Markets experienced a difficult month with all benchmarks closing in the red. Global economic concerns and a continual slump in fuel prices emerged as the major headwinds for stocks. The political situation in Greece also weighed on investor sentiment.
Stimulus measures from the ECB and encouraging comments from the Federal Reserve improved the situation somewhat. However, economic data on the domestic front was also largely disappointing.
January’s Performance
For the month, the S&P 500 (SPY), the Dow and the Nasdaq dropped 3.1%, 3.7% and 2.1%, respectively. In January, the World Bank reduced its global economic growth outlook for 2015 and 2016. Continuous plunge in oil prices also dampened investor confidence. Political uncertainty in Greece and Bill Gross’ dismal outlook for 2015 have dented investors’ moods. Dismal economic data including ISM Services Index and factory order added to the bearish sentiment.
Disappointing fourth quarter earnings results from banking majors also had a negative impact on investor sentiment. Meanwhile, investors assessed the consequences that markets may face after Swiss National Bank dropped its long-standing exchange rate of the Swiss franc against euro. Separately, the European Central Bank (ECB) announced a large-scale bond buying program to revive the near-stagnant Eurozone economy.
Slump in Oil Prices
Early last month, U.S. oil prices slipped below the $50.00/bbl level for the first time in more than five years. Abundant supply of oil and strength in dollar were cited as the reasons behind this renewed slump in crude oil prices. Rise in output from key producers including Russia and Iraq came in at a time when analysts have cut their demand outlook due to weak global economic scenario.
Later in January, The Goldman Sachs Group, Inc. (GS) reduced its three-month outlook for the price of WTI crude oil. Also, the company downgraded its outlook for the price of Brent crude oil. Major oil suppliers showed no sign of reducing oil production, which in turn had a negative impact on the energy prices.
Oil prices declined again after the Organization of Petroleum Exporting Countries (OPEC) slashed its demand for oil estimates for the next year. Meanwhile, Saudi Arabia’s oil minister had turned down the need for output cut. Oil prices took another beating after inventory supply touched its highest level in eight decades.
Global Growth Worries
The World Bank reduced its global economic growth outlook for 2015 and the next year. It now expects global GDP to grow at a pace of 3% in 2015, compared to previously projected rate of 3.4% growth.
Additionally, IMF made the steepest cut to the world growth forecast in three years. IMF now sees global growth at 3.5% in 2015, down from previous projection of 3.8%.
Separately, China reported GDP growth of 7.4% in 2014, slowest since the 3.8% growth registered in 1990. Growth was also down from 7.7% in 2013.
Swiss Bank, Bank of Canada Act
The Swiss National Bank (SNB) decided to remove its three-year old policy of maintaining minimum exchange rate of 1.20 Swiss francs to 1 euro. Following the announcement, Swiss franc jumped against the euro and the dollar. In recent times, Swiss franc was facing huge pressure due to this minimum exchange rate policy. This is because euro was becoming weaker against major currencies due to sluggish economic conditions in the Eurozone.
