It was another volatile week for the markets and the results were mixed. The Dow rose 1.4% and the S&P was up 1.1%, however the Nasdaq was lower by 1.1%. Oil was up slightly, 0.5%, and is slowly inching back to $90 per barrel. Gold was off 2.8% and remains stuck in the mid $1,600’s an ounce range.
Source: MSN Moneycentral
This week marked a welcomed 4th straight week of gains for the Dow and S&P. As you can see in the chart on the right, on Friday the market popped higher, finally breaking through the range it has been trading in over the last two months.
There was nothing major behind the moves this week. As usual, we had news out of Europe, both good and bad, pushing the markets either direction. The week opened on Euro worries and the market moved lower. On Tuesday, however, the markets rallied higher when it was announced that the European rescue (bailout) package had been increased to 2 trillion Euros (roughly $2.7 trillion), a massive number. One official refuted the story, but did acknowledge that they were negotiating the size of this bailout.
As the week progressed, it was more of the same - even more negative and positive stories out of Europe. It is almost futile to report on them, as the drama never seems to end.
Corporate earnings started coming in at a steady pace this week, with almost 70% of companies beating estimates. Banks were a major focus as Citi and Bank of America reported earnings that weren’t too bad. However, others like Wells Fargo and Goldman were rather poor. Still, with almost 3 out of 4 companies beating estimates, earnings season has gotten off to a pretty good start.
Also contributing to the good performance this week, it was reported that the Fed is again looking to do more stimulus, although not immediately. The focus now is on the housing market as they look to bring down mortgage rates.
As you probably know, we have had problems with the various stimulus interventions in the past and this is no exception. Since historically low mortgage rates haven’t done the trick so far, we aren’t sure what even further rate reductions will accomplish. The only way for the housing market to come back is to let it bottom first. That means getting out of the way. Unfortunately, all these interventions are only prolonging the problem.
This week we also received data on inflation. The Consumer Price Index (or CPI; the price level consumers pay for goods and services) came in line with estimates, rising 0.3% in the last month and 3.9% over the last year.
However, The Producer Price Index (or PPI; is the price level for producers of that good or service) soared. In the past month, the price level rose by 0.8%, making it up nearly 7% over the past year. This is very troubling. To this point, we haven’t seen much of these price increases passed along to us as consumers (as you can see by the lag in CPI compared to PPI). However, eventually they will have no choice but to pass the costs along. Additionally, these price increases at the producer level will cut into their earnings.
Next Week
Next week will again be a busy one. We will continue to get corporate earnings at a steady pace. Economic data will also be important as we get the 3rd quarter GDP number. We will also get info on consumer confidence, durable goods, personal income and spending, and data on home sales.
Europe will also be important as European leaders meet this weekend to work out a game plan for their debt and banking problems. Results from this meeting could affect the tone of the markets for the week.
Investment Strategy
No change here. Even with the gains this week, we remain cautious. The markets were again helped by an absence of major news this week and worry that developments out of Europe will disappoint again.
Corporate earnings have been decent so far and future results are expected to be good. We worry that the bar is set high since past numbers have been good. Any disappointments are likely to weigh on the markets.
We will also be watching the forward guidance that accompanies these earnings. That is the company’s expectation for their future performance. With the poor economic conditions, many are worried that future earnings will in question. Poor forward guidance will add to the negative sentiment currently felt on Wall Street.
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. Smaller and little-known stocks with low correlation to the market are also promising, since correlation is high at the moment. We like commodities, even after their recent poor performance. Further money printing around the globe will also help gold and silver and we may be reaching a bottom for these precious metals.
TIPs are important as we still expect inflation to increase while U.S. Treasuries are a sector we are very bearish (pessimistic) on. We think yields will increase over time, but that has yet to happen due to the unprecedented intervention from the Fed. However, we feel that this is beginning to be a good time to be short again. 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 daily and weekly fluctuations.
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 MoneycentralThis week marked a welcomed 4th straight week of gains for the Dow and S&P. As you can see in the chart on the right, on Friday the market popped higher, finally breaking through the range it has been trading in over the last two months.
There was nothing major behind the moves this week. As usual, we had news out of Europe, both good and bad, pushing the markets either direction. The week opened on Euro worries and the market moved lower. On Tuesday, however, the markets rallied higher when it was announced that the European rescue (bailout) package had been increased to 2 trillion Euros (roughly $2.7 trillion), a massive number. One official refuted the story, but did acknowledge that they were negotiating the size of this bailout.
As the week progressed, it was more of the same - even more negative and positive stories out of Europe. It is almost futile to report on them, as the drama never seems to end.
Corporate earnings started coming in at a steady pace this week, with almost 70% of companies beating estimates. Banks were a major focus as Citi and Bank of America reported earnings that weren’t too bad. However, others like Wells Fargo and Goldman were rather poor. Still, with almost 3 out of 4 companies beating estimates, earnings season has gotten off to a pretty good start.
Also contributing to the good performance this week, it was reported that the Fed is again looking to do more stimulus, although not immediately. The focus now is on the housing market as they look to bring down mortgage rates.
As you probably know, we have had problems with the various stimulus interventions in the past and this is no exception. Since historically low mortgage rates haven’t done the trick so far, we aren’t sure what even further rate reductions will accomplish. The only way for the housing market to come back is to let it bottom first. That means getting out of the way. Unfortunately, all these interventions are only prolonging the problem.
This week we also received data on inflation. The Consumer Price Index (or CPI; the price level consumers pay for goods and services) came in line with estimates, rising 0.3% in the last month and 3.9% over the last year.
However, The Producer Price Index (or PPI; is the price level for producers of that good or service) soared. In the past month, the price level rose by 0.8%, making it up nearly 7% over the past year. This is very troubling. To this point, we haven’t seen much of these price increases passed along to us as consumers (as you can see by the lag in CPI compared to PPI). However, eventually they will have no choice but to pass the costs along. Additionally, these price increases at the producer level will cut into their earnings.
Next Week
Next week will again be a busy one. We will continue to get corporate earnings at a steady pace. Economic data will also be important as we get the 3rd quarter GDP number. We will also get info on consumer confidence, durable goods, personal income and spending, and data on home sales.
Europe will also be important as European leaders meet this weekend to work out a game plan for their debt and banking problems. Results from this meeting could affect the tone of the markets for the week.
Investment Strategy
No change here. Even with the gains this week, we remain cautious. The markets were again helped by an absence of major news this week and worry that developments out of Europe will disappoint again.
Corporate earnings have been decent so far and future results are expected to be good. We worry that the bar is set high since past numbers have been good. Any disappointments are likely to weigh on the markets.
We will also be watching the forward guidance that accompanies these earnings. That is the company’s expectation for their future performance. With the poor economic conditions, many are worried that future earnings will in question. Poor forward guidance will add to the negative sentiment currently felt on Wall Street.
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. Smaller and little-known stocks with low correlation to the market are also promising, since correlation is high at the moment. We like commodities, even after their recent poor performance. Further money printing around the globe will also help gold and silver and we may be reaching a bottom for these precious metals.
TIPs are important as we still expect inflation to increase while U.S. Treasuries are a sector we are very bearish (pessimistic) on. We think yields will increase over time, but that has yet to happen due to the unprecedented intervention from the Fed. However, we feel that this is beginning to be a good time to be short again. 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 daily and weekly fluctuations.
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.
