Embrace the Uncertainty… but Be Selective
With continued uncertainty in Europe and energy and commodity prices still falling we’re getting an early year “reset” to markets. The choppiness actually started in December and feels like it can continue for a bit as Q4 2014 earnings are coming in a bit uneven, adding a little to the uncertainty.
We feel this pause to reset is probably a good way for the markets to start the year, creating a space for investors to see a little more clearly into this year’s global business trends, and for stock charts to develop bases.
The end of year earnings announcements and managements’ view of the coming year provides much needed insight for investors. As it appears now that there are companies in several industries that are doing well and others in the same industry not doing so well, we think selectivity, more than last year, is the name of the game this year. The choppiness in the markets is providing opportunities to pick up stocks of companies whose earnings are still on track at good prices. At the same time, some of the earnings misses seem to be one or two quarter events which also seem to be opportunities to buy on price pullbacks
We still prefer U.S. over other regions. In our last post we were somewhat cautious about small caps, but it appears that small caps, along with mid cap stocks, are enjoying more interest as the U.S. consumer is enjoying the benefits of lower gas prices and the strong dollar, while many multi-national companies are facing headwinds from the stronger dollar.
Although there has been some recent support for foreign stocks in spite of the uncertainties, we think we still need to see more base building in the foreign indices. Oil and gas prices are still going down and stocks in the energy sector still look weak.
Early in December economists seemed in agreement that the Fed would start to raise interest rates in mid 2015. Now, with a little more uncertainty about the strength of the economy, many economists are thinking the decision to raise rates can be pushed out to the 4th quarter or 2016.