A quiet week on Wall Street resulted in a slight gain for the market. For the week, the Dow was higher by 0.9%, the S&P rose 1.1%, and the Nasdaq climbed 1.8%. Gold was also quiet, rising 0.9%. Oil continued to climb, gaining 1.6% to close at $93 per barrel. Brent oil, used for much of the gas here in the East, rose to more than $113 per barrel.
Source: MSN Moneycentral
Stocks popped higher out of the gate Monday aided by more talks of stimulus, reaching a three-month high and nearing a four-year high. The market trended lower from there on very little news for the remainder of the week.
We opened the week with news from the president of the Federal Reserve Bank of Boston, Eric Rosengren, who strongly supports further stimulus from the Fed. And not just a little more stimulus, but an aggressive amount.
This includes buying more bonds by the Fed, both mortgage and Treasury, which is essentially printing money. He also supports lowering the interest rate the Fed pays to banks for their reserve cash from 0.25% to 0%, which would spur lending by the banks (even though our problems originated from too much debt in the first place).
A new idea is for the stimulus to continue indefinitely until certain conditions are met. Conditions would be more like targets or goals, like improving to a certain level of growth or employment or income.
News like this makes us feel like we are banging our head against a wall. It completely ignores the failure of the previous stimulus programs, which, though they succeeded in lowering interest rates, have been no help in improving the economy or employment picture. Further stimulus programs will continue to fail and create more problems in the future.
The good news is that only five of the nine Fed bank presidents get a vote on policy matters and thankfully, the Fed president of Boston is not one of those voting members. However, it does illustrate the debate that is going on inside the Fed and this view is becoming more popular. It also makes the annual Fed conference in Jackson Hole later this month all the more interesting.
Changing gears, close to 90% of the companies in the S&P 500 have reported second quarter earnings so far, with 64% beating estimates. According to S&P Capital IQ, that is above the 10-year average of 62%.
This sounds great as a headline in the news, but as we’ve constantly mentioned, the estimates have been lowered and tell us little about the actual results. Earnings growth actually appears to be negative and revenues (what the company actually earned) are slowing. Plus, companies have increasingly warned that next quarter appears worse than this one.
Fortunately for the market, info like this has had little impact. The bigger macro picture is dominating the market, whether it is stimulus news from the Fed or debt-resolutions in Europe.
As for Europe, there was little news this week from the region. Manufacturing data did show a contraction in the last quarter, with even Germany showing a decline.
The rhetoric between the leaders of insolvent Italy, Spain, and somewhat-solvent France has been increased against Germany. The Germans are reluctant to commit their funds to endless bailouts without reforms. Obviously this doesn’t sit well with those leaders and frustrations in Europe are growing. It could make future agreements all the more difficult.
Next Week
After a light week this week, next week looks to be busier. We will get several economic reports, including data on manufacturing, inflation, retail sales, housing, and leading economic indicators.
Earnings season is coming to a close, but there will be several notable companies releasing their earnings, particularly in the retail sector. Wal-Mart, Target, and Sears, amongst several others, will be released next week, making it a busy week for the retail area.
Investment Strategy
No change here. Corporate and economic data point to a slower growth. Complacency is high in the market with the volatility index (or VIX, which is a gauge of fear in the market) reaching new lows. Plus, the P/E levels of dividend paying stocks are at their highest level ever when compared to the broad market, indicating an overheating in that area.
Also, higher gas prices and the coming food price increases (because of the higher corn costs) add to our concern.
Normally these conditions would make us nervous, but like we’ve often mentioned here, it’s hard to be too pessimistic when the Fed and ECB inch closer to another round of stimulus. While stimulus doesn’t help the economy and is a long term negative, it does boost the market.
It’s difficult to have strong convictions here either way, since the market is moving more on the unpredictable news out of Europe or the Fed, so agility is important.
If we were to get a buying opportunity, we still like large cap higher-quality and dividend paying stocks. Smaller and little-known stocks with low correlation to the market (and Europe) are also promising. There is always the opportunity to find an undervalued individual stock at any time, as well.
We like gold for the long term, as it will do well with debt and economic problems, and further bailouts and stimulus programs. We would look to add to our positions if prices move much lower from here.
We like other commodities for the long term but fear a slowdown in China and the other BRIC countries (Brazil, Russia, and India), will result in lower prices in the short term.
Although Treasury bond yields are near historic lows (so prices are near historic highs) and keep trending lower, a short position (bet on a decline in price) only provides a nice hedge here. We think the potential for profit is low at this time.
On the bond theme, we think TIPs are important as we still expect inflation to increase. Municipal bonds also work and there are some nice yielding bonds out there now (try to avoid muni funds and buy the actual bond if possible), though our concern has increased slightly as the pace of distressed municipalities is increasing. Additionally, higher taxes from the health care law will increase the attractiveness of these bonds.
Finally, in international stocks, 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.
We opened the week with news from the president of the Federal Reserve Bank of Boston, Eric Rosengren, who strongly supports further stimulus from the Fed. And not just a little more stimulus, but an aggressive amount.
This includes buying more bonds by the Fed, both mortgage and Treasury, which is essentially printing money. He also supports lowering the interest rate the Fed pays to banks for their reserve cash from 0.25% to 0%, which would spur lending by the banks (even though our problems originated from too much debt in the first place).
A new idea is for the stimulus to continue indefinitely until certain conditions are met. Conditions would be more like targets or goals, like improving to a certain level of growth or employment or income.
News like this makes us feel like we are banging our head against a wall. It completely ignores the failure of the previous stimulus programs, which, though they succeeded in lowering interest rates, have been no help in improving the economy or employment picture. Further stimulus programs will continue to fail and create more problems in the future.
The good news is that only five of the nine Fed bank presidents get a vote on policy matters and thankfully, the Fed president of Boston is not one of those voting members. However, it does illustrate the debate that is going on inside the Fed and this view is becoming more popular. It also makes the annual Fed conference in Jackson Hole later this month all the more interesting.
Changing gears, close to 90% of the companies in the S&P 500 have reported second quarter earnings so far, with 64% beating estimates. According to S&P Capital IQ, that is above the 10-year average of 62%.
This sounds great as a headline in the news, but as we’ve constantly mentioned, the estimates have been lowered and tell us little about the actual results. Earnings growth actually appears to be negative and revenues (what the company actually earned) are slowing. Plus, companies have increasingly warned that next quarter appears worse than this one.
Fortunately for the market, info like this has had little impact. The bigger macro picture is dominating the market, whether it is stimulus news from the Fed or debt-resolutions in Europe.
As for Europe, there was little news this week from the region. Manufacturing data did show a contraction in the last quarter, with even Germany showing a decline.
The rhetoric between the leaders of insolvent Italy, Spain, and somewhat-solvent France has been increased against Germany. The Germans are reluctant to commit their funds to endless bailouts without reforms. Obviously this doesn’t sit well with those leaders and frustrations in Europe are growing. It could make future agreements all the more difficult.
Next Week
After a light week this week, next week looks to be busier. We will get several economic reports, including data on manufacturing, inflation, retail sales, housing, and leading economic indicators.
Earnings season is coming to a close, but there will be several notable companies releasing their earnings, particularly in the retail sector. Wal-Mart, Target, and Sears, amongst several others, will be released next week, making it a busy week for the retail area.
Investment Strategy
No change here. Corporate and economic data point to a slower growth. Complacency is high in the market with the volatility index (or VIX, which is a gauge of fear in the market) reaching new lows. Plus, the P/E levels of dividend paying stocks are at their highest level ever when compared to the broad market, indicating an overheating in that area.
Also, higher gas prices and the coming food price increases (because of the higher corn costs) add to our concern.
Normally these conditions would make us nervous, but like we’ve often mentioned here, it’s hard to be too pessimistic when the Fed and ECB inch closer to another round of stimulus. While stimulus doesn’t help the economy and is a long term negative, it does boost the market.
It’s difficult to have strong convictions here either way, since the market is moving more on the unpredictable news out of Europe or the Fed, so agility is important.
If we were to get a buying opportunity, we still like large cap higher-quality and dividend paying stocks. Smaller and little-known stocks with low correlation to the market (and Europe) are also promising. There is always the opportunity to find an undervalued individual stock at any time, as well.
We like gold for the long term, as it will do well with debt and economic problems, and further bailouts and stimulus programs. We would look to add to our positions if prices move much lower from here.
We like other commodities for the long term but fear a slowdown in China and the other BRIC countries (Brazil, Russia, and India), will result in lower prices in the short term.
Although Treasury bond yields are near historic lows (so prices are near historic highs) and keep trending lower, a short position (bet on a decline in price) only provides a nice hedge here. We think the potential for profit is low at this time.
On the bond theme, we think TIPs are important as we still expect inflation to increase. Municipal bonds also work and there are some nice yielding bonds out there now (try to avoid muni funds and buy the actual bond if possible), though our concern has increased slightly as the pace of distressed municipalities is increasing. Additionally, higher taxes from the health care law will increase the attractiveness of these bonds.
Finally, in international stocks, 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.
