MONEY

Fed Holds Rates Steady as Economic Plot Thickens

The Federal Reserve has said it won't raise rates before summer. But the economy picture is no less complex as the date approaches.

The Federal Reserve wrapped up a two-day meeting in Washington Wednesday, leaving short-term interest rates unchanged at near historic lows.

The move was widely expected: The central bank indicated as recently as December that investors weren’t likely to see a rate hike before summer. But the Fed’s actions were being closely watched nonetheless. With the summer deadline now two months closer, recent moves by the European Central Bank to bolster the continent’s economy have complicated the Fed’s upcoming choice.

The upshot is that for now U.S. consumers should be able to rest assured. Ultra-low interest rates mean borrowing costs for mortgages and other loans are unlikely to climb dramatically. But investors won’t have it so easy: Stock and bond traders will continue to fret about U.S. and European officials’ decisions, meaning more volatility like the sharp drop in Treasury yields (and rise in bond values) that took place earlier this month.

The Fed’s last meeting took place in mid-December amid feelings of increasing economic optimism. The U.S. economy had logged 3.9% GDP growth in the third quarter and the November jobs report was one of the best in months. That’s largely continued. Throw in an assist from cheap gas, and it’s no surprise the President Obama felt safe bragging about the ecomony in last week’s State of the Union.

In short, many Americans are beginning to feel like things are normal again. That’s usually the signal for the Federal Reserve to return interest rates to a more regular footing. Raising rates can slow economic growth — that’s why the Fed doesn’t want to move to soon. But keeping them low can stoke inflation. At 1.6%, well below the Fed’s 2% target, that’s not an immediate problem. The worry is that once inflation starts to rise, it can quickly get out of control.

The Fed’s decision is so tough this time around because it took such extraordinary measures to prop up the economy in the wake of the Great Recession. While so far the Fed’s strategy seems to have worked, no one likes being uncharted territory. Fed officials may feel some pressure to return monetary policy to something that feels normal.

One big problem, however, is that even as the U.S. economy has improved, much of the rest of the world continues to lag. Last week struggles in Europe prompted the ECB, Europe’s equivalent of the Fed, to undertake some extraordinary actions of its own, committing to buy tens of billions of dollars in debt each month in a new bid to stimulate the continent’s economy.

With the global economy so intertwined, the Federal Reserve has to worry weakness and instability overseas could put a drag on otherwise healthy U.S. economic expansion. In particular, the ECB’s move, the equivalent of printing billions of Euros, is likely to weaken the common currency against the dollar. That will make it more expensive for U.S. companies to export their goods — ultimately hurting profits and also providing another check on U.S. inflation.

The upshot is that if the Fed was feeling ready to act sooner rather than later, the situation overseas may be giving it second thoughts. Of course, the Fed has given itself until summer to decide. So it’s got some breathing room, if not quite as much as it did in December.

But in the meantime don’t expect jittery traders to sit tight. The Dow dropped 100 points after the Fed’s announcement from 17,452 to 17,319, while Treasury yields fell as bonds rallied. You can expect more of that kind of drama.

MONEY

The Most Amazing Thing About Apple? It Still Looks Cheap

Beats headphones are sold along side iPods in an Apple store in New York City.
Beats headphones are sold along side iPods in an Apple store in New York City. Andrew Burton—Getty Images

Despite another blowout quarter, Apple shares are still trading at less than 15 times earnings, which is a bargain for a top-flight tech company.

It’s hard to catch people by surprise when you’re already the center of attention. But with the help of strong holiday sales and another hit iPhone, that’s just what Apple did on Tuesday.

The Cupertino, Calif., gadget maker said sales jumped nearly 30% in its fiscal first quarter to a whopping $75 billion. Wall Street Analysts polled by Fortune had expected an increase of only 20%.

What’s remarkable is that, despite the hype, it’s not hard to make the case that Apple APPLE INC. AAPL 0.0505% shares, up about 8% to $118, are reasonably priced. Here’s our investment case:

The heart of the business: More than 90% of Apple’s revenue last quarter came from hardware sales—69% from iPhone sales alone. But if hardware is what Apple sells, it’s not what the company markets. “Apple’s main product is an experience,” tech analyst Neil Cybart told Money magazine last month. “They look at all of their products as taking away the complicated part of technology so the users can feel like they have more control over their lives.”

Apple aims to build a world in which you’ll own Beats by Dr. Dre headphones, wear an Apple Watch, buy coffee with the Apple Pay payments system, and make hands-free phone calls via Apple CarPlay. With all those products interlinked and running on Apple’s iOS software, you’ll rely on the ecosystem for daily tasks, making it a hassle for you to buy your next phone or tablet from anyone other than Apple.

So what’s the risk? Apple has a hit with the iPhone 6 and 6 Plus, in all selling 74 million smartphones last quarter. Indeed, as TIME recently reported, the iPhone 6’s success has cut into Android’s smartphone market share in the U.S. for the first time since September 2013.

But the company isn’t particularly good at ­enticing the owner of one Apple product to purchase another, says Consumer Intelligence Research Partners’ ­Michael Levin.

For instance, only 28% of iPhone owners have an Apple computer, and less than half of them own a tablet, says CIRP. Sales for the iPad have fallen 22% over the past year, acknowledges Apple. But CEO Tim Cook, noting that the company has sold more than 250 million iPads over the past four years, told investors in October that he’s “very bullish on where we can take the iPad over time.”

Why it’s still a value: Apple enjoyed a banner year in 2014. Spurred by sales of the latest iterations of the iPhone and anticipation of the Apple Watch’s release in April, the company’s stock has risen nearly 50% since the start of 2014.

Despite that gain, Apple’s price/earnings ratio, based on projected profits, is just 14. That means the stock trades at an 11% discount to the S&P 500 technology index, even though the company’s earnings are growing 32% faster than the average big tech stock’s.

Apple’s low valuation stems from factors such as investors’ doubts that a company its size can grow as fast as smaller tech firms, along with uncertainty that Apple will keep making products that are both popular and profitable.

That said, Apple is still the best company by far at creating exciting technology that people want to buy. Plus, signs point to an ever-increasing dividend from the stock, which now yields 1.6%; a larger payout can be easily covered by Apple’s $178 billion cash reserves.

This story is adapted from Apple, Amazon, or Google: Who Will Win the Battle of the Tech Titans? in the 2015 Investor’s Guide in the January-Feburary issue of MONEY

MONEY wall street

Wall Street Walloped Tuesday After Snowstorm

A blizzard kept the New York Stock Exchange trading floor mostly empty Tuesday, but there was enough activity to send shares downward.

MONEY stocks

Why It Hardly Matters If New York Stock Exchange Traders Get to Work in a Snowstorm

The George Washington statue stands covered in snow near the New York Stock Exchange (NYSE) in New York, U.S. Wind-driven snow whipped through New Yorks streets and piled up in Boston as a fast-moving storm brought near-blizzard conditions to parts of the Northeast, closing roads, grounding flights and shutting schools.
The George Washington statue stands covered in snow near the New York Stock Exchange Jin Lee—Bloomberg via Getty Images

Although it was hard to get to the stock exchange this morning, physical trading floors don't matter like they used to.

While much of New York and the Northeast remains closed Tuesday, the stock market opened at 9:30 a.m. its regular time.

The snow storm appears to have caused some trading hitches: The Dow is down more than 350 points, amid reportedly thin trading and the New York Stock Exchange’s parent has invoked a special rule that gives market makers extra leeway in difficult conditions.

But considering you can barely get a cup of coffee in midtown, things are not as bad as they easily might have been. During a similar blizzard in 1996, the market actually had to shut down. While stock traders may be having as hard a time getting to work as anyone else, most of them no longer need to trudge to lower Manhattan to buy and sell. Like so many other things, trading has moved online.

It’s true the floor of the stock exchange was once the hub of the stock trading world, and cable television and other media often give the impression that is still the case. In fact, the New York Stock Exchange handles only about 20% of trading in NYSE-listed stocks, and only a fraction of that is carried on by brokers the floor, according to Crain’s. Meanwhile, there are fewer than 1,000 NYSE floor traders, down from a peak of about 5,000 in the early 2000s, according the Wall Street Journal.

Why do the media still hover at the NYSE? Well, let’s face it, floor traders make more dramatic pictures than rows of people staring at computer screens. And as FORTUNE recently reported, the quiet on the floor actually makes for a better backdrop for live television commentary than the chaotic scenes of yore.

Even the media be starting to change, however. Last year, online news site MarketWatch, announced it would no longer use pictures of floor traders, saying it was giving readers the wrong impression.

So while today may not be the best day to catch a flight out of La Guardia, you can hop on your computer and trade. Of course, given the Dow’s recent tumble you’re probably better off going outside to build a snowman.

TIME stocks

Stocks Fall After Bad Earnings Reports

Traders work on the floor of the New York Stock Exchange.
Traders work on the floor of the New York Stock Exchange. Andrew Burton—Getty Images

Microsoft and Caterpillar suffer major stock losses on the heels of disappointing earnings reports

Wall Street kicked off trading in the wake of an East Coast snowstorm, but the results weren’t pretty.

U.S. stocks fell dramatically immediately following the opening bell Tuesday morning after a series of big U.S. companies issued dour earnings reports, and a drop in durable goods orders shook investors’ confidence in the economic outlook for 2015.

The Dow Jones Industrial Average plummeted at the open, and was lately down more than 350 points. One week after a market surge nearly wiped out all of market’s losses for the year, the blue-chip index is now more than 500 points below where it started 2015.

The Nasdaq composite fell about 2%, dropping more than 100 points, while the S&P 500 was recently down over 35 points, or 1.8%. All three major U.S. indices were basically flat on Monday.

Orders for durable goods — including anything from home appliances to commercial aircraft — in the U.S. dropped 3.4% in December after the fell more than 2% the previous month, according to new data from the Commerce Department.

Meanwhile, a diverse set of companies that includes Microsoft, Procter & Gamble and Caterpillar saw their share prices drop Tuesday morning as a result of weak quarterly earnings reports.

Microsoft took an especially hard hit, falling nearly 10% in early trading after analysts downgraded the company’s stock due to a decline in earnings in its most recent quarter. Caterpillar’s stock fell more than 7% after the company posted a disappointing forecast for 2015 due to the ongoing decline in prices of commodities such as oil and copper.

Tuesday’s U.S. sell-off came on the heels of a decline for European stocks, which had improved recently on the European Central Bank’s new stimulus measures before falling again Tuesday due to concerns over political upheaval in Greece. London’s FTSE 100 dropped 0.8% during the day while Germany’s DAX fell 1.5%.

This article originally appeared on Fortune.com.

TIME stocks

European Stimulus Encourages Gain in U.S. Stocks

European Central Bank President Mario Draghi meets the press at the European Central Bank Headquarters in Frankfurt on Jan. 22, 2015.
European Central Bank President Mario Draghi meets the press at the European Central Bank Headquarters in Frankfurt on Jan. 22, 2015. Horacio Villalobos—Corbis

Thursday’s strong gains turn the S&P 500 and Nasdaq composite positive for 2015

—Wall Street soared Thursday, with U.S. stocks chalking up their fourth straight day of gains, as the world’s stock markets cheered a European Central Bank stimulus program worth more than one trillion euros.

ECB president Mario Draghi said the central bank will buy a total of 60 billion euros in assets every month in an effort to stimulate the region’s economy that is reminiscent of the stimulus program put into place several years ago by the U.S. Federal Reserve. (Fortune took an in-depth look at the ECB’s larger than expected quantitative easing earlier today.) London’s FTSE 100 improved by 1% following the news on Thursday while Germany’s DAX rose 1.3%.

Investors readying for a rise in global liquidity initially lifted U.S. Treasuries, whose relatively rich yields grew more attractive with prospects of lower euro zone bond yields, before they turned lower at midsession.

“It’s likely to impact yields everywhere,” said Aaron Kohli, an interest rate strategist at BNP Paribas in New York. “When you put this much stimulus into the markets, it’s going to go other places that you hadn’t intended, and one of those places is going to be U.S. debt.”

U.S. stocks rallied, with the Dow Jones industrial average jumping 260 points, or 1.5%. The Dow finished at 17,814, just a few points below where it started 2015. Meanwhile, the S&P 500 and the Nasdaq composite gained 1.5% and 1.8%, respectively, in a day that saw both indices wipe out all previous losses for 2015 seen earlier in January.

U.S. stocks have had a turbulent start to the year as low oil prices and concern over economic growth overseas have wreaked havoc on investor confidence and sent stocks on several losing streaks.

A handful of strong quarterly earnings reports also gave the U.S. market a boost on Thursday as shares of Southwest Airlines and railroad company Union Pacific both surged on strong financial numbers. EBay’s shares also gained 7% one day after the e-commerce giant announced massive job cuts and a standstill agreement with activist investor Carl Icahn.

—Reuters contributed to this report.

This article originally appeared on Fortune.com.

MONEY stocks

Here Are Ways to Tell If Stocks Are Overvalued

Different metrics can show polar opposite views of market valuation.

The S&P 500 has more than tripled in value since early 2009.

It’s one of the best five-year periods in market history, roughly matching the 1995-2000 bull market that created one of the largest bubbles ever.

What’s that mean for market values today?

Depends who you ask.

James Paulsen, chief investment strategist at Wells Capital Management, noted last week that the median S&P 500 company now trades at the highest price-to-earnings ratio since his records began in 1950.

The only reason the market as a whole doesn’t look as overvalued as the median component is because some of the S&P 500’s largest companies that carry the most weight in the index, like ExxonMobil EXXONMOBIL CORP. XOM -0.0114% and Apple APPLE INC. AAPL 0.0589% , are still fairly cheap.

The median company is also near a record high measured on price-to-book value and price-to-cash flow.

These are eye-opening statistics that show how much the rally of the last five years may have borrowed from future returns.

But then again…

There are all kinds of ways to value the market. None is necessarily right or wrong, because what matters — what moves markets — is whatever investors care about at a given moment.

And what do people care about right now? Dividends, for one.

With interest rates at rock-bottom levels, dividends have become wildly popular as one of the last remaining places you can earn a yield above the rate of inflation. They became viewed as bond substitutes for income-starved investors. Boring, low-growth sectors that emphasize dividends, like utilities, trade at a higher valuation than high-growth technology stocks. The clamor for dividends in the last five years has been insatiable.

Two things happened recently to help that trend:

  • Interest rates on Treasury bonds have plunged. Ten-year Treasuries now yield 1.8%, from 2.9% a year ago.
  • Dividend payouts have surged. The S&P 500 is up 72% since 2010, but S&P 500 dividends are up 84%.

Combine the two, and 51% of S&P 500 companies now have a dividend yield above the yield on 10-year Treasury bonds. That’s the highest going back 15 years, above even the levels of early 2009, when the market bottomed:

Source: S&P Capital IQ, Federal Reserve.

 

Relative to bonds, S&P 500 companies may be about as cheap as they’ve ever been.

The S&P 500 as a whole now yields more than Treasury bonds. That doesn’t happen very often, but history says stocks tend to do extraordinary well when it does.

Is this a better measure of market value than Paulsen’s metric? I don’t know. I don’t think anyone does.

But it may be more relevant to the average investor today — right now — who is deciding how to allocate his or her money. You can increasingly find more yield in the stock market than you can the bond market. As long as that’s the case, it’s hard to imagine flocks of investors giving up on stocks and running to the “safety” of bonds.

The big point here is that different metrics, both of which seem reasonable, can show polar opposite views of market valuation. That’s dangerous, because no matter how you feel about stocks you can find data to back yourself up. This is as true for Paulsen’s metric as it is my own.

Depending on what metrics you want to use, today’s market looks somewhere between dirt cheap and bloody expensive. I really don’t think it’s obvious which side is right. My feeling is dividends are one of the biggest forces driving stocks right now, but someday that will change. Maybe people will start caring about Paulsen’s metric — or something else entirely.

“There are no rules about what a stock, bond, currency, commodity, house, car, dog, cat, diamond, bicycle, soap dish, refrigerator, concert ticket, plane ride or glass of wine are worth,” James Osborne, president of Bason Asset Management, wrote recently. “They are worth what people are willing to pay for them, which is what markets are all about. That’s the value.”

Check back every Tuesday and Friday for Morgan Housel’s columns.

MONEY alternative assets

How to Boost Returns When Interest Rates Totally Stink

People climbing over wall to greener yard
Mark Smith

With bond rates looking bare, income investors are eager to grab greener options. Higher payouts are out there, but watch your step: Some are riskier than others.

This is the first in a series of five articles looking at the most popular bond alternatives and the safest ways to use them to improve your income prospects when rates are low. Adapted from “Reaching for Yield” in the January/February issue of MONEY magazine.

Falling oil prices have sent shudders through the financial markets lately, but if you’re investing for income, this development could actually spell opportunity. Over the past few years, as rates shriveled on traditional bonds, yield-starved investors poured billions into higher-yielding alternatives, including dividend stocks, real estate investment trusts, energy partnerships, and new “go-anywhere” bond funds. That paid off handsomely if you got in early enough but has been problematic lately: All that money flooding in caused prices to rise sharply on bond alternatives, which sent yields plummeting. As a result, many of these securities by late last fall were paying out half as much as they usually do—or less.

That is, until recently. Jitters over what sharply declining energy prices might mean for the economy have ­prompted a rush back into government bonds and other “safe” securities. As a result, yields on some alternative assets are rising—and you can once again find payouts ranging from 4% to more than 6%, compared with the measly 1.9% rate on 10-year Treasuries.

To get to greener payouts, though, you have to climb a wall of risk. Historically, when market conditions turn sour, alternative assets lose more money, sometimes a lot more, than traditional fixed-income investments. That’s why financial advisers such as Mitch Reiner, chief operating officer of Capital ­Investment Advisers in Atlanta, recommend limiting the amount you invest in them to 5% to 25% of your portfolio, depending on how much income you need and whether you could let losses ride during market setbacks.

Also recognize that while these alternative assets can help boost your yield, the strategy isn’t a cure-all. Shifting 20% of a portfolio split fifty-fifty between stocks and traditional bonds into a mix of higher-paying alternatives might raise your yield from about 2% to 2.6% with little additional risk, says Geoff Considine, who runs the portfolio modeling firm Quantex. If you’re retired, that means you’ll still probably have to rely on principal and capital gains to fund at least some of your living expenses.

What follows is the first in a series of five articles looking at the most popular bond alternatives—in this case dividend stocks—and the safest ways to use them to improve your income prospects.

Dividend stocks: Go global and preferred

High-quality stocks that return a hefty portion of profits to shareholders via dividends are a favorite of income investors when bond yields are low. That’s been especially true over the past few years, when many blue-chip and even some tech companies were yielding as much as or more than Treasury bonds. The same payouts with real growth potential—slam dunk, right?

Not so much anymore. Yield-hungry investors have been bidding up prices on dividend payers since the financial crisis, and despite the market’s recent slide, they still look expensive relative to their earnings. For instance, the average stock in the SPDR S&P Dividend ETF, which tracks an index of companies that have boosted payouts consistently over the past 20 years, was recently selling at more than 18.6 times projected earnings. The price/earnings ratio for the Standard & Poor’s 500, which historically has commanded a higher multiple than slower-growth dividend stocks: about 16.

The more stock prices race ahead of earnings, the more likely they are to fall, warns James Stack, president of InvesTech Research of Whitefish, Mont.  “We are in the sixth year of a bull market,” he warns, adding: “A retirement portfolio can be destroyed reaching for yield.” And while high-dividend shares typically drop less than the average stock during downturns, their losses are still substantially more on average than you could expect with bonds.

Your best strategy: Rather than seeking out the highest yields, zero in on companies that consistently raise dividends. And don’t overpay. To avoid that, look for dividend payers overseas, where stocks have been less inflated than in the U.S.  A good option: PowerShares International Dividend Achievers ETF POWERSHARES INTERNATIONAL DIVIDEND ACHIEVERS PORTFOLIO PID -0.4329% , a MONEY 50 pick that invests in foreign companies that have hiked dividends for at least five years straight. It paid out 3.9% over the last year yet has a modest average portfolio P/E of 14.

Preferred stocks offer even higher yields, recently averaging 6%. These shares can be traded like regular stocks but have more in common structurally with bonds: Their payments tend to be fixed over time, and their shareholders are ahead of common stock owners in the pecking order of whom companies must pay first. What you give up in exchange for that reliable income: a shot at much appreciation, because preferred shares, like bonds, have set redemption prices. And like bonds, preferreds are also sensitive to interest rates. If rates jumped, your shares could lose value, as they did in 2013.

Preferreds also lack diversification; almost 90% of them are issued by financial institutions. To reduce your exposure to banks, James Kinney, an adviser in central New Jersey, suggests splitting your preferred stake between iShares U.S. Preferred Stock ETF ISHARES TRUST U.S. PREFERRED STOCK ETF PFF 0.1251% and Market Vectors Preferred Securities ex-Financials MARKET VECTORS ETF PFD SECS EX FINLS ETF PFXF -0.0952% , which counts blue chips like United Technologies and Tyson Foods among its top holdings.

More in this series:
High-Yield Bonds: Where to Look for Quality Junk

MONEY online shopping

Why Amazon Is Losing Market Share to Big Box Chains

Boxes sit stacked before being loaded on a truck at the Amazon.com Inc. fulfillment center in Phoenix, Arizona, U.S..
Paul Morris—Bloomberg via Getty Images

As big box chains have improved their e-commerce platforms, they have found some surprising advantages.

Amazon.com AMAZON.COM INC. AMZN 14.0997% has grown to a value of over $130 billion with barely any profit, largely due to its dominance of online retail. With a 23% market share of online retail sales, the company does more e-commerce business than its next 12 largest competitors, which includes the likes of Staples and Wal-Mart WAL-MART STORES INC. WMT -2.3527% .

Without profits to underpin its share price, Amazon’s tremendous market value has been predicated on its dominance of retail’s biggest growth category as e-commerce sales increased 16% in the third quarter of 2014. According to conventional wisdom, Amazon’s lack of physical stores gives at an advantage over the big box chains like Wal-Mart and Best Buy. Because Amazon does not have the expense of brick-and-mortar stores, the thinking goes, it can offer shoppers lower prices and therefore a better value proposition.

But what if that wasn’t true?

The revenge of the big boxes

A recent report by the think tank L2 Inc. looked at 64 big-box chains, and uncovered some surprises in the industry.

Despite Amazon’s mammoth growth over the last decade, conventional retailers are now stealing e-commerce market share from the leader. In the first quarter of last year, Home Depot saw online sales jump 54%. Costco’s increased 48%, and Macy’s and Wal-Mart saw a 31% and 30% increase in the category, respectively. Meanwhile, Amazon’s retail sales grew just 20%.

Amazon’s dominance of the space owes more to the relatively small size of e-commerce rather than traditional retailers’ ineptitude. Despite its growth, e-commerce only makes up 6.6% of all retail sales, and volume sales are still growing four times slower than in physical stores. In the most recent quarter for which data’s available, e-commerce sales totaled $78 billion, while total retail sales in the U.S. were $1.18 trillion.

The reason why the big boxes ignored e-commerce for so long was simply because it wasn’t worth it. The vast majority of sales still take place at physical stores, but e-commerce has reached a tipping point where retailers have realized it’s beneficial to invest and grow sales in the space. As they’ve improved their e-commerce platforms, the big boxes have found some surprising advantages.

Amazon spent $6.6 billion on shipping costs last year, while it collected just $3.1 billion in shipping fees. Brick-and-mortar retailers can offer in-store pickup thanks to their physical locations, an option 19% of Internet shoppers have used.

Similarly, “showrooming,” the practicing of browsing in a store, and buying online was supposed to seal the fate of the big boxes. Now, it seems that “webrooming,” or browsing online but buying in the store, has become popular as an Accenture survey said that 78% of respondents they had “webroomed,” while just 72% had showroomed.

As the competition has intensified, many big boxes have lowered prices to match or beat Amazon, and several sources have reported that Amazon is no longer the default champ of rock-bottom online prices.

Where this is battle is going

Amazon has spent the last several years building out dozens of distribution centers near metropolitan areas to help it achieve its goal of same-day deliveries. But the big boxes already have a huge foothold in cities and suburbs, with thousands of stores that should present a potentially huge advantage over Amazon. Though, it may require a change in systems, it shouldn’t be very difficult for retailers to ship from stores as long as the economics justify it. Google Express has also taken on Amazon in the delivery race, and has partnered with retailers to offer same-day delivery to customers in some cities. A strategy like this one may be the easiest way for big boxes to undercut Amazon’s delivery proposition.

Traditional retailers still have a lot of improvements to make in the e-commerce space, but expect them to increasingly leverage their physical real estate in the battle against Amazon. While Amazon may offer a better online shopping experience, it’s not about to open a network of hundreds of stores to match the presence of its competitors. Therefore, companies like Wal-Mart can continue to use propositions like in-store pickup, ship-from-store, and others, as a selling point over Amazon and a way to keep shipping costs down.

In the coming years, the most successful retailers will have to become masters of the omnichannel. They will have to offer shoppers an equally rewarding experience both in-store and online, and be able to combine those capabilities for optimal delivery of the purchase, whether that’s in store or to the home.

Amazon will continue to grow as the e-commerce channel expands, but this surprisingly strong competition from brick and mortar names should continue to claw back market share. If that happens, questions about Amazon’s lack of profits will only loom larger, and the stock could take a major hit.

Jeremy Bowman has no position in any stocks mentioned. The Motley Fool recommends Amazon.com. The Motley Fool owns shares of Amazon.com. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has adisclosure policy.

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MONEY Economy

Swiss Currency Has Shot Up 15% So Far Today. Here’s Why That Matters

A Swiss coin is seen beneath a euro banknote on Januay 15, 2015 in Lausanne. In a shock announcement on January 15, Switzerland's central bank said it was ending a three-year bid to artificially hold down the value of the Swiss franc against the euro, in a move that immediately sent the safe haven currency soaring. Fabrice Coffrini—AFP/Getty Images

Chaos in the currency market is a sign of deep problems for Europe—and the whole global economy.

The global economy got a lot more interesting today, and maybe a little more scary, when the Swiss National Bank ended its commitment to a fixed exchange rate between the Swiss Franc and the euro.

Currency markets went into a frenzy. The Swiss franc immediately rose 30% in value against the euro, mirrored by a spike in its U.S. dollar value. Some of those gains have pulled back, with the currency up about 15% at midday. That’s still a huge move.

Okay, so it’s been a big day for currency traders—and anyone planning on a ski trip to the Alps. But what’s this mean for me?

The wildness in the market underscores the big economic story of the moment: Europe’s slide toward a recession. In a globally connected economy, weak demand in Europe could weigh on the recovery in the U.S.

So what exactly happened?

Swiss francs rose because the Swiss central bank removed an artificial cap on the price of an asset people really, really want right now. The import of the story is less about the sudden price change today than about why people want to trade their euros for francs in the first place.

Switzerland isn’t a part of the eurozone, the group of countries that share the euro as a currency. Swiss assets denominated in Swiss francs have long been considered a safe haven—a parking spot for investors around the globe when they are feeling jittery.

The eurozone has given people a lot be jittery about. In the wake of the Greek debt crisis at the beginning of the decade, investors jumped into francs, strengthening the currency against others. The problem with that for the Swiss is that it makes the goods produced by Swiss companies more expensive to export. So the Swiss National Bank (that’s like their Federal Reserve) capped the value of a franc at 1.20 per euro.

It also decided to start charging negative interest rates, meaning investors in effect have to pay a fee to park their money in a Swiss bank. That’s another way of fighting currency overvaluation. Today, at the same time as it cut the currency peg, the Swiss bank lowered the short-term interest rate from -0.25% to -0.75%. That is, they raised the penalty for stashing money there. Even so, the rally in francs shows there remains a lot of demand for doing just that.

Why did the Swiss cut the exchange rate peg?

The surprise move comes as Mario Draghi, president of the European Central Bank, is considering new measures to stimulate the eurozone economy. Many investors expect the ECB will take a page from the U.S. Federal Reserve and start buying long-term debt to push down long-term interest rates, a strategy known as quantitative easing.

A euro QE is broadly expected to bring down the value of the euro compared to the U.S. dollar. The Swiss, it seems, didn’t want to tie the value of its own currency so closely to the policy makers at the ECB.

“Recently, divergences between the monetary policies of the major currency areas have increased significantly – a trend that is likely to become even more pronounced,” the Swiss central bank said in a statement. “The euro has depreciated considerably against the US dollar and this, in turn, has caused the Swiss franc to weaken against the US dollar. In these circumstances, the SNB concluded that enforcing and maintaining the minimum exchange rate for the Swiss franc against the euro is no longer justified.”

Pity Swiss watchmakers, though. Their timepieces just became more expensive for foreigners to buy.

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