Financial Markets Recap – March 13, 2015
Written by: Ryan Bouchey
There was a lot happening in the financial markets this week with volatility rearing its ugly head once again. Let’s take a look why this may not be a bad thing and how some of the major financial news of the week could potentially effect the markets.
Strong February Jobs Report
Expectations of what the Federal Reserve will do with their monetary policy can change on a dime and we certainly saw that with the stronger than expected jobs report posted last Friday. The U.S. economy added 295,000 jobs in February and unemployment dropped to 5.5%. With such good news why has the market been volatile ever since this news broke last Friday? For one, the strength of these numbers may cause the Federal Reserve to raise interest rates as early as June. In the short term, this worries investors who believe the market has been propped up solely due to the Fed which is why we saw a sell-off. The fact of the matter is that for the Fed to raise interest rates it means they believe the economy is improving. Historical data has shown that with rates as low as they are now, any rise in rates actually helps the market instead of hurting it. In the long-term, we feel this is a good thing and the recent volatility presents a buying opportunity.
A Tale of Two Central Banks
The Federal Reserve and the European Central Bank (ECB) are on the verge of taking two very different paths when it comes to monetary policy. Given the recent U.S. jobs report, expectations are that the Fed will tighten monetary policy by raising rates. The opposite is true in the Eurozone where the ECB is loosening its monetary policy with their own version of quantitative easing. The dramatic effect we have seen so far is the strengthening of the dollar versus the Euro. A year ago, one Euro was worth $1.39. Today that same Euro is worth $1.06. This has the potential to hurt earnings for U.S. companies based on foreign exchange rates. Given that approximately 45% of revenue of S&P 500 companies is earned overseas, this stronger dollar could hurt bottom line earnings when bringing overseas profits back to the U.S.
Apple Watch
Did everyone already pre-order their Apple Watch? Since news broke on Monday of the Apple Watch, investors have not been very excited about the stock as its dropped 5%. Who can blame them? The Apple Watch is neat and has some cool features but it doesn’t offer anything new to consumers. You can track your health from a number of health trackers already on the market for much cheaper. The price point may be an issue, especially when you factor in that the latest iPhones were essentially free if you renewed your cellular contract due to competition between the carriers. It’s yet to be seen if the Apple Watch will help propel the wearable market but from our perspective there isn’t really a compelling reason for consumers to purchase the Apple Watch just yet.