Wasington, D.C. -- (ReleaseWire) -- 03/27/2015 --Remember The $64,000 Question? It was a television game show during the '50s, and even though it ended up being caught up in the quiz show scandals, it was a pretty cute show. The $64,000 question about our markets isn't cute at all, though. Here it is: how long can the stock market keep ignoring dismal earnings numbers and macroeconomic data? This is the same question we've been asking for a year now.
Standard and Poor's has announced that S&P 500 reported earnings per share for the fourth quarter of 2014 fell negative 14 percent year-over-year. Another research house, FactSet, reported similar numbers, and went on to say that they expect to see a negative 5 percent drop in S&P 500 earnings for the first quarter of 2015, and declines in earnings for the companies that make up the Dow Jones Industrial Average of 15.3 percent in the first quarter, 9.5 percent in the second quarter, and 5.9 percent in the third quarter. We should expect warnings about earnings to continue from U.S. companies as the first quarter of 2015 draws to a close. In fact, Standard and Poor's has already dropped their annual consensus for 2015 for the S&P 500 from $134 per share to $119 per share. And yet the market continues to rise.
The U.S. dollar index continues to go up, as well, having risen more than 25 percent in the last nine months. This hasn't happened at any other point during the last thirty years. If we look at the RSI (Relative Strength Indicator), which is a momentum indicator, this is a clear sign that the dollar is currently highly overbought.
The crevasse between fundamentals and the markets, especially the Dow and the S&P, continues to deepen and widen. How does any investor make sense of this situation? Most money managers and financial advisors and mutual fund managers don't understand. They are sitting on the sidelines and watching, likely in fear. The Federal Reserve has tied its hands, and ours too, because it has a habit of continuing to move the goal posts when talking about its economic goals. Because of this, nobody can really know when they're going to stop manipulate the markets. Its response to economic statistics is not only unpredictable, but also unsteady and not based on fundamentals. As a result, Janet Yellen's comments this past week were dovish, which means that is very unlikely that the Fed will take any action toward raising rates.
Again, the $64,000 question: will the markets continue to look through this structural economic weakness? They have for the past six years, certainly. This past Friday was what is referred to as a Quadruple Witching Day, which happens once a quarter on the third Friday of the month. This is the day when various stock index futures, stock index options, stock options and single stock futures expire, all at once. Because investors in futures and options must close their positions on that day, trading volume is often high, which can lead to increased volatility. Last Friday, the movement was up during this volatile trading time. However, despite this excitement and the fact that the DOW is trading near historical highs, the index is only up 1.71 percent year-to-date which means, given the cost of trading and money management expenses, most portfolios are flat to down year-to-date and are facing tough economic headwinds.
To compound all this, when corporate earnings decline, corporations start cutting back on investment spending and employment, which brings with it all the obvious repercussions. Remember, employment is a lagging economic indicator, and the Bureau of Labor Statistics jobs data is skewed by political considerations and faulty seasonal adjustments. So the stock market is rising, but our lives aren't following it.
Last week at the TED conference, an event attended by "the world's leading thinkers and doers," billionaire hedge fund manager Paul Tudor Jones warned us all that we are seeing a disastrous market mania that will end by revolution, taxes or war, saying that this is "One of the worst markets of my life." If Tudor Jones is saying this, we should listen. If we're to survive this disastrous market mania, are we going to need to rethink everything? Those of us who are nearing retirement or have large cash holdings could lose substantial value. It is possible that the negative interest rates we are seeing in Europe are the first glimpse of the destruction of fiat currency, due to imploding economies. If zero or negative growth becomes the norm for economies, then we cannot simply hold the U.S. dollar to preserve wealth.
If all this data is pointing towards an economy that shows very little sign of significant acceleration, then every single one of us needs to defend against a major weakening of purchasing power in our portfolios. How? Perhaps that should be the next $64,000 question. How do we protect ourselves in the face of markets that are not reacting rationally to the reality on the ground? There are few options.
One of them is the five thousand year old trusted asset, which is gold and silver. Since the dollar has more than likely peaked and it has only minimally affected the price of gold and silver on its rise up, gold is more than likely to move upward. Of course, this isn't a promise or a guarantee, but do remember the old saying: buy low and sell high. You can practice that with gold.
All data sourced through Bloomberg
Securities offered through Western International Securities, Inc., Member FINRA & SIPC. Bennett Group Financial & Western International Securities, Inc. are separate and unaffiliated companies.
About Dawn Bennett
Dawn Bennett is CEO and Founder of Bennett Group Financial Services. She hosts a national radio program called Financial Myth Busting http://www.financialmythbusting.com
She discusses educational topics and events in the financial news, along with her thoughts on the economy, financial markets, investments, and more with her live guests, who have included rock legend Ted Nugent, as well as Steve Forbes and Grover Norquist. Listeners can call 855-884-DAWN a as well as take podcasts on the road and forums for interaction.
She can be reached on Twitter @DawnBennettFMB or on Facebook Financial Myth Busting with Dawn Bennett or dbennett@bennettgroupfinancial.com