The Market: February 2015

January did as it did last year and gave investors a New Year’s hangover.

The S&P500 was down 3% for the month. Smaller companies, as measured by the Russell 2000, were down 3.25%. Falling oil prices, concerns about Europe, and whether the two would hurt corporate earnings dampened the “animal spirits” of the markets.

February so far has seen a recovery in stock prices to levels just shy of where they began the year. Just as oil and Europe gave reasons for investors to sell in January, it was oil and Europe that brought buyers back to stocks. Oil prices have recovered a bit from their lows with both Brent and West Texas grades moving back above $50 a barrel.

European stocks moved higher as the European Central Bank announced plans to buy a variety of securities to flood the Eurozone with money.

Overall the stock market in 2015 is struggling to find its footing.

Today stock markets in Europe and in the US were down as focus has shifted back to that monster under the bed, Greece.

Focus on Greece

This tiny country at the edge of the Eurozone has caused aggravation since the financial crisis began in 2008. The high debt and poor economic fundamentals made Greece the example of Eurozone faults and thrust the country square in the debate as to whether austerity works to solve financial crises.

Greece held elections at the end of January and the far-left party won. No surprise. After six years of depression, Greek voters want to cut a better deal with its creditors, namely the European Central Bank and the International Monetary Fund. The negotiations are afoot.

The truth is the Greeks can not repay their debts and something has to give. Greece itself is very small and default is not, in the grand scheme of things, that meaningful to the global economy.

However, if Greece leaves the Euroland, a Pandora’s Box (ah, we owe so much to the Greeks) of issues will be opened. The most critical is if it means that Italy and Spain leave too. For now, my guess is that the unthinkable will remain unthinkable; some compromise will be reached that keeps Greece in the Euro and changes some terms of the debt.

There is a lot ahead for the market to digest.

Oil prices are going to be up and down as they try to find a bottom. We talked about Greece.

There is still Russia.

There are still questions about growth in China, Japan, and Europe.

My sense is that the market wants to go higher and will “climb the wall of worry” as the market always seems to do over time. Conflict, pessimism, and points of maximum uncertainty are the signposts of opportunities for careful investors. I think energy stocks, some Russian stocks, and many European stocks are compelling values here.

In these areas, there is great pessimism, uncertainty, and very low expectations. Buying low and selling high is the name of the game.

— Ian Green, Pendragon Capital Management

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Note: This blog article is intended for general informational purposes only. Nothing in it should be construed as, and may not be used in connection with, an offer to sell, or a solicitation of an offer to buy or hold, an interest in any security or investment product.