Market Volatility Makes Sense--1/30/2015


As I type this, for the month of January the S&P 500 has fallen in price by about 2.7%.  After a stellar 6 year run in the market, it makes sense that valuations will be a bit high and earnings above trend.  Therefore, it seems reasonable that the market needs to find excuses to sell off.  Oil prices falling seems to be one of those reasons.  Now... long-term, low energy prices are GREAT news.  But with a market needing a reason to sell off, it has latched on to this as a negative.  Rates will be rising in the next year or so. Again, this is not terrible news.  The economy is in good enough shape to raises rates off the extremely low levels the 2008 crisis demanded.  But, ok, rising rates call for a pullback.  

With all this the most important reason stocks should sell off is falling earnings.  And we've seen stocks that disappointed on the earnings front take a hit, while companies reporting good earnings are rewarded.  And usually, the punishment and rewards for this go too far.  But I LOVE IT!!!  This is normal market behavior.  Opportunities open up on the sell side, and buy side, when this over-reaction occurs.  

One more thought...strong U.S. Dollar coupled with falling European equity prices equals potential opportunity.