dow Jones Industrial Average was down 149 points to finish the day at 15,698. The S&P 500 was down 11 to close at 1782. Gold was up $2 to trade at $1244 per ounce, while oil was down $.68 to trade at $97.55 per barrel WTI.

Once again, January 2014 was one of the worst months for stocks we have seen in years. Whether the reason for the disruption is Fed tapering, which in turn causes emerging market currency issues, or simply that share prices were too high given then level of earnings we are seeing, is up for debate. We pointed out that earnings grew at 6% last year but stocks were up 25% to 30%. That was a classic example of P/E expansion. We need the E(earnings) part of the equation to accelerate to justify the P(price). While this current earnings season is not bad, one wouldn’t describe it as earnings acceleration. Therein could lie the problem. Perhaps we just need the E to catch up a bit. Doesn’t mean we have to go down (although we might), it just means we may have gotten a little ahead of ourselves (borrowed a little of last year’s performance from this year).

Enjoy the weekend and we’ll be back at it on Monday. Who do you like in the Super Bowl?

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