Dollars and Sense: Buckle up for the stock market roller coaster

Interesting times. I once heard that the Chinese have a saying: “May you live in interesting times.” Economically speaking, the world has been living in what you might call an interesting time for the past few weeks. Let’s start with last weekend, when Greece held elections. A week ago Sunday, a far-left, anti-austerity party won a majority of seats in Parliament and fears rose that the new government in Greece may decide to leave the eurozone, even though the party’s leader said he won’t advocate for that. Nonetheless the euro plunged against the dollar on Sunday, though it recovered a bit on Monday and seemed pretty stable most of the week. But it was stable at a very low level. One euro is now worth somewhere between $1.10 and $1.20, depending on the day. That’s historically weak.

No-pocalypse. Here at home, the weather became an economic story, at least for a day. Last year about this time, the weather really was an economic story when first quarter gross domestic product actually contracted because the weather was so bad. Last week, forecasters predicted another historic snow storm. They were breathless and running out of names to call it: Snow-ma-geddon or Snow-pac-o-lypse. There was talk about shutting down the stock exchanges in New York. It turned out to be a pretty severe storm, but not nearly what everyone expected. And it mostly by-passed New York City. Gary Szatkowski, chief of the National WeatherService office that serves Philadelphia, apologized on Twitter for his office’s “big forecast miss.”

Earnings season. Earnings season is in full swing, and earnings this quarter haven’t been as good as in recent quarters. But one company stunned everyone. Apple announced a profit of about $18 billion for the fourth quarter, the largest quarterly profit in history. Apple set the record on sales of about $75 billion. That’s a massive, 24 percent profit margin. These numbers are truly unprecedented in corporate history. But, Apple aside, earnings season has not been great. This past week, a number of big-name companies reported earnings below expectations. Big-machinery manufacturer Caterpillar and consumer products giant Procter & Gamble cut their sales and profit forecasts for 2015. Both do business globally, so the move signaled to Wall Street that the global economy is slowing down.

A strong dollar. For all the troubles with our own economy, we continue to be the best house in a bad neighborhood, as the saying goes. Still, the weakening ruble and euro are hurting U.S. companies. By some estimates, about 40 percent of S&P 500 revenue does not come from the United States. The reason Apple did so well this quarter, for example, was because of strong iPhone sales in China. If foreign profits have to be translated into U.S. dollars at an unfavorable exchange rate, that could have an impact on what companies are able to report according to U.S. accounting standards. That said, the largest companies have all kinds of tools and techniques to mitigate the negative impact of exchange rates. They do their best to keep the money overseas until the exchange rates are favorable. Or they buy currency futures contracts as a hedge against unfavorable exchange rates. But there’s no doubt large global companies are affected by these global gyrations.

The week ahead. Earnings season continues. On Friday, we got two pieces of bad news that likely will continue to play out this week. First, Russia announced it was cutting interest rates by 2 percent. That drove down the ruble, and the impact rippled around the world. Also, the U.S. Commerce Department said fourth quarter GDP growth was a weaker-than-expected 2.6 percent. This Friday we’ll get another employment report. So the markets have plenty of opportunity for volatility in the week ahead. The “interesting times” will continue, but they may cause us to wonder whether the Chinese saying is a blessing or a curse.

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