Another volatile week yielded mixed results for the markets. The Dow closed the week up 1.3% but S&P was slightly lower, down 0.4%, and the Nasdaq returned -2.7%. Both gold and oil were off slightly, down 1.1% and 0.8%, respectively.
Friday also marked the end of the quarter, which turned out to be the worst quarterly performance since early 2009. The Dow fell 12%, the S&P was off 14%, and the Nasdaq down 13%.
Source: MSN Moneycentral
Although the Dow was up this week, it still remains a frustrating investing environment. High levels of volatility from the large swings in the market make decision making far more difficult. Even though the daily swings have been large, the market remains stuck in a relatively narrow range, as you can see in the chart on the right.
There was little news behind the market moves this week. A large reason for the early week gains could be attributed to end-of-quarter window dressing by portfolio managers. In an attempt to make their holdings and performance look better, many managers sell their loosing stocks and buy better performing ones. This drives up stock prices and therefore the markets in general.
Europe was also a factor behind the market moves. As plans come together for another bailout program, the markets rallied on the news. Further austerity measures (mostly tax hikes) have been undertaken in Greece, meeting a requirement that opens them up to further aid.
Giving the markets some concern, though, each one of countries in the Euro zone must approve the additional bailout measures. There were concerns that countries like Germany would vote against it, since it is unpopular with their citizens (which is understandable since these responsible countries must pay for the irresponsible ones). At any rate, Germany agreed to vote for the bailouts and it looks like the other Euro countries will, as well.
Like we have said many times before, we strongly believe these measures will not work. Significant increases in taxes will do nothing but choke off growth and the downward spiral will continue lower. Unfortunately these steps will ensure that the Euro problems will persist and continue to impact our markets.
A big story this week was not something usually discussed, copper. The metal is sometimes called “Dr. Copper” since it is a good predictor of economic health. Over the past month, copper sold off around 25%, worrying many investors (including us, since we do hold some copper). The sell-off has many concerned about another dip back into recession.
Contributing to the decline in copper demand, China, a primary consumer of raw materials, continued to show weakness. Data from that country shows further declines in manufacturing. Also, the CDS levels (which are generally seen as a measurement of risk) in China rose substantially, showing that many investors are concerned about the health of China.
Here in the U.S., economic data this week was mixed. Housing prices showed a gain while initial jobless claims came in much lower than expected. On the other hand, consumer confidence is stuck at very low levels. Personal income also showed a slight drop while spending rose (indicating that people are dipping into their savings). All-in-all, many investors were encouraged that the data wasn’t getting worse, so it looks like a lack of bad news was good news.
Of note on the individual stock level, late Friday, the cultural icon Kodak plunged precipitously, over 50%, and was trading as low as 65 cents at one point (65 cents!). It was learned that the company was talking with a law firm about restructuring advice. Unfortunately, that possibly means bankruptcy.
Next Week
As the month and 3rd quarter came to an end this week, we will begin getting economic data for that period. Next week we will get info on levels of manufacturing and the service industry, construction spending, and factory orders.
The big news will come on Friday with the release of unemployment data. Remember, last month we had a net of exactly zero jobs. Expectations are low again, but economists are predicting at least modest job growth.
Investment Strategy
Little change as we remain cautious here. With a lingering economic malaise and very volatile markets, we are comfortable with our conservative position.
We don’t see economic conditions improving measurably in the near future. What we will be watching, though, is corporate earnings that will begin coming in soon. Earnings have been decent so far and are likely to be satisfactory again this quarter.
Most investors will be watching for the forward guidance, though. That is the company’s expectation for their future performance. With the poor economic conditions, many are worried that future earnings will be questionable. Poor forward guidance will add to the negative sentiment currently felt on Wall Street.
When looking for current investment opportunities, some quality companies can be found at cheap prices. However, it is easy for them to become even cheaper in this environment so caution is still warranted.
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, but we aren’t sure if this is the time to get in yet.
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. Steps must been taken to hedge here. 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.
Friday also marked the end of the quarter, which turned out to be the worst quarterly performance since early 2009. The Dow fell 12%, the S&P was off 14%, and the Nasdaq down 13%.
Source: MSN Moneycentral
Although the Dow was up this week, it still remains a frustrating investing environment. High levels of volatility from the large swings in the market make decision making far more difficult. Even though the daily swings have been large, the market remains stuck in a relatively narrow range, as you can see in the chart on the right. There was little news behind the market moves this week. A large reason for the early week gains could be attributed to end-of-quarter window dressing by portfolio managers. In an attempt to make their holdings and performance look better, many managers sell their loosing stocks and buy better performing ones. This drives up stock prices and therefore the markets in general.
Europe was also a factor behind the market moves. As plans come together for another bailout program, the markets rallied on the news. Further austerity measures (mostly tax hikes) have been undertaken in Greece, meeting a requirement that opens them up to further aid.
Giving the markets some concern, though, each one of countries in the Euro zone must approve the additional bailout measures. There were concerns that countries like Germany would vote against it, since it is unpopular with their citizens (which is understandable since these responsible countries must pay for the irresponsible ones). At any rate, Germany agreed to vote for the bailouts and it looks like the other Euro countries will, as well.
Like we have said many times before, we strongly believe these measures will not work. Significant increases in taxes will do nothing but choke off growth and the downward spiral will continue lower. Unfortunately these steps will ensure that the Euro problems will persist and continue to impact our markets.
A big story this week was not something usually discussed, copper. The metal is sometimes called “Dr. Copper” since it is a good predictor of economic health. Over the past month, copper sold off around 25%, worrying many investors (including us, since we do hold some copper). The sell-off has many concerned about another dip back into recession.
Contributing to the decline in copper demand, China, a primary consumer of raw materials, continued to show weakness. Data from that country shows further declines in manufacturing. Also, the CDS levels (which are generally seen as a measurement of risk) in China rose substantially, showing that many investors are concerned about the health of China.
Here in the U.S., economic data this week was mixed. Housing prices showed a gain while initial jobless claims came in much lower than expected. On the other hand, consumer confidence is stuck at very low levels. Personal income also showed a slight drop while spending rose (indicating that people are dipping into their savings). All-in-all, many investors were encouraged that the data wasn’t getting worse, so it looks like a lack of bad news was good news.
Of note on the individual stock level, late Friday, the cultural icon Kodak plunged precipitously, over 50%, and was trading as low as 65 cents at one point (65 cents!). It was learned that the company was talking with a law firm about restructuring advice. Unfortunately, that possibly means bankruptcy.
Next Week
As the month and 3rd quarter came to an end this week, we will begin getting economic data for that period. Next week we will get info on levels of manufacturing and the service industry, construction spending, and factory orders.
The big news will come on Friday with the release of unemployment data. Remember, last month we had a net of exactly zero jobs. Expectations are low again, but economists are predicting at least modest job growth.
Investment Strategy
Little change as we remain cautious here. With a lingering economic malaise and very volatile markets, we are comfortable with our conservative position.
We don’t see economic conditions improving measurably in the near future. What we will be watching, though, is corporate earnings that will begin coming in soon. Earnings have been decent so far and are likely to be satisfactory again this quarter.
Most investors will be watching for the forward guidance, though. That is the company’s expectation for their future performance. With the poor economic conditions, many are worried that future earnings will be questionable. Poor forward guidance will add to the negative sentiment currently felt on Wall Street.
When looking for current investment opportunities, some quality companies can be found at cheap prices. However, it is easy for them to become even cheaper in this environment so caution is still warranted.
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, but we aren’t sure if this is the time to get in yet.
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. Steps must been taken to hedge here. 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.
