Practical analysis for investment professionals
30 January 2015

Weekend Reads for Investors: Greece, Currencies, and Earnings

Posted In: Weekend Reads

It’s been an eventful week for most investors, if not a profitable one. In Greece, the leftist Syriza party, which pledged to end austerity, won national elections, and Greek stocks responded by falling 15% over the next three days. Greece’s bailout program expires at the end of February, and their anti-austerity stance and ongoing need for cash set the stage for a showdown with the so-called “Troika,” made up of the European Union, the European Central Bank (ECB), and the International Monetary Fund (IMF). If you think a Greece exit from the eurozone is now more likely, 59% of those surveyed in a recent CFA Institute poll agree. Expect plenty of political posturing in the coming weeks.

The drama in Greece comes on the heels of the ECB’s well-telegraphed announcement of quantitative easing, fulfilling ECB president Mario Draghi’s 2012 pledge to do “whatever it takes” to support the euro and stave off deflation. Count DoubleLine Capital’s Jeff Gundlach among the disbelievers. He thinks ECB QE will “have very little success.” Indeed, the risk of a deflationary spiral in Europe became more real with news that consumer prices in Germany probably fell in January.

In the United States, earnings season is well underway and the results so far have been less than inspiring. The strong dollar is proving to be a drag for many US multinationals. Caterpillar (CAT), Dupont (DD), Microsoft (MSFT), Procter & Gamble (PG), and United Technologies (UTX) were just some of the companies guiding 2015 earnings estimates lower, in part due to the strong dollar. With roughly half of revenues at S&P 500 Index companies coming from abroad, it’s noteworthy that since 1985, the negative earnings revisions for these firms over the past 12 months have been lower only during recessions. Optimists can at least still point to Apple (AAPL), which reported the largest quarterly profit ever made by a public company. The company also finished the year with a cash hoard of $178 billion, which exceeds the market capitalization of all but 17 of the companies that comprise the S&P 500 Index.

As the outlook for profits has been pinched, stock valuations have crept higher, and according to FactSet, the forward P/E on the S&P 500 Index is hovering near a 10-year high. Signs of slowing global growth, negative earnings guidance, and extended valuations remain obvious headwinds for stocks. This time, more QE may not be the answer.

Below are some other stories that caught my eye in recent weeks.

Strategic Thinking

Governance Matters

Overheard in Davos

Big Business


Artificial Intelligence

Career Moves

The Super Bowl

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All posts are the opinion of the author. As such, they should not be construed as investment advice, nor do the opinions expressed necessarily reflect the views of CFA Institute or the author’s employer.

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About the Author(s)
David Larrabee, CFA

David Larrabee, CFA, was director of member and corporate products at CFA Institute and served as the subject matter expert in portfolio management and equity investments. Previously, he spent two decades in the asset management industry as a portfolio manager and analyst. He holds a BA in economics from Colgate University and an MBA in finance from Fordham University. Topical Expertise: Equity Investments · Portfolio Management

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