Come on, be honest, you thought 2015 would commence on a great note for the markets. The first trading session of January was a mere stepping stone to another year of hearty double-digit percentage gains for the likes of Tesla (TSLA), Facebook (FB), Chipotle (CMG) and all the other buzzy companies that went haywire in 2014 due in large part to rampant Fed-induced liquidity.
Well, now folks we are two trading days into the New Year and I want to reiterate something I mentioned on Monday: 2015 will be the year that corporate fundamentals (in particular the pace of sales and earnings growth on a sequential basis) matter, and if one key sector hits the skids, the sectors linked to its fortunes would also be derailed.
We are returning to the basics of investing being held in higher regard by the investment community. I believe this renewed sense of discipline is unfolding, with the drop in oil-related stocks leading to selling pressure in multinational industrials that have strong exposures to the eurozone and emerging markets.
Here are few things that unsettled me about Monday's session.
The big boys and girls are back: The sharp sell-off occurred as the movers and shakers in finance returned to their Bloomberg terminals and morning squawk meetings. It suggests that after phone calls and email exchanges during the holidays to reflect on the market's year-end rally, the decision has been made that stock prices are overvalued for a number of reasons. Could be the strong U.S. dollar taking a bite out of Pepsi (PEP) or Coca-Cola's (KO) sales and earnings. Could be Snap-On getting the shaft in 2015 in its industrial business as the oil sector retrenches on capex budgets. Who knows, but as I cautioned on Monday you do not want to try a heroic maneuver and fight the crystallizing bearish sentiment of the market. Sit tight, pay attention, raise a little cash.
Eek, transports: Notable sell-offs in CH Robinson (CHRW), Expeditors International of Washington (EXPD) and Kansas City Southern (KSU) corresponded with pullbacks in two names whose prospects are hinged on capex plans of others at home and abroad: Chevron (CVX) and Caterpillar (CAT). Important, at least to me, is that the transports dropped while gas prices continued to tumble. If this correlation persists, there could be merit to the view of a global slowdown that is well underway, but not yet depicted in U.S. economic data (theoretically would start to appear in February).
Reminder what the market is selling off into, a supposed "tailwind" to households and corporations...
High multiple stocks get whacked: The richly valued growth stocks such as Tesla, Chipotle, Starbucks (SBUX) and Under Armour (UA) underperformed yesterday. The problem: I didn't notice a rotation into defensive names, for instance consumer staples. The read: investors are seeing value in raising cash, and could continue to do until that initial earnings report from a VIP company suggests caution was misguided. By noon on Monday, only Merck (MRK), Coca-Cola, Verizon (VZ) and Wal-Mart (WMT) were marginally higher on the session. Not exactly a flight to defense.
I think to delve back into the market, lower oil prices have to be met with convincing buying in most sectors. In my view, convincing is above average daily volume in those sectors, and at least two sessions in the green.