Please note: there will be no market commentary next week.
After a strongly negative week last week, stocks turned in a decent performance this week. Through the close Friday, the Dow rose 1.5%, the S&P gained 1.4%, and the Nasdaq returned 0.7%. Gold declined as geopolitical worries receded, falling sharply by 3.1%. Oil prices shot back up this week, climbing 0.9% to $99.46 per barrel. The international Brent oil moved slightly lower to $106.94.
After a strongly negative week last week, stocks turned in a decent performance this week. Through the close Friday, the Dow rose 1.5%, the S&P gained 1.4%, and the Nasdaq returned 0.7%. Gold declined as geopolitical worries receded, falling sharply by 3.1%. Oil prices shot back up this week, climbing 0.9% to $99.46 per barrel. The international Brent oil moved slightly lower to $106.94.
Source: Yahoo Finance
The volume of trades this week was relatively light, possibly as investors took time off for spring break. The market saw some big swings on that light volume, with stocks again hitting new all-time highs.
Events in Crimea opened the week, with the country taking steps to become part of Russia. This was not unexpected, but markets were anxious to see the response to these actions.
Since the stock market doesn’t usually fare well with conflicts, it was reassured when we saw the response by the U.S., a response so weak even the targets of the sanctions laughed over their weakness. It was clear there will be no military action and very little in the way of sanctions. This may mean trouble down the road, but in the near-term, it was a non-event for the market.
The Fed also had a big impact on the market this week as they held their first meeting with Janet Yellen as the new chairman. First, they announced no unexpected new events and will continue to reduce the amount of bonds they purchase/money they print each month.
However, the market was rattled by what was perceived as new information. Her remarks indicated interest rates could rise sooner than expected, possibly within a year (low interest rates have been helpful in boosting stock prices). Stocks sold off strongly on the remarks, as can be seen in the chart above, late-Wednesday.
While those comments were interpreted to mean less stimulus, we viewed her remarks on the whole as still pointing to stimulus for a very long time. We don’t believe they will end within a year, though we would like them to due to the distorting effects on the market and long term unintended consequences.
The Fed also reduced its expectations for economic growth in the coming quarters and years, which added to the downward pressure on stocks.
Economic data this week was mostly positive and helped stocks higher. Despite fears of the weather, industrial production ticked up slightly. Manufacturing in the northeast also improved. However, existing home sales fell to their lowest level in 19 months.
Also, inflation data indicated very little inflation at the consumer level and stands at just 1.1% over the past year. This may be contradictory to the soaring prices you see on an everyday basis, which is one of our criticisms in the way inflation is measured. This 1.1% is roughly half the amount of inflation the Fed is seeking, so unfortunately we believe they will take further steps to increase inflation in the future, which means further money printing.
Next Week
While there is always the chance geopolitical worries will spring up next week, right now the focus appears to be on economic reports. We’ll start the week off with data on manufacturing for March, then get info on housing, durable goods, the strength of the service sector, the revision to GDP, and last but not least, personal income and spending.
There will also be several regional Fed presidents making speeches. After the market interpreted Janet Yellen’s comments to mean less stimulus in the coming months, we believe these regional Fed presidents will go out of their way to say the stimulus is not ending any time soon. It may boost the markets higher.
Investment Strategy
Our investment strategy remains unchanged. The gains this week make the market look a bit more expensive again, but there may still be room to run higher. We wouldn’t put new money into the broader market at this point, but there are a few undervalued individual stocks out there. We would avoid stocks with a correlation to the broader market and to interest rates. Additionally, we continue to have concerns for the longer run, so our outlook for these investments is shorter-term.
Bond yields jumped higher this week on the comments from the Fed chief. Still, they have been in this range 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 fell this week as the geopolitical tensions subsided, but it remains volatile. As we’ve seen recently, it acts as a good hedge, but we’d be cautious with this investment.
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.
Events in Crimea opened the week, with the country taking steps to become part of Russia. This was not unexpected, but markets were anxious to see the response to these actions.
Since the stock market doesn’t usually fare well with conflicts, it was reassured when we saw the response by the U.S., a response so weak even the targets of the sanctions laughed over their weakness. It was clear there will be no military action and very little in the way of sanctions. This may mean trouble down the road, but in the near-term, it was a non-event for the market.
The Fed also had a big impact on the market this week as they held their first meeting with Janet Yellen as the new chairman. First, they announced no unexpected new events and will continue to reduce the amount of bonds they purchase/money they print each month.
However, the market was rattled by what was perceived as new information. Her remarks indicated interest rates could rise sooner than expected, possibly within a year (low interest rates have been helpful in boosting stock prices). Stocks sold off strongly on the remarks, as can be seen in the chart above, late-Wednesday.
While those comments were interpreted to mean less stimulus, we viewed her remarks on the whole as still pointing to stimulus for a very long time. We don’t believe they will end within a year, though we would like them to due to the distorting effects on the market and long term unintended consequences.
The Fed also reduced its expectations for economic growth in the coming quarters and years, which added to the downward pressure on stocks.
Economic data this week was mostly positive and helped stocks higher. Despite fears of the weather, industrial production ticked up slightly. Manufacturing in the northeast also improved. However, existing home sales fell to their lowest level in 19 months.
Also, inflation data indicated very little inflation at the consumer level and stands at just 1.1% over the past year. This may be contradictory to the soaring prices you see on an everyday basis, which is one of our criticisms in the way inflation is measured. This 1.1% is roughly half the amount of inflation the Fed is seeking, so unfortunately we believe they will take further steps to increase inflation in the future, which means further money printing.
Next Week
While there is always the chance geopolitical worries will spring up next week, right now the focus appears to be on economic reports. We’ll start the week off with data on manufacturing for March, then get info on housing, durable goods, the strength of the service sector, the revision to GDP, and last but not least, personal income and spending.
There will also be several regional Fed presidents making speeches. After the market interpreted Janet Yellen’s comments to mean less stimulus in the coming months, we believe these regional Fed presidents will go out of their way to say the stimulus is not ending any time soon. It may boost the markets higher.
Investment Strategy
Our investment strategy remains unchanged. The gains this week make the market look a bit more expensive again, but there may still be room to run higher. We wouldn’t put new money into the broader market at this point, but there are a few undervalued individual stocks out there. We would avoid stocks with a correlation to the broader market and to interest rates. Additionally, we continue to have concerns for the longer run, so our outlook for these investments is shorter-term.
Bond yields jumped higher this week on the comments from the Fed chief. Still, they have been in this range 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 fell this week as the geopolitical tensions subsided, but it remains volatile. As we’ve seen recently, it acts as a good hedge, but we’d be cautious with this investment.
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.
