Stocks Down in January – what does it mean with Neil Cavuto

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All the major US market stock indices closed down in January.  Now I don’t put much stock, (pun intended) in correlation myths such as what the market’s movements in the month of January means for stock prices for rest of the year.  What I do look at is what is causing stocks to move in any particular direction.

I look at measures such as the Baltic Dry Index (which measures shipping costs for dry bulk commodities such as minerals and metals, grain and other food) hitting a 28-year low. That’s a serious warning sign!

Earnings growth expectations are being revised lower, but at Friday’s market close the S&P 500 was trading at 16.4x 2015 earnings per share of $122.05. That’s more than a tad rich for what is shaping up to be contracting earnings in the first half of the year, which in our view puts even more pressure on earnings expectations for the back half of the 2015 in order to growth expectations of 4.4% per FactSet.

On top of that, the strengthening dollar is causing serious problems for a lot of large companies. For example, the S&P 500 companies earn roughly 27% of sales abroad. The weak global economy coupled with the appreciating dollar and falling oil has led companies such as Caterpillar (CAT), Procter & Gamble (PG), and Pfizer (PFE) to disappoint analysts last week. Pfizer reported that nearly all of its 3.3% revenue drop was due to the strong dollar while Caterpillar also cited reduction in construction in oil-producing regions, weak demand from mining companies along with a 12% decline in retail machinery sales.

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