What You Should Do When the Stock Market’s Future is Hazy

All figures in this article reflect prices as of market close on 12/19/2014, unless otherwise noted.

More Questions than Answers

This week highlighted the uncertain age in which we find ourselves: everyone hopes the worst is behind us, but everyone also worries it isn’t. And the future is shrouded in a cloud of mystery.

This week’s numbers didn’t do much to pierce that cloud. On the one hand, December’s preliminary German manufacturing PMI came in at a two-month high of 51.2, beating the consensus estimate of 50.3, and handily outstripping November’s 49.5. But on the other hand, the German services PMI fell to a 17-month low of 51.4, down from November’s 52.1.

And so it went throughout the economy. Industrial production in October missed expectations, but factory orders were higher that same month, suggesting future strength. Falling oil prices should be good for Germany, but a collapsing ruble might be bad for Germany. After seeing the results of its monthly survey of manufacturing and services executives, the firm Markit Economics warned that an impending German downturn in 2015 is “more and more likely.” Meanwhile, economists in a monthly survey by Bloomberg predicted the opposite: accelerating growth in the first three months of 2015. “Germany should show modest growth in the near term and accelerate further down the road,” said Thomas Harjes, senior European economist for Barclays.

Let’s face it: there’s simply no way to know with certainty what 2015 will hold for the German economy, much less the Eurozone. But history shows that buying stocks in quality businesses and holding them for the long term is a winning proposition, regardless of what happens three, six, or nine months down the line.

The Major Indices

In the final full week of trading before the Christmas holidays, the indices painted a pretty consistent picture. The DAX — the 30 largest companies on the Deutsche Börse — rose 1.8% to close at 9,767.31. All the other major indices posted gains within 0.6% of that, including the MDAX (the next 50 largest German companies, excluding tech — up 2.35%), the TecDAX (the 30 largest tech companies —up 2.17%), the HDAX (comprised of all companies on the DAX, MDAX, and TecDAX — up 1.88%), the SDAX (the 50 small- and mid-cap companies just under the MDAX in size – up 1.79%), and the EuroStoxx 50 (an index of 50 large-cap Eurozone stocks – up 2.31%).

Tops and Flops for the Week

TOP: Telecommunications company QSC AG (ETR: QSC) (FRA: UTDI) jumped more than 20% on Thursday, the biggest one-day jump in an HDAX stock in more than two months. This came after Manager magazine reported that QSC’s fellow TecDAX stock United Internet (ETR: UTDI) (FRA: UTDI) was trying to purchase the ailing QSC’s broadband business. QSC admitted in a statement that it was considering such a sale. The move is seen as positive for both companies: it would allow QSC to focus more on its cloud computing business, and would allow United Internet to maximize its recent purchase of fiber-optics manufacturer Versatel. Note that, while a 20% jump may sound massive, because of the stock’s yearlong slide (it was worth about 4.25 euro a year ago, compared to 1.43 euro before Thursday’s spike), the jump was only about 0.29 euro per share.

TOP: CompuGroup Medical AG (ETR: COP) (FRA: COP) saw its stock rise 7.52% on Thursday, apparently as a result of the news that Vice President of Research and Development Chris Lohl, who previously headed R&D only for the company’s web-based products, will now oversee all R&D activities for the company’s complete Ambulatory Information Systems (AIS) portfolio. If this seems like an odd catalyst to make the stock jump so much, you’re not alone. But it was the only news from the company that day, so…congratulations, Chris Lohl: you’re apparently already having a big impact!

FLOP: Shares of BB Biotech AG (ETR: BBZA) (FRA: BBZA) dropped 6.06% on Monday, continuing a weekend slide after the stock hit an all-time high of 198.4 on Friday. The move may have just been just a bit of profit-taking, as shares climbed steadily throughout the rest of the week, to close at 197.

FLOP: Biotech firm MorphoSys AG (ETR: MOR) (FRA: MOR) ended the week with bad news about its Gantenumerab Alzheimer’s medication. Its partner Roche is prematurely ending a Phase 3 clinical trial of the drug in prodromal Alzheimer’s patients. Another Phase 3 drug trial in mild Alzheimer’s patients will continue, and MorphoSys has not adjusted its guidance for the year, but that wasn’t enough to save its stock price, which fell 11.08% on Friday, the biggest one-day drop for an HDAX stock this week. This puts it at levels it hasn’t seen since November, and may represent a buying opportunity.

Have a great weekend!