It's all about oil, the euro and a strong dollar

Europe is weaker, with the euro at nine-year lows against the dollar; particular weakness in the Greek stock market, down almost 5 percent, with Greek debt yields also rising, on reports over the weekend that Germany might permit a Greek exit from the euro. Peripheral countries like Spain and Italy are also down 1 to 2 percent.

Lots of interest in investing in Europe, not so much in the euro. That's why the WisdomTree Europe Hedged Equity ETF (HEDJ) is getting a lot of attention: it invests in European equities but hedges out the effect of the euro.

The Vanguard FTSE Europe ETF, which does not hedge out currency risk, is down almost 10 percent in the last year, but the HEDJ is up about 1 percent. That is a significant difference.

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A man walks by a euro sign light installation in Vilnius, Lithuania, on December 31, 2014.
Ints Kalnins | Reuters
A man walks by a euro sign light installation in Vilnius, Lithuania, on December 31, 2014.

It's the same trick that made the firm's Japan Hedged Equity Fund a huge hit a couple years ago.

The weakness in the euro, strength in the dollar, is bad for emerging markets as well as commodities. Copper, for example, is down almost 2 percent, but zinc, nickel and aluminum are also weak, along with stocks associated with them. Copper is at a four-year low.

West Texas Intermediate breaks below $51; predictably, big oil like Occidental and Chevron, along with oil service names like Schlumberger and Halliburton are all down more than 1 percent. Citi dropped its target for oil this year to $55 from $72.

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I've struggled to explain how the decline in energy earnings are affecting 2015 S&P estimates. Here it is: EPS growth for 2015 is now at 6.6 percent, according to S&P Capital IQ. On Dec. 1, it was 9.8 percent. That is a big drop, and it is mostly due to the decline in energy estimates. Excluding energy, 2015 EPS growth would be 11.1 percent.

Not surprisingly more defensive names like Coke, Pepsi, Pfizer and Abbott were trading up reopen, as are yield plays like AT&T and Verizon. Both had a miserable year on intense pricing competition, but with yields of 5.5 percent and 4.7 percent, respectively, while 10-year yields are threatening to again drop below 2 percent, a rally in these shares does makes some sense.

  • Bob Pisani

    A CNBC reporter since 1990, Bob Pisani covers Wall Street from the floor of the New York Stock Exchange.

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