Prior to this week there was a prevailing and broad consensus that the outlook for 2014 was good. Economic numbers had born out the improvement. And yet in what could best be described as a blitzkrieg on the global markets, uncertainty raised its ugly head. When the market shifts attitude in a blink of an eye, investors will, and should, take notice. With this week’s surprisingly fast global sell off we should step back and analyze the factors that caused it. The down move this week was not caused by disappointing corporate earnings – the issue of which the market had been most fearful at the start of the week. Beginning on Monday the market was preparing for the onslaught of corporate earnings. By Friday’s close earnings were a distant footnote to this week’s movement as issues in Turkey, Argentina, and China garnered the spotlight that created what one financial writer described as a “contagion” in the global markets.
The start to 2014 has been a far cry from the start of 2013 from the prospective of market performance. The 2013 January start felt like the starting line of a sprint as investors immediately seized on every bit of data as a reason to propel the market upwards where as the start of 2014 has been different. For the year (all be it only 17 days into 2014) the market has barely moved with the S&P 500 down 0.52% and the NASDAQ up 0.50%. What’s the driver this year and what should we look for as investors going forward? Market players are suggesting that the “easy” money that is in the market has been made with the run up in prices over the last several years and now the real test for the market begins. The mantra that currently resonates within the investment world (and what is needed to be seen to justify putting more money to work in stocks) is growth in corporate earnings.