In a week where stocks turned in both their worst day in a month and best of the year, stocks ended modestly higher. For the week, the Dow rose 0.8%, the S&P climbed 1.0%, and the Nasdaq gained 0.7%. Gold saw some volatility, too, but closed with a nice gain of 1.3%. Oil prices continue to hover around these high levels, closing the week almost exactly where it began, losing just one cent to $102.58 per barrel. The international Brent oil fell slightly to $108.23.
Source: Yahoo Finance
The week opened strongly to the downside as Russian troops moved into and essentially occupied Crimea. Military activity always is a concern for the market and this time was no different.
It was (and still is) unclear how high tensions would escalate and what the response to Russia’s aggressions would be. It’s not just concerns about a military response, but economic sanctions have a negative impact on economies dependent on imports and exports from Russia.
The mood reversed on Tuesday when Russian president Vladimir Putin ordered combat troops back to their bases, although they remained in Crimea. It signaled the conflict may not be as bad as anticipated and stocks turned in their best day of the year.
After Tuesday, the markets seemed to care little about the events of this region. Russia remains in the Crimea region and show no signs of turning back. In fact, the rhetoric seems to be escalating and little, if any, response is planned. Still, it is having little impact on the market, but could change if conditions deteriorate.
This week we also received a number of economic reports from February. There have been concerns over how much impact the weather will have on this data, so the bar was set very low.
The most important report was the employment figures released on Friday. With the bar set so low, it was a surprise to see a relatively decent 175,000 new jobs added. Though mediocre when looking at the bigger picture, it was an improvement from the previous months and shows the economy is still growing. It also shows weather had little effect on employment.
As for other economic reports, manufacturing ticked higher last month, though still remains near an eight-month low. The service sector showed a sharp drop, falling to the worst level in four years. Of course the weather was blamed for this drop, but it is hard to reconcile the weather having an impact on one report while having little impact on another.
Finally, an event that received little attention, but could be very important. This week a Chinese company was unable to make the interest payment to its bondholders. Big deal, you say. However, it is important because this is the first company in China to default on a bond.
Until now, the Chinese government would step in to help a failing company make their debt payments, essentially bailing them out. It has made risky investments look far less so when investors know that backstop was there.
It is unclear why this is the first company allowed to default, but it signals the Chinese government is stepping back from bailing out companies. This news has investors questioning their investments, making this the possible prick of the bubble many have worried about. It is something to watch very closely.
Next Week
After a fairly busy week, next week will be much quieter. For economic data, we’ll get reports on retail sales and inflation at the producer level. A confirmation hearing on two Fed positions will be much more watched, as the vice chair and a governor position will be discussed. We doubt any surprises will occur, but will be interesting to watch, nonetheless.
Investment Strategy
No change here. 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.
It was (and still is) unclear how high tensions would escalate and what the response to Russia’s aggressions would be. It’s not just concerns about a military response, but economic sanctions have a negative impact on economies dependent on imports and exports from Russia.
The mood reversed on Tuesday when Russian president Vladimir Putin ordered combat troops back to their bases, although they remained in Crimea. It signaled the conflict may not be as bad as anticipated and stocks turned in their best day of the year.
After Tuesday, the markets seemed to care little about the events of this region. Russia remains in the Crimea region and show no signs of turning back. In fact, the rhetoric seems to be escalating and little, if any, response is planned. Still, it is having little impact on the market, but could change if conditions deteriorate.
This week we also received a number of economic reports from February. There have been concerns over how much impact the weather will have on this data, so the bar was set very low.
The most important report was the employment figures released on Friday. With the bar set so low, it was a surprise to see a relatively decent 175,000 new jobs added. Though mediocre when looking at the bigger picture, it was an improvement from the previous months and shows the economy is still growing. It also shows weather had little effect on employment.
As for other economic reports, manufacturing ticked higher last month, though still remains near an eight-month low. The service sector showed a sharp drop, falling to the worst level in four years. Of course the weather was blamed for this drop, but it is hard to reconcile the weather having an impact on one report while having little impact on another.
Finally, an event that received little attention, but could be very important. This week a Chinese company was unable to make the interest payment to its bondholders. Big deal, you say. However, it is important because this is the first company in China to default on a bond.
Until now, the Chinese government would step in to help a failing company make their debt payments, essentially bailing them out. It has made risky investments look far less so when investors know that backstop was there.
It is unclear why this is the first company allowed to default, but it signals the Chinese government is stepping back from bailing out companies. This news has investors questioning their investments, making this the possible prick of the bubble many have worried about. It is something to watch very closely.
Next Week
After a fairly busy week, next week will be much quieter. For economic data, we’ll get reports on retail sales and inflation at the producer level. A confirmation hearing on two Fed positions will be much more watched, as the vice chair and a governor position will be discussed. We doubt any surprises will occur, but will be interesting to watch, nonetheless.
Investment Strategy
No change here. 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.
