January 19, 2015
The January Effect not in effect, yet
Many market watchers expected some volatility during the first few months of the year, but it seems obvious that very few, if any, foresaw the Swiss move to discontinue its minimum exchange rate for the franc against the euro. The Swiss National Bank abruptly ended its three-year policy of capping its franc at 1.20 per euro on Thursday, just before the European Central Bank is to meet again to vote on quantitative easing measures. The surprise adjustment sent the already-vulnerable euro into a downward spiral and a shock wave through world markets, reflecting concerns about global growth.
While stocks have been struggling in the first two weeks of the year, the days-long decline we just experienced seemed inevitable since the markets had gone for long periods without one, according to Andrew Adams, Chartered Market Technician. Chief Investment Strategist Jeff Saut has been cautioning investors to expect a “rough patch” during the first few months of the year, but he remains cautiously optimistic over the long term. Savvy investors could take this opportunity to deploy cash by starting or increasing positions in carefully selected equities that may now be “on sale.”
Even though this month’s declines aren’t the most thrilling way to start a new year, the losses themselves aren’t record-breaking or particularly devastating, noted Adams. So while we’ve not yet seen the so-called January Effect, the seasonal tendency for the first month of the year to be strong, it could still happen. In the meantime, we are seeing small- and micro-cap stocks continue to outperform.
On the economic front, lower gasoline prices pushed the headline consumer price index (CPI) lower for December, and core inflation remained mild, according to Chief Economist Scott Brown. The December retail sales report was disappointing, but growth in the fourth quarter was still relatively strong. Lower gasoline prices have helped fuel gains in consumer sentiment.
I’ll continue to monitor developments and the latest economic data, as well as any news from the domestic and international markets. And, I’ll be sure to let you know if any of these trends could affect your long-term financial plan.
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Investing involves risk, and investors may incur a profit or a loss. Past performance is not an indication of future results. Small and micro-cap stocks involve greater risks and may not be appropriate for all investors. International investing involves additional risks such as currency fluctuations, differing financial accounting standards, and possible political and economic instability. There is no assurance the trends mentioned will continue. Market letter data and information is compiled from a variety of reputable resources, including Raymond James financial experts, such as Chief Economist Scott Brown and Chief Investment Strategist Jeff Saut. Our research also uses third-party sources, such as Federal Reserve publications, CNBC, CNNMoney, Bloomberg and Yahoo Finance. The information is then vetted through the relevant product areas, as well as compliance and editing before being distributed. The process of rebalancing may result in tax consequences.