Finally, it was a nice week for the markets. At the Friday close, the Dow rose 3.1%, the S&P gained 2.7%, and the Nasdaq turned in a nice 3.8% gain. Oil rose 3.5% and reached new 2 ½ year highs along the way (Brent crude closed around $115 per barrel). Gold notched a new all time high earlier in the week but settled for a gain of 0.7%.
Source: MSN Moneycentral
The volatility that plagued the markets for the last couple weeks seemed to have subsided this week. It was also different in that there was little headline risk pushing the markets. Investors like to use the term “headline risk” to describe when events like Japan or the Middle East are the main drivers of the market. We thought that our military involvement in Libya might have some impact on stocks, but it was largely ignored.
Starting out the week, the markets opened strong on Monday and never looked back, continuing the trend that started late last week. The rally didn’t have much good news behind it, except for an absence of geopolitical problems and some good earnings from technology stocks later in the week. In fact, the markets rose on the lightest volume of trades for the year, so that shows an absence of conviction in the rally.
These gains may have just been due to the market being oversold after selling off so strong the past couple weeks, giving investors a nice opportunity to buy. Additionally, as we move to the end of the quarter, many portfolio managers look to “window dress” their portfolios to show a good return for the quarter. This occurs when they sell their poorly performing stocks and buy stocks that are showing strong growth to try to boost returns in the short run. This tends to push the market higher as a result, so this window dressing may have begun this week.
One of our concerns at the moment is the rising price of oil. Remaining at this high price for an extended period (or rising higher) will have serious negative consequences for the economy. Making matters worse, it does not look like any meaningful steps will be taken to increase oil supply through drilling.
An article in the Investors Business Daily this week had President Obama telling the Brazilians he was visiting that: "We want to help you with the technology and support to develop these oil reserves safely. And when you're ready to start selling, we want to be one of your best customers."
The fact that drilling would be promoted in Brazil while imposing new moratoriums on drilling here in the U.S. is very troubling. It flies in the face of logic, frankly. It is also a sign that very little will be done to relieve prices here in the U.S. by increasing supply, so high oil prices may become a lingering problem.
Next Week
Time seems to be flying as we will welcome April next Friday. That means we will also begin getting end of the month and first quarter data. The most important news of the week will come on Friday with the release of the March unemployment report. The economy added nearly 200,000 jobs in the previous month, so the bar has been set high for this month.
The market gains may continue into next week as we will get more window dressing, which we mentioned above. Also, don’t forget the “market up on the first of the month” trading strategy. It didn’t work out too well last month, but let’s see how it goes this month.
One thing to watch for, the debt problems in the European countries are beginning to make news again with some problems forming in Portugal and Spain. Hopefully this won’t grow into anything worse, but is something to keep an eye on.
Where are we investing now?
We were encouraged that the rally beginning last week continued through this week. It may have proved to be a nice buying opportunity, but of course only time will tell.
Solid earnings from tech companies this week have set an optimistic tone for the soon-to-be released quarterly earnings. Earnings have not been bad the last several quarters, either, so the market is expecting a good showing here. We are beginning to worry, though, that these earnings will be disappointing. Like we saw in the PPI last week, businesses are getting hit with higher costs that they have not yet passed along to consumers. This will negatively impact their earnings and send stocks lower. It may not occur this quarter, but we do believe it will happen in the not-to-distant future.
We have other concerns over the economy, as well. Inflation is running strong, unemployment is high, and housing data worsening. We strongly believe a stagflation scenario is brewing.
Even with this negative outlook, we still think the market will head higher. We believe that Fed Chief Ben Bernanke will keep flooding the market with money to push the market higher. The QE2 bond buying program is set to expire this summer and without the Fed intervention, the market will likely fall. We feel that the Fed has too much invested for that to happen, so they will likely double down and try another quantitative easing program. This will keep the markets higher, in the short term anyway.
At this time, in equities we are focused on large cap higher-quality and multi-national stocks. Large cap has lagged Mid and Small, so there could be more room to run in this area. We continue to avoid banking and healthcare-related stocks. TIPs are important as we expect inflation to increase in the future, while U.S. Treasuries are a sector we are very bearish (pessimistic) on as we think yields will increase over time.
Commodities remain a long term favorite and any weakness could present buying opportunities since they are rather expensive at the moment. Municipal bonds are still important despite the recent drop in prices. There are some nice yielding bonds out there now (try to avoid muni funds and buy the actual bond if possible). Finally, international stocks have had a significant run already and are facing many headwinds for the future, especially inflation. Still, if we had to put new money in, we are favoring developed international markets as opposed to emerging.
Our short and medium term investments are the only ones affected by these weekly and monthly changes. These fluctuations have little impact on positions we intend to hold for several years or longer.
Source: MSN MoneycentralThe volatility that plagued the markets for the last couple weeks seemed to have subsided this week. It was also different in that there was little headline risk pushing the markets. Investors like to use the term “headline risk” to describe when events like Japan or the Middle East are the main drivers of the market. We thought that our military involvement in Libya might have some impact on stocks, but it was largely ignored.
Starting out the week, the markets opened strong on Monday and never looked back, continuing the trend that started late last week. The rally didn’t have much good news behind it, except for an absence of geopolitical problems and some good earnings from technology stocks later in the week. In fact, the markets rose on the lightest volume of trades for the year, so that shows an absence of conviction in the rally.
These gains may have just been due to the market being oversold after selling off so strong the past couple weeks, giving investors a nice opportunity to buy. Additionally, as we move to the end of the quarter, many portfolio managers look to “window dress” their portfolios to show a good return for the quarter. This occurs when they sell their poorly performing stocks and buy stocks that are showing strong growth to try to boost returns in the short run. This tends to push the market higher as a result, so this window dressing may have begun this week.
One of our concerns at the moment is the rising price of oil. Remaining at this high price for an extended period (or rising higher) will have serious negative consequences for the economy. Making matters worse, it does not look like any meaningful steps will be taken to increase oil supply through drilling.
An article in the Investors Business Daily this week had President Obama telling the Brazilians he was visiting that: "We want to help you with the technology and support to develop these oil reserves safely. And when you're ready to start selling, we want to be one of your best customers."
The fact that drilling would be promoted in Brazil while imposing new moratoriums on drilling here in the U.S. is very troubling. It flies in the face of logic, frankly. It is also a sign that very little will be done to relieve prices here in the U.S. by increasing supply, so high oil prices may become a lingering problem.
Next Week
Time seems to be flying as we will welcome April next Friday. That means we will also begin getting end of the month and first quarter data. The most important news of the week will come on Friday with the release of the March unemployment report. The economy added nearly 200,000 jobs in the previous month, so the bar has been set high for this month.
The market gains may continue into next week as we will get more window dressing, which we mentioned above. Also, don’t forget the “market up on the first of the month” trading strategy. It didn’t work out too well last month, but let’s see how it goes this month.
One thing to watch for, the debt problems in the European countries are beginning to make news again with some problems forming in Portugal and Spain. Hopefully this won’t grow into anything worse, but is something to keep an eye on.
Where are we investing now?
We were encouraged that the rally beginning last week continued through this week. It may have proved to be a nice buying opportunity, but of course only time will tell.
Solid earnings from tech companies this week have set an optimistic tone for the soon-to-be released quarterly earnings. Earnings have not been bad the last several quarters, either, so the market is expecting a good showing here. We are beginning to worry, though, that these earnings will be disappointing. Like we saw in the PPI last week, businesses are getting hit with higher costs that they have not yet passed along to consumers. This will negatively impact their earnings and send stocks lower. It may not occur this quarter, but we do believe it will happen in the not-to-distant future.
We have other concerns over the economy, as well. Inflation is running strong, unemployment is high, and housing data worsening. We strongly believe a stagflation scenario is brewing.
Even with this negative outlook, we still think the market will head higher. We believe that Fed Chief Ben Bernanke will keep flooding the market with money to push the market higher. The QE2 bond buying program is set to expire this summer and without the Fed intervention, the market will likely fall. We feel that the Fed has too much invested for that to happen, so they will likely double down and try another quantitative easing program. This will keep the markets higher, in the short term anyway.
At this time, in equities we are focused on large cap higher-quality and multi-national stocks. Large cap has lagged Mid and Small, so there could be more room to run in this area. We continue to avoid banking and healthcare-related stocks. TIPs are important as we expect inflation to increase in the future, while U.S. Treasuries are a sector we are very bearish (pessimistic) on as we think yields will increase over time.
Commodities remain a long term favorite and any weakness could present buying opportunities since they are rather expensive at the moment. Municipal bonds are still important despite the recent drop in prices. There are some nice yielding bonds out there now (try to avoid muni funds and buy the actual bond if possible). Finally, international stocks have had a significant run already and are facing many headwinds for the future, especially inflation. Still, if we had to put new money in, we are favoring developed international markets as opposed to emerging.
Our short and medium term investments are the only ones affected by these weekly and monthly changes. These fluctuations have little impact on positions we intend to hold for several years or longer.
