The market is still
facing incredibly strong headwinds coming from several different
directions, starting with a strong dollar. Depending on you source,
S&P 500 companies get between 40%-55% of their earnings from
overseas trade. Even at the low end of the exposure spectrum, (40%),
we’ve still got some pretty major headwinds on the currency front. And,
on that topic, international markets are weak; Japan is coming out of a
technical recession, Australia has some underlying issues, Canada has
to deal with weak oil prices, China is clearly slowing and the EU is
limping along. Tying these two elements together, profits from weaker
overseas economies have to be converted into a strengthening currency,
creating a negative double-whammy. And then there is the negative
impact of oil, as that is destroying the earnings of an entire economic
sector. The sum total of these events is to put a tremendous amount of
downward pressure on the markets.
But, as was
shown last week, the US economy is in good shape, providing a solid
backdrop for continued earnings growth. Last week, that was strong
enough to overcome bearish sentiment. But in this environment, it's
certainly no guarantee that we'll see continued upward price movement.
