All is rosy with corporate earnings announcements and yet today the market DROPS broadly-
- S&P500 declined 2%…falls well below 50 day moving average
- NASDAQ declines 2.09%…drops to 50 day moving average
So what gives?
- Argentina defaulted (for the second time in 12 years)…they’re a small insignificant country but maybe that’s prompting a reality check of the global iceberg of bad debt-
o Southern Europe remains sequestered in extreme debt, stagnant economies, and declining demographic trends.
- Spanish bonds are yielding less than 2.5%, their lowest level in 225 years…it was just three years ago that Spain was feared to default—what’s changed?
- A Portuguese bank announced a 3.6B Euro loss…what’s next?
o China has a second private company on verge of default…this is unprecedented, in the past the government has stepped in to pay off private bond holders.
- Geopolitical issues remain a concern…hostilities in Middle East, sanctions with Russia.
- Concerns that inflation will rear its ugly head…especially wage increases that will cut into corporate profits.
o Wage increase are a definite threat to corporations because they’re not factoring them into 2015 costs…this could be because they’re planning to automate or simply keep up the trend of doing more with less employees.
o Inflation indicators are conflicted…US dollar is up, Gold is down; over past quarter Oil had dropped over 7%.
- I think the real fear is that the Fed will finally start raising interest rates.
I remain extremely cautious but I’m not drawing any conclusions from today’s plunge. This market has been irrationally resilient for 18 months. Always recovering from minor losses as traders “buy the dips”.
During turbulent times like this, a prudent investor doesn’t take needless risks. This is not the time to play the odds, or to think you’re the smartest guy in the room.
Be cautious, sit back and watch things unfold.