As of Friday's close, the Dow Jones Industrial Average was down 2.5% for the year to date. In 2015, it has traded in a narrow range and has been pretty much a sideways move thus far. However upon closer inspection, its individual components are acting very strangely. The bottom third of the Dow is down 9%+ for the year with 9 stocks down over 14%. With global growth slowing in China and Europe, it is no surprise that industrials, materials and energy stocks are at the bottom of the barrel. On the other hand, the top 8 performing stocks are up 9%+ with 8 stocks up double digits. Healthcare, consumer discretionary and technology sectors are holding up the boat. This is a very bizarre situation and one I can't recall ever seeing before.
First Quarter 2015 in Review: International markets melt up
I'm not sure where the first three months of the year went, perhaps they are still buried in Boston's snow piles. Wherever the time disappeared to, the central bankers took center stage in the first quarter and their actions dominated financial markets. The European Central Bank joined the QE party to the tune of at least 1.1 trillion Euros to be spent over the next 18 months. The Bank of Japan continues their monetary experiment of Abenomics and there is increasing speculation that they will push the dial further on stimulus which could last for the next 3+ years. Meanwhile economists in the US speculate on when the Fed will make their first rate hike. We don't expect a rate hike anytime in 2015, and maybe not even in 2016, thanks to low levels of inflation and slowing GDP growth.
Will the Fed raise rates in 2015? Don’t count on it
Yesterday, the Federal Reserve removed its “”patient”” language, as expected, but Fed Chair Janet Yellen delivered her best quote yet:
Just because we removed the word ‘patient' from the statement, doesn't mean we're going to be impatient.
With many investors still expecting a first rate increase in 2015 (perhaps in September), you shouldn't count on it. Why? It's actually quite simple. Yellen repeatedly tells the market that the Fed's decision is data dependent on whether it will raise rates or not. So if you look at the data, there is nothing in the data telling us that a rate increase will come in 2015 at all. Let's look at the numbers.
Will Fear of Deflation Bring More Quantitative Easing?
In January 2012, the Fed outlined its 2 percent goal for inflation. But despite buying more than $4 trillion in bonds since 2008, inflation has remained stubbornly below that goal. Because of this I am beginning to wonder if the Fed will consider turning quantitative easing back on for another round of asset purchases in 2015.