Read Dan Greenhaus On The Market Selloff, And Whether You Should Buy The Dip
In recent times, we felt comfortable leaning into this decline, arguing that idiosyncratic issues in Turkey, Argentina and/or the Ukraine were ultimately unlikely to augur poorly for U.S. equities for more than a few sessions. However, Japanese stocks are now down 13% including the decline occurring as you read this, European equities are down by 6.4% and U.S. equities are off by 5.7%. In the U.S., slowing economic data in December and January have raised concerns that (either) the Fed is reducing its accommodative policy at the wrong time or the reduction is leading to said weakness. In either case, global economic indicators are slowing and here in the U.S., investors are growing concerned there is more than weather plaguing the economy.
Nonetheless, the equity decline and the price action action do not feel panicky. It is worrisome that retail related stocks (including autos) are among the worst hit this year (although some car companies have blamed the weather); of the fourteen names most below their 2014 high, ten are from the discretionary sector (led by BBY, GME, MAT and IGT). Further, we're somewhat confident part of the decline is related to the change in Fed leadership and the uncertainty it may breed. We are sticking with our larger view though that with earnings season doing well, investors will likely find current discounts attractive.