Facebook
Twitter
When it comes to the Fed, the devil is in the details.
Very few people expected the Federal Reserve to raise interest rates on Wednesday following its two-day policy meeting. As I mentioned in this space last week, futures contracts were pricing only about a 10% probability of a rate hike heading into the meeting.
Sure enough, the Fed left rates unchanged. But it was the downbeat tone of the Fed’s press release that rattled investors.
The Fed statement acknowledged that “economic growth slowed late last year,” while also maintaining that the Federal Open Market Committee is “closely monitoring global economic and financial developments and is assessing their implications for the labor market and inflation, and for the balance of risks to the outlook.”
Translation: While the Fed is concerned that its grand plan to raise interest rates four times in 2016 may be in jeopardy following the economic chaos in January that sent stocks tumbling, it hasn’t ruled out the possibility of another rate hike in March.
The Dow Jones Industrial Average dropped 1.4% on Wednesday, while the S&P 500 and Nasdaq Composite Index fell 1.1% and 2.2%, respectively.
Up-and-Down Earnings
Fed uncertainty aside, the Dow was weighed down Wednesday by Boeing (NYSE: BA), which missed earnings expectations by a country mile and saw its shares dive-bomb 8.9%. Meanwhile, Apple (NASDAQ: AAPL) fell 6.6%, despite beating earnings per share expectations by 5 cents.
Investors’ beef with Apple was less about past performance than the expectation of future results. Apple reported the lowest growth rate in its biggest moneymaker – the iPhone – since the device’s premiere in 2007. As a result, the company forecast a decline in revenue in its current fiscal quarter. If the forecast holds true, it would be Apple’s first quarterly revenue decline since 2003.
Stocks bounced back to positive territory on Thursday, led by 15.5% gains from Facebook (NASDAQ: FB), which reported its first-ever $1 billion-plus profit after the closing bell on Wednesday. Quarterly revenue for the social media giant rose an impressive 52% year-over-year.
Shares of Amazon.com (NASDAQ: AMZN) climbed 8.9% on Thursday in anticipation of its earnings report and then promptly tanked 13.4% in after-hours trading. The e-commerce king reported EPS of $1, compared to analysts’ expectations of $1.56.
The sell-off continued on Friday, with Amazon shares falling 7.6%. But all three of the major market indexes finished in the green, buoyed by a 5.8% gain from Microsoft (NASDAQ: MSFT), which easily beat consensus estimates on both the top and bottom lines.
Here are some of my favorite Wyatt Investment Research articles of the week:
Another Year, Another 20%-Plus Return for This Dividend Aristocrat – During a year in which the S&P 500 index finished down 2%, one S&P 500 Dividend Aristocrat swam against the current and finished the year up 20%. Toss in the dividend – increased 8% and for a 46th consecutive year – and the company produced a total return approaching 25%.
Top Warren Buffett Stock Now on Sale – A prominent activist investor has bailed on a favorite Warren Buffett stock which has fallen prey to market disfavor. But that means the stock trades at less than 10 times earnings and offers a 2.1% dividend yield, while also generating a 26% return on equity.
An Investment Guide to Latin American Stocks – Emerging markets have felt the brunt of the global market turmoil, but buying opportunities have emerged among choice Latin American stocks. Hint: They’re not Brazilian or Venezuelan.
My Ongoing Approach to Outperforming a Market Downturn – If you adhere to the “January Barometer,” you want to pay close attention to a market downturn during the first month of the year. The January Barometer basically states that as the S&P 500 index goes in January, so goes the year. The S&P 500 finished the month down 5%, but Wyatt Research options expert Andy Crowder isn’t concerned. That’s because he plans to stick to the same successful strategy he’s used for the past 18 years.
Is David Einhorn Ready to Redeem Himself? – David Einhorn, manager of Greenlight Capital, released his fourth-quarter investor letter last week. The major hedge fund was down more than 20% in 2015. A big reason is because the fund was short two of the best-performing stocks in the S&P 500: Netflix (NASDAQ: NFLX) and Amazon.com. Meanwhile, it was long two of the worst-performing stocks: Consol Energy (NYSE: CNX) and Micron Technology (NASDAQ: MU). But Einhorn has already made some major shakeups to his portfolio in 2016.
Help Insure Your Portfolio With This Overlooked Insurance Stock – This unheralded insurance stock is one of less than 20 companies that have raised their dividends for more than 50 years in a row. Plus, the company has a habit of handing out special dividends from time to time. For instance, in December it declared a $0.46 per share special dividend on top of its $0.46 per share regular dividend.
Don’t Get Bitten by This FANG Stock – After years of stratospheric share price appreciation, investors are sobering up and cashing in their shares of this member of the FANG (Facebook, Amazon, Netflix, Google) stock club.
Are Low-Volatility ETFs a Good Idea? – The recent market volatility and precipitous slide in stock prices shine new light on a relatively new investment vehicle: low-volatility ETFs. As their name implies, the exchange-traded funds seek to hold a number of securities – usually from a benchmark index – that are less volatile in relation to other securities in the index. But do they really minimize the most extreme price fluctuations?
Have a great weekend!