It was another rough week on Wall Street. Through the Friday close, the Dow dropped 1.1%, the S&P fell 0.4%, and the Nasdaq returned -0.6%. For bonds, government bond prices rose and yields fell again to the lowest level in two months. After turning in a solid performance last week, gold didn’t fare so well, falling 1.9% this week. Oil prices continued to climb, up 0.9% to $97.49 per barrel. The international Brent crude, used for much of our gas here in the East, actually moved lower to $105.79 per barrel.
Source: Yahoo Finance
“As goes January, so goes the year.”
Friday marked the end of the month, with the Dow down 5.3% and the S&P lower by 3.6%, the worst start to the year since 2009. If this saying holds true, it looks like 2014 will be a rougher ride than 2013. Though we don’t usually put much weight in these indicators, this is one of the better ones with 70% accuracy. Either way, it signals caution for the year ahead.
Last week a big story was the troubles in emerging markets. The story was the same this week as they continued to be volatile. Central bankers around the world are scrambling to right their respective currencies and taking extraordinary steps to do so.
Our central bank was in the news, too, as it announced a continued reduction in stimulus. Many thought there was a chance the Fed would not pull back in light of the events going on around the globe. By continuing the reductions, it signaled that the Fed is serious about decreasing the stimulus. Therefore, the money they created will not be supporting the markets as it did in the past. Not surprisingly, markets sold off on the news.
Moving on to economic data, the news was mostly negative, although the GDP report was surprisingly good. It has been decent in the past, too, but that was usually from unsustainable items like inventories or government spending. That wasn’t the case this time.
This time we saw a decent increase in consumer spending. Plus, contributing 1.3 points to the 3.2% gain was exports. This is due entirely to our remarkable increase in oil and gas production.
Also encouraging, at least in our view, was a reduction in government spending. The government shutdown occurred in the early part of the quarter, with many warning that the reduction in government spending would hurt the economy. As the data has shown, it had no impact. In fact, it looks as though it’s been a positive. It seems people have more money to spend when the government gets out of the way, a strange concept to policymakers in this day and age.
As for the poor economic reports, housing data was overwhelmingly negative. Durable goods (which are bigger-ticket items like a refrigerator or car) showed a surprising drop. Additionally, income for Americans was flat over the past month while spending increased slightly.
Taking a look at earnings, half of the companies in the S&P have reported earnings and growth still looks decent with a 7.9% gain according to Factset. Revenue growth, or what the company actually received in sales, underwhelmed at a gain of just 0.8%. While earnings seemed to have an impact on the market last week, they were largely ignored this week as the big macro issues pushed the markets around.
Next Week
We’ll see another busy week next week. Corporate earnings will continue to come in at a steady pace. Plus, we’ll get several important economic reports, including information on the strength of the manufacturing and service sectors and the always-important employment report. Markets are likely to continue their volatility, so it could be another bumpy week.
Investment Strategy
Stocks are getting more attractive as they look more and more oversold. At least in the short run, looking out a few weeks or couple months. We’d like to see some support before we buy, meaning some other buying to come in, before we would put any new money here.
We continue to think individual names are the play right now, with fundamental analysis (looking at figures from accounting statements) pointing us to good companies and technical analysis (looking at the charts) tells us whether it is a good time to buy. We would avoid stocks in sectors with a strong correlation to the broader stock market and interest rates. Our timeframe is shorter (looking out a couple weeks or months), so we can keep one foot out the door in case the market turns abruptly.
Bonds yields moved lower this week (so prices rose). A short position (bet on the decline in prices) didn’t fare too well here, but still acts as a nice hedge. It isn’t intended to be a longer term investment.
Continuing with bonds, TIPs have shown weakness recently, however, they remain an important hedge against future inflation. Municipal bonds are in the same boat and work for the right client. We like buying individual, insured names for these bonds, avoiding muni index bonds if possible. Floating rate bonds are becoming a new hot asset class and worth a look. We keep a longer term focus with these investments.
After a solid week, gold turned in a poor performance. It has been stuck in this $1,200-1,300 range for many weeks now, so it may be good as a long term hedge, but there may still be weakness in the short term.
We like other commodities for the long term, especially due to weaker currencies around the globe. This is a longer-term play, so buying on the dips may work with a longer time horizon.
Finally, in international stocks, we see weakness around the globe and favor neither the developed or emerging markets.
Please note, 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 marked the end of the month, with the Dow down 5.3% and the S&P lower by 3.6%, the worst start to the year since 2009. If this saying holds true, it looks like 2014 will be a rougher ride than 2013. Though we don’t usually put much weight in these indicators, this is one of the better ones with 70% accuracy. Either way, it signals caution for the year ahead.
Last week a big story was the troubles in emerging markets. The story was the same this week as they continued to be volatile. Central bankers around the world are scrambling to right their respective currencies and taking extraordinary steps to do so.
Our central bank was in the news, too, as it announced a continued reduction in stimulus. Many thought there was a chance the Fed would not pull back in light of the events going on around the globe. By continuing the reductions, it signaled that the Fed is serious about decreasing the stimulus. Therefore, the money they created will not be supporting the markets as it did in the past. Not surprisingly, markets sold off on the news.
Moving on to economic data, the news was mostly negative, although the GDP report was surprisingly good. It has been decent in the past, too, but that was usually from unsustainable items like inventories or government spending. That wasn’t the case this time.
This time we saw a decent increase in consumer spending. Plus, contributing 1.3 points to the 3.2% gain was exports. This is due entirely to our remarkable increase in oil and gas production.
Also encouraging, at least in our view, was a reduction in government spending. The government shutdown occurred in the early part of the quarter, with many warning that the reduction in government spending would hurt the economy. As the data has shown, it had no impact. In fact, it looks as though it’s been a positive. It seems people have more money to spend when the government gets out of the way, a strange concept to policymakers in this day and age.
As for the poor economic reports, housing data was overwhelmingly negative. Durable goods (which are bigger-ticket items like a refrigerator or car) showed a surprising drop. Additionally, income for Americans was flat over the past month while spending increased slightly.
Taking a look at earnings, half of the companies in the S&P have reported earnings and growth still looks decent with a 7.9% gain according to Factset. Revenue growth, or what the company actually received in sales, underwhelmed at a gain of just 0.8%. While earnings seemed to have an impact on the market last week, they were largely ignored this week as the big macro issues pushed the markets around.
Next Week
We’ll see another busy week next week. Corporate earnings will continue to come in at a steady pace. Plus, we’ll get several important economic reports, including information on the strength of the manufacturing and service sectors and the always-important employment report. Markets are likely to continue their volatility, so it could be another bumpy week.
Investment Strategy
Stocks are getting more attractive as they look more and more oversold. At least in the short run, looking out a few weeks or couple months. We’d like to see some support before we buy, meaning some other buying to come in, before we would put any new money here.
We continue to think individual names are the play right now, with fundamental analysis (looking at figures from accounting statements) pointing us to good companies and technical analysis (looking at the charts) tells us whether it is a good time to buy. We would avoid stocks in sectors with a strong correlation to the broader stock market and interest rates. Our timeframe is shorter (looking out a couple weeks or months), so we can keep one foot out the door in case the market turns abruptly.
Bonds yields moved lower this week (so prices rose). A short position (bet on the decline in prices) didn’t fare too well here, but still acts as a nice hedge. It isn’t intended to be a longer term investment.
Continuing with bonds, TIPs have shown weakness recently, however, they remain an important hedge against future inflation. Municipal bonds are in the same boat and work for the right client. We like buying individual, insured names for these bonds, avoiding muni index bonds if possible. Floating rate bonds are becoming a new hot asset class and worth a look. We keep a longer term focus with these investments.
After a solid week, gold turned in a poor performance. It has been stuck in this $1,200-1,300 range for many weeks now, so it may be good as a long term hedge, but there may still be weakness in the short term.
We like other commodities for the long term, especially due to weaker currencies around the globe. This is a longer-term play, so buying on the dips may work with a longer time horizon.
Finally, in international stocks, we see weakness around the globe and favor neither the developed or emerging markets.
Please note, 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.
