Last Friday 10/10/14, I wrote about “Rising above the noise” that has been increasing volatility and pushing equity markets down.
Well that “noise” just got louder. The noise today (10/15/14) was a second Dallas healthcare worker confirmed to have contracted the Ebola virus and economic reports out of Europe, specifically Germany, pointing toward declining economic growth. This noise caused a massive flight out of risk assets (equities) and into safe-haven assets (mostly US Treasuries) during the early part of the day.
However, not all the “noise” was bad. At 2pm Eastern time on 10/15/14 the Federal Reserve released its Beige Book, a summary of economic activity and conditions across the 12 Federal Reserve Districts in the US. Essentially, the Fed found that economic growth was continuing at a modest to moderate pace across the US. Here is a link to a CNBC report that summarizes it well: http://www.cnbc.com/id/102090888 This report was received positively by the market as between 2pm EST and the market close at 4pm EST the S&P 500 rebounded from a low of 1820.66 to close at 1862.49 (source: Yahoo Finance)
So far the “noise” has drowned out the start of 3rd quarter 2014 corporate earnings season. While we have only had a handful of earnings reports, so far most have been better than forecast with companies such as Alcoa, Johnson & Johnson, Intel, American Express and Netflix all beating estimated earnings per share. See this CNBC report on earnings surprises: http://www.cnbc.com/id/18080780
I remain convinced we are experiencing a normal correction in an otherwise healthy market. I believe that corporate earnings will continue to be better than expected and that fact will stop the fall in equity prices. I am looking for the equity market to rebound back to the 2,000 area on the S&P 500 by the end of the year. However, I remain vigilant in monitoring economic and financial conditions for any signs that would necessitate a change in approach.
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