Market Volatility is Back

in Market Commentary by

Market Digest – Week Ending 1/09

Stocks had a wild ride as sliding oil prices and fears over Greece sparked a selloff Monday and Tuesday. The trend sharply reversed midweek as positive US economic data and expectations for stimulus in Europe drove equities higher. The volatility also sparked a flight to safety as 10 year US Treasury yields fell below 2.0% for the first time since 2013. Gold was up for the week.

Weekly Returns:
S&P 500: 2,045 (-0.6%)
FTSE All-World ex-US: (-1.2%)
US 10 Year Treasury Yield: 1.96% (-0.15%)
Gold: $1,222 (+2.3%)
USD/EUR: $1.184 (-1.3%)

Major Events:

• Monday – Oil prices fell below $50 a barrel for the first time in 6 years, while uncertainty over Greece sent the Euro to a 9 year low against the dollar.

• Tuesday – President Obama announced he will nominate Bank of Hawaii CEO Allan Landon for a spot on the Federal Reserve’s Board of Governors.

• Wednesday – 12 people were killed by gunmen at the Paris office of French Magazine Charlie Hebdo in an apparent terror attack.

• Thursday – Stocks rallied on the prospect for additional central bank stimulus in Europe.

• Friday – In a raid, French police killed three gunman suspected in the Charlie Hebdo attack. Four hostages lost their lives during the siege.

Our take:

It was the first full trading week of 2015, and the market made quite a statement: volatility is back! If you looked at a graph for the week it would resemble a rollercoaster ride. Oil continued its slide, dropping below $50 a barrel for the first time in six years—it sent shares of energy and basic materials companies sharply lower. See our Fourth Quarter 2014 Market Review & Outlook for a more detailed look at oil.

Greece is once again on the minds of investors as looming elections could threaten its place in the Eurozone. The economic situation in Europe remains fragile, marked by sluggish growth. So any potential shock has the ability to derail future progress. The ECB’s Mario Draghi seems determined to do what it takes to reignite growth, with most believing a large scale bond buying program is now imminent. But we expect Greece will continue to fuel market volatility in the near future.
On a more positive note, conditions in the US continue to improve. The employment rate fell to 5.6% in December, making 2014 one of the biggest years for employment gains since the 1990s.

Ultimately (outside of oil), these stories are just repeats of themselves, yet the market reacted violently to the news. This is volatility at its finest. After an unusually quiet period over the last couple years, it seems to once again be rearing its ugly head. As such, make sure you buckle in and stay focused on your long-term goals. Don’t get whipsawed by short-term market swings.

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Brendan Erne, CFA
Brendan Erne serves as the Portfolio Management Team Leader with Personal Capital Advisors. He has over 15 years of industry experience, spanning almost all levels of the investment process, including several years at Fisher Investments as an equity analyst covering the Technology and Telecommunications sectors. He also co-managed a large cap growth portfolio and co-authored Fisher Investments on Technology, published by John Wiley & Sons. Brendan is a CFA charterholder.

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