Corporate earnings continued to be strong, helping push the markets higher. For the week, the Dow rose 1.6%, the S&P was up 2.2%, and the Nasdaq climbed 2.5%. Oil prices keep moving higher, briefly crossing $100 per barrel while settling the week just below that price. Gold reached another all-time high, passing the $1,600 an ounce level and up 0.7% this week.
Source: MSN Moneycentral
The week started out on a negative note with, not surprisingly, worries over European debt. Greece continues to be a concern, but the debt worries have spread to other countries like Italy and Spain. By the end of the week, however, another bailout package was passed for Greece and the news helped move the markets higher.
The big news of the week was the solid corporate earnings releases. A large portion of S&P 500 stocks released their earnings this week and ¾ of them beat expectations. One can argue that expectations have been lowered, but that has not mattered. Stocks have soared on the results. In fact, the Dow rose over 200 points on Tuesday, the biggest gain of the year.
Companies with operations overseas have fared particularly well, as foreign markets continued to be stronger then the U.S.
There were a few notable misses, however, with one being Caterpillar. The company still had good earnings, up 44%, but they were lower than expected. The disappointment was attributed to several factors, but most notably to a slowdown in China. That leads us to a bigger theme, the outlook on China’s future.
Granted, China is still growing, but the pace of growth looks to be slowing. We have wondered how long they could keep up their breakneck pace of growth, but they kept getting stronger. A massive amount of money has been spent, mostly on infrastructure, and the debts are accumulating and could be problematic. Then when you see entire cities vacant, you have to wonder how much of the growth is an illusion. The growth in China has played a large part in many of our markets, especially commodities, so a slowdown here would have a significant impact on the U.S.
The debt ceiling debate has been another hot topic this week. At the time of this writing, an agreement has not been reached. The markets have bounced back and forth, first on news of a debt deal, then news that there was not. It is a very difficult environment to invest in and has us very cautious.
We are glad to see many Congressional members holding the line on tax increases. An increase in taxes would be another headwind in our already weak economy. Not to mention the fact that higher taxes do not increase revenue. As history has shown us, lower taxes have lead to an increase in growth and, therefore, revenue. The popular term these days is “revenue increases” when referring to tax hikes. If we actually wanted revenue increases, we would lower tax rates.
Economic data this weak was light, and what there was, was mixed. Housing and employment were weak, with new reports showing more companies laying off employees. Leading economic indicators were higher, driven by a rise in the M2 money supply. It is thought that banks have been getting more of their reserves into circulation, therefore increasing the money supply, just like the Fed hoped.
We have heard reports to the contrary, though. Without getting too specific, it appears that new regulations may have had a hand in this, relating to certain types of bank accounts. As money is pulled from these deposits, it appears that the M2 is rising. However, it is artificial. We would like to think that leading economic indicators are rising, but realize they may be weaker than originally thought.
Next Week
We will continue to get corporate earnings at a strong pace next week, so it will again be a busy week. Economic data will pick up as we get information on housing, manufacturing, durable goods, and most importantly, the 2nd quarter GDP. GDP expectations have been low, mostly below 2%, so any surprises will move the markets.
The debt ceiling debate will also be in the forefront as the deadline approaches. The closer we get, the more likely it will be that a short term fix will the result. A resolution will likely produce a pop in the market, but the back-and-forth of last week is always a possibility.
Investment Strategy
Again, no change here as we work our way through earnings season. We have thought there may be a slowdown in earnings, but that has yet to be the case. Earnings outside the U.S. has been a bright spot for many companies.
Additionally, the debt ceiling debate has been a frustration as the back-and-forth’s have produced large swings in sentiment in the market. It is tough to make decisions when one day, news out of Washington pushes all stocks higher, only to do the opposite the next. When all stocks move together, it makes stock picking a fruitless effort.
We have enjoyed investing in smaller stocks that are uncorrelated to the movements of the market and economy. These aren’t big positions in our portfolio and can be risky, but it is nice seeing stocks move on fundamentals rather than being pushed around by macro events, big money investors, and high frequency traders.
Outside of these small stocks, if we were to put new money to work, in equities we are focused on large cap higher-quality stocks, particularly companies with operations overseas. We like commodities for the long term and weakness could present a buying opportunity.
TIPs are important as we expect inflation to increase (although we will revise our outlook for these securities if any changes are made to the CPI measurements), while U.S. Treasuries are a sector we are very bearish (pessimistic) on as we think yields will increase over time and is looking more likely as QE2 has ended. Municipal bonds are important and there are some nice yielding bonds out there now (try to avoid muni funds and buy the actual bond if possible).
Finally, international stocks are facing many headwinds, most notably, slower growth and inflation. Still, if we had to put new money in, we favor developed international markets as opposed to emerging.
These day-to-day and week-to-week fluctuations have little impact on positions we intend to hold for several years or longer. Our short and medium term investments are the only positions affected by these weekly and monthly changes.
This commentary is for informational purposes and is not investment advice, an indicator of future performance, a solicitation, an offer to buy or sell, or a recommendation for any security. It should not be used as a primary basis for making investment decisions. Consider your own financial circumstances and goals carefully before investing. Past performance cannot guarantee results.
Source: MSN MoneycentralThe week started out on a negative note with, not surprisingly, worries over European debt. Greece continues to be a concern, but the debt worries have spread to other countries like Italy and Spain. By the end of the week, however, another bailout package was passed for Greece and the news helped move the markets higher.
The big news of the week was the solid corporate earnings releases. A large portion of S&P 500 stocks released their earnings this week and ¾ of them beat expectations. One can argue that expectations have been lowered, but that has not mattered. Stocks have soared on the results. In fact, the Dow rose over 200 points on Tuesday, the biggest gain of the year.
Companies with operations overseas have fared particularly well, as foreign markets continued to be stronger then the U.S.
There were a few notable misses, however, with one being Caterpillar. The company still had good earnings, up 44%, but they were lower than expected. The disappointment was attributed to several factors, but most notably to a slowdown in China. That leads us to a bigger theme, the outlook on China’s future.
Granted, China is still growing, but the pace of growth looks to be slowing. We have wondered how long they could keep up their breakneck pace of growth, but they kept getting stronger. A massive amount of money has been spent, mostly on infrastructure, and the debts are accumulating and could be problematic. Then when you see entire cities vacant, you have to wonder how much of the growth is an illusion. The growth in China has played a large part in many of our markets, especially commodities, so a slowdown here would have a significant impact on the U.S.
The debt ceiling debate has been another hot topic this week. At the time of this writing, an agreement has not been reached. The markets have bounced back and forth, first on news of a debt deal, then news that there was not. It is a very difficult environment to invest in and has us very cautious.
We are glad to see many Congressional members holding the line on tax increases. An increase in taxes would be another headwind in our already weak economy. Not to mention the fact that higher taxes do not increase revenue. As history has shown us, lower taxes have lead to an increase in growth and, therefore, revenue. The popular term these days is “revenue increases” when referring to tax hikes. If we actually wanted revenue increases, we would lower tax rates.
Economic data this weak was light, and what there was, was mixed. Housing and employment were weak, with new reports showing more companies laying off employees. Leading economic indicators were higher, driven by a rise in the M2 money supply. It is thought that banks have been getting more of their reserves into circulation, therefore increasing the money supply, just like the Fed hoped.
We have heard reports to the contrary, though. Without getting too specific, it appears that new regulations may have had a hand in this, relating to certain types of bank accounts. As money is pulled from these deposits, it appears that the M2 is rising. However, it is artificial. We would like to think that leading economic indicators are rising, but realize they may be weaker than originally thought.
Next Week
We will continue to get corporate earnings at a strong pace next week, so it will again be a busy week. Economic data will pick up as we get information on housing, manufacturing, durable goods, and most importantly, the 2nd quarter GDP. GDP expectations have been low, mostly below 2%, so any surprises will move the markets.
The debt ceiling debate will also be in the forefront as the deadline approaches. The closer we get, the more likely it will be that a short term fix will the result. A resolution will likely produce a pop in the market, but the back-and-forth of last week is always a possibility.
Investment Strategy
Again, no change here as we work our way through earnings season. We have thought there may be a slowdown in earnings, but that has yet to be the case. Earnings outside the U.S. has been a bright spot for many companies.
Additionally, the debt ceiling debate has been a frustration as the back-and-forth’s have produced large swings in sentiment in the market. It is tough to make decisions when one day, news out of Washington pushes all stocks higher, only to do the opposite the next. When all stocks move together, it makes stock picking a fruitless effort.
We have enjoyed investing in smaller stocks that are uncorrelated to the movements of the market and economy. These aren’t big positions in our portfolio and can be risky, but it is nice seeing stocks move on fundamentals rather than being pushed around by macro events, big money investors, and high frequency traders.
Outside of these small stocks, if we were to put new money to work, in equities we are focused on large cap higher-quality stocks, particularly companies with operations overseas. We like commodities for the long term and weakness could present a buying opportunity.
TIPs are important as we expect inflation to increase (although we will revise our outlook for these securities if any changes are made to the CPI measurements), while U.S. Treasuries are a sector we are very bearish (pessimistic) on as we think yields will increase over time and is looking more likely as QE2 has ended. Municipal bonds are important and there are some nice yielding bonds out there now (try to avoid muni funds and buy the actual bond if possible).
Finally, international stocks are facing many headwinds, most notably, slower growth and inflation. Still, if we had to put new money in, we favor developed international markets as opposed to emerging.
These day-to-day and week-to-week fluctuations have little impact on positions we intend to hold for several years or longer. Our short and medium term investments are the only positions affected by these weekly and monthly changes.
This commentary is for informational purposes and is not investment advice, an indicator of future performance, a solicitation, an offer to buy or sell, or a recommendation for any security. It should not be used as a primary basis for making investment decisions. Consider your own financial circumstances and goals carefully before investing. Past performance cannot guarantee results.
