Just as clients likely though volatility was subsiding, we dive back into negative territory on the markets. What were the factors that played into the S&P falling from an all-time high on Monday to being down 2.19% for the week[1]?

Quarterly Earnings

In past quarters this has been a positive that has combated geo-political headwinds. Often times we would see markets retreating at quarters end due to concerns around the globe. Once the calendar would turn over to the next quarter, earning season would start and performance would rebound. The below chart illustrates the quarterly rebound frequently felt across the last 2 years[2].

The major difference this year is that quarterly earnings have been weak the last 2 quarters; S&P companies have suffered a blow from 2 specific fronts.

• Lower commodity prices have caused an instant cost cutting environment for many companies in an effort to remain profitable among smaller margins.
• A stronger dollar has created a less competitive US product abroad, which has been a major struggle for US multinational companies, mainly large caps. Also the strong dollar has led to smaller profit margins on revenue converted from foreign currencies.

Economic Data

Existing Home sales were up 170,000, manufacturing rose to 53.8 (above 50 reflecting expansion) from 53.6, and initial jobless claims fell to a low of 255,000[3].

New home sales fell by 35,000[4] and crude oil inventories rose unexpectedly forcing oil prices lower with the added supply.

Global Macro Issues

While things have calmed in Europe as Greece goes through process of approving their bail out, issues in Chinas continued slowdown and the potential increase in oil flows from Iran continue to pose a drag on both equity and commodity markets.

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Always remember that while this is a week in review, this does not trigger or relate to trading activity on your account with Financial Future Services. Broad diversification across several asset classes with a long term holding strategy is the best strategy in any market environment.

Any and all third-party posts or responses to this blog do not reflect the views of the firm and have not been reviewed by the firm for completeness or accuracy.

[1] www.jpmorganfunds.com – weekly market recap

[2] www.investing.com – indices charts

[3] www.investing.com – economic calendar

[4] www.investing.com – economic calendar