After a very positive year in 2014 where the market was up ~12%, the first real day of 2015 saw the market down by nearly 2%. Those that have been on vacation the last two to three weeks are suddenly skittish, wondering what to do. Oil is down now below $55/barrel, nearly half of what it was a few months ago. As I mentioned last month, this is good for some and bad for others.
What steps will the Fed take over the next few months? Rates will certainly go up this year, right? Most likely, but when and how much they will rise depends on a lot of factors. I hope that the members are as smart as they should be and take the right steps at the right time to keep our economy on track.
Political uncertainty in Greece is again rearing its ugly head. If Greece exits the Euro, this has big implications all over the world, to include the U.S. Stability of the Eurozone is important for many reasons, and impacts not only stock prices buy bond yields (which impacts bond prices) as well. If you were thinking of vacationing in Europe, this would be a good time as the exchange rate is now very favorable to the US dollar (1 Euro = 1.19 US Dollar); the best, in fact, since 2006. The downside to this, though, is that it makes our exports less competitive, which means that companies who export will lose sales to competition in other countries, and companies with sizeable overseas operations will see their sales slide in terms of the US Dollar simply because of the exchange rate. This may have an impact on fourth quarter earnings reports.
In the face of this, what should you do? Before I answer that, let me say that individual investors make poor decisions: they buy when they should sell, sell when they should buy or hold, and wait too long to do either. Timing the market is a losing proposition. So, what you should do is stay with your long-term investment objective, rebalance back to that objective when necessary, and focus on what you can control: saving and spending!