The stock market started the first trading day of the 2014 underwater, with the Dow Jones Industrial Average losing over 135 points, while the S&P 500 and the NASDAQ gave up an average of 0.84% of valuation. Traders were caught unaware, with many citing low volume and below-expectation PMI numbers from China as key contributors to the decline.
An interesting note brought up by CNBC’s Bob Pisani is the “first trading day omens:” between 2009-2013, the first trading day ended on a positive, which resulted in the S&P 500 gaining for the year. In 2008, however, the first trading day was down and of course the full year was down. While historical trends alone are not a guarantee of future performance, stocks have been gaining under pensively ambiguous monetary policy and dubious fundamentals. With the Fed officially committed to taper, we can expect a very slow year in equities and perhaps even a strong correction.
The U.S. dollar had a muted performance this week due to the holiday shortened trading sessions, with the dollar index closing slightly above the 80.50 level. With Fed tapering now very much on the books and many investors expecting 10-year yields to rise over the next few years, we anticipate the dollar index to trade in a range between 83 to 85 by the end of 2014.
In contrast to the dollar index, the Japanese Yen’s performance was far more volatile, with the dollar/yen pair cracking the 105 mark before pulling back during Thursday’s trade. While the Yen was the stand-out currency trade of 2013, and will likely make headlines in 2014, don’t expect the same fireworks from last year. The Japanese government will be more focused on structural reform and will look for sustainable growth as opposed to short-term “shock-and-awe” tactics.
The Euro/Dollar pair slipped a few notches after briefly challenging the 138 level earlier in the week. The Euro was a sleeper hit for 2013, gradually rising while major European stock markets recovered from a deflationary lull. However, the ride was tumultuous : in 2014, we expect more stability as global central banks have solidified their forward-looking game plans and ultimately, we should see the Euro/Dollar pair challenge the 145 level by year’s end.
Winners & Losers
The winner for this week is Hertz Global Holdings, ticker symbol HTZ :
- Shares gapped up over 10% on New Year’s Eve as Hertz announced a one-year shareholder’s rights plan, which is a strategy designed to protect against a hostile takeover.
- Overall, shares gained more than 75% on the year led by management initiatives to expand their off-airport business and the introduction of new brands. On the books, Hertz saw a significant improvement in gross margins and net earnings.
The loser for this week is Zale Corporation, ticker symbol ZLC :
- Shares dropped -4.42% to end the year on a negative, as investors took profits off the table on what has been a wild ride in a very discretionary sector.
- Although the company has seen retail comps improve in its most recent quarterly report, Zale shares are on paper extremely expensive, trading at 60 times earnings. Other jewelry names also trade at similar multiples but offer better margin growth, suggesting that Zale’s is amongst the more speculative companies within the sector.
Gold recovered the $1,200 dollar level after falling behind earlier this week on light volume, with Thursday’s session reversing the trend in the equities by popping up nearly 22 dollars at the COMEX.
Silver also saw a sizable lift, gaining 66-cents to close just a hair above the $20 dollar level.
Palladium trended positively, ending New Year’s Eve on a high note and securing the distinction as the only precious metal to score a gain for the year.
While 2013 was a difficult year for the precious metals and the greater commodities sector, we expect substantial improvement in 2014 and beyond. One of the ironic fundamental drivers for this recovery will be Japan. While stereotypically known as a technology mecca, approximately 32%*of Japanese ADR** companies fall under the energy, industrial, and utilities sector and demand for base metals and industrial precious metals, such as silver and palladium, should increase significantly as the Japanese economy responds more confidently to new government protocols.