An uneventful week produced solid gains for stocks. For the week, the Dow gained 1.4%, the S&P 500 was higher by 1.3%, and the Nasdaq returned 1.1%. Gold closed down slightly, -0.4%, and well off the highs seen earlier in the week. Oil prices moderated, though remain at these high levels, up 0.4% to $102.59 per barrel. The international Brent oil, used for much of our gas here in the east, fell slightly to $108.65.
Source: Yahoo Finance
There was little news to move the markets this week, but stocks continued to push higher.
Several disappointing economic reports were released, but were largely ignored by the market. The most anticipated report was the revision to fourth quarter GDP, which had originally presented a decent 3.2% gain. However, it was revised significantly lower to just 2.4%, showing the economy was not as strong as originally thought.
Continuing the theme of a weaker economy, the report on durable goods (which are items with a longer life, like a car or television) showed a decline last month and the previous month’s number was revised even lower. Then we had consumer confidence decline and initial jobless claims hit the worst level of the year.
Much of the blame for these poor reports has been attributed to the weather. While it may play a part, the impact is much less than advertised since we see weak numbers from areas not affected by the weather. It does provide a convenient excuse any time there is poor data, however.
Likely playing a part in the market rise was comments from the new Fed chief. Janet Yellen testified in front Congress, commenting that the Fed may resume its stimulus program if conditions warrant (while they are still doing stimulus at the moment, they are committed to slowly withdrawing it).
Granted, she noted it would take a substantial deterioration in the economy if they were to do so, but the option is still is on the table. This gave investors reassurance that the Fed is there to backstop the market if conditions worsen. Stocks liked that news, but we worry about the long term consequences of these constant interventions.
Finally, several international issues gave investors a reason to be cautious. The situation in the Ukraine has been making headlines, especially as Russia has become more aggressive in their actions. Military conflicts tend to have a negative impact on the market, but even non-military responses like sanctions can have an effect. Russia produces over 10% of the world’s oil and almost a quarter of its natural gas, so sanctions will cause a disruption in these markets.
We may have condemned and set another red line against Russian aggression, but as the world has realized, our red lines are laughable. We worry this has emboldened possible aggressors and may result in more volatile geopolitical events.
China has been in the news, too, as it is taking steps to cool the growth in the country. Their economy has slowed from the recent highs, but is still growing at levels that worry Chinese officials. A slowdown in the world’s fastest growing market, whether intentional or not, could have a negative impact on our markets.
Next Week
With the month ending on Friday, we’ll start getting economic data reports for February next week. Most important will be the employment report on Friday, but we’ll also get data on the strength of the manufacturing and service sectors, personal income, and the Fed’s Beige Book (which gives anecdotal reports on the strength of the economy).
The results of these economic reports will matter little. If they are positive, fantastic. If they are negative, they will be blamed on the cold weather and ignored. We don’t see them having much impact on the market.
Investment Strategy
Stocks keep creeping higher and may have a bit more room to run in the short term. We continue to worry about the longer run, with a slow economy and unintended consequences from government interventions in the market. Keeping interest rates for so low, so long, have distorted stock valuations and we worry eventual rising rates will hurt stocks.
We wouldn’t put new money into the broader market at this point, instead, preferring to buy on declines in the market (remember, buy low, sell high, which is often easier said than done). There are fewer undervalued stocks out there presently, too, so it’s likely we’ll do some selling before any buying.
On bonds, yields have remained around these levels for some time now and trying to figure out where they’ll go from here is a guessing game, at best. Bonds will always have their place in a portfolio, but there is a worry about rates rising (so prices would fall). A short position (bet on the decline in prices) acts as a nice hedge if yields do rise. Floating rate bonds are also gaining popularity for this same reason, but they tend to be riskier investments, so caution is warranted.
Continuing with bonds, TIPs remain an important hedge against future inflation and 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. We keep a longer term focus with these investments.
Gold again reached its highest level in four months and has performed well recently. It remains volatile, so we’d still be cautious, but it acts as a good hedge in the longer run.
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.
Several disappointing economic reports were released, but were largely ignored by the market. The most anticipated report was the revision to fourth quarter GDP, which had originally presented a decent 3.2% gain. However, it was revised significantly lower to just 2.4%, showing the economy was not as strong as originally thought.
Continuing the theme of a weaker economy, the report on durable goods (which are items with a longer life, like a car or television) showed a decline last month and the previous month’s number was revised even lower. Then we had consumer confidence decline and initial jobless claims hit the worst level of the year.
Much of the blame for these poor reports has been attributed to the weather. While it may play a part, the impact is much less than advertised since we see weak numbers from areas not affected by the weather. It does provide a convenient excuse any time there is poor data, however.
Likely playing a part in the market rise was comments from the new Fed chief. Janet Yellen testified in front Congress, commenting that the Fed may resume its stimulus program if conditions warrant (while they are still doing stimulus at the moment, they are committed to slowly withdrawing it).
Granted, she noted it would take a substantial deterioration in the economy if they were to do so, but the option is still is on the table. This gave investors reassurance that the Fed is there to backstop the market if conditions worsen. Stocks liked that news, but we worry about the long term consequences of these constant interventions.
Finally, several international issues gave investors a reason to be cautious. The situation in the Ukraine has been making headlines, especially as Russia has become more aggressive in their actions. Military conflicts tend to have a negative impact on the market, but even non-military responses like sanctions can have an effect. Russia produces over 10% of the world’s oil and almost a quarter of its natural gas, so sanctions will cause a disruption in these markets.
We may have condemned and set another red line against Russian aggression, but as the world has realized, our red lines are laughable. We worry this has emboldened possible aggressors and may result in more volatile geopolitical events.
China has been in the news, too, as it is taking steps to cool the growth in the country. Their economy has slowed from the recent highs, but is still growing at levels that worry Chinese officials. A slowdown in the world’s fastest growing market, whether intentional or not, could have a negative impact on our markets.
Next Week
With the month ending on Friday, we’ll start getting economic data reports for February next week. Most important will be the employment report on Friday, but we’ll also get data on the strength of the manufacturing and service sectors, personal income, and the Fed’s Beige Book (which gives anecdotal reports on the strength of the economy).
The results of these economic reports will matter little. If they are positive, fantastic. If they are negative, they will be blamed on the cold weather and ignored. We don’t see them having much impact on the market.
Investment Strategy
Stocks keep creeping higher and may have a bit more room to run in the short term. We continue to worry about the longer run, with a slow economy and unintended consequences from government interventions in the market. Keeping interest rates for so low, so long, have distorted stock valuations and we worry eventual rising rates will hurt stocks.
We wouldn’t put new money into the broader market at this point, instead, preferring to buy on declines in the market (remember, buy low, sell high, which is often easier said than done). There are fewer undervalued stocks out there presently, too, so it’s likely we’ll do some selling before any buying.
On bonds, yields have remained around these levels for some time now and trying to figure out where they’ll go from here is a guessing game, at best. Bonds will always have their place in a portfolio, but there is a worry about rates rising (so prices would fall). A short position (bet on the decline in prices) acts as a nice hedge if yields do rise. Floating rate bonds are also gaining popularity for this same reason, but they tend to be riskier investments, so caution is warranted.
Continuing with bonds, TIPs remain an important hedge against future inflation and 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. We keep a longer term focus with these investments.
Gold again reached its highest level in four months and has performed well recently. It remains volatile, so we’d still be cautious, but it acts as a good hedge in the longer run.
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.
