Updated: Feb 2
What happened this week?
For the week ending on Friday January 16, 2015 the Dow (DJIA – red line) closed at 17,791.34 (-0.8%), the NASDAQ (blue line) closed at 4,713.36 (-0.8%), and the S&P 500 (green line) closed at 2,041.52 (-0.3%).
Graph courtesy of Fidelity Investments. Jan 9, 2015 to Jan 16, 2015.
For the second week, the market indices ended the week lower. It is a common phenomenon for the stock market to open the year lower, and this year is no different. This year does have some compelling stories, though, like the continued drop in oil prices that I discussed in my last blog post. By the way, a barrel of oil closed at $55 last week and is currently hovering around $46.50. Besides the falling oil prices, one of the more compelling stories of last week was the Swiss franc. The Swiss franc, previously coupled to the Euro, was de-coupled last week. So, the Swiss franc is now a free floating currency. It was an unexpected move and it immediately increased the value of the Swiss franc by 20% against the Euro.
What does any of it mean?
The impact of the de-coupled Swiss franc will be felt the most in Switzerland and other surrounding European countries, where the European countries are finding that their buying power is now reduced (since Swiss manufacturers supply many European countries).
The impact will hardly be felt by most people in the U.S. unless you are an exporter to the region, are traveling to Switzerland, or have money in Euros or Swiss francs. For example, according to news outlets, a McDonald’s big Mac now costs 128% more in Switzerland than it does in the U.S. In other words, a $5 big Mac would cost $11.40 in Switzerland. Tourists and exporters will feel the immediate pinch of higher costs.
What should you do?
Nothing, for now. That is why I have titled this post “Pick a strategy and stick with it.” While it’s important to be aware of events that are moving the market or could potentially move the market, not every event requires immediate action. The Swiss franc de-coupling has caused some downward pressure on the stock market, but nothing significant.
If you own index funds or mutual funds with international exposure, you may notice some volatility; however, your investments are diversified enough that it should not be of concern. In addition, if you participate in an Automatic Investment Plan, where you invest the same amount of money at a specified frequency (resulting in DCA – Dollar Cost Averaging), then you will also be taking advantage of any volatility by buying more shares when prices are down.
If you own individual stocks with strong European or Swiss ties, there may be opportunity to take some profit (Swiss stocks) or accumulate more shares of stocks experiencing downward pressure (European stocks).
Whatever your situation, be clear on what your investment strategy is, and stick with it! Don’t be swayed by every event that occurs in the market. Be sure that your actions are congruent with your investment strategy.
Until next week, I challenge you to learn something new about investing and your investments!