Commentary for the week ending 6-26-15

Please note:  There will be no market commentary next week due to the 4th of July holiday.  Thank you. 

Stocks fared poorly on a rather uneventful week.  By the Friday close, the Dow and S&P 500 both lost 0.4% and the Nasdaq was lower by 0.7%.  Bonds were a big story this week as they hit their lowest prices in nine months (so yields are higher).  Gold also had a poor week, down 2.4%.  Oil prices bounced around, but closed the week with a drop of x% to $59.63 per barrel.  The international Brent oil, which is used to make much of our gas here in the east, added just 15 cents to close at $63.77 per barrel.

Source: Barchart.com

There was very little in the way of corporate news or market-moving economic reports week, causing events in Greece to be the focus for the markets.

We opened the week on the positive side as weekend negotiations in Greece left investors optimistic a deal will be reached.  Greek leaders introduced proposals that promised concessions, which seemed like a step in the right direction.

Unfortunately, its creditors didn’t think it was a step in the right direction.  Greece proposed a tax increase on the rich and businesses (sounds a lot like here, huh?) to raise funds to repay their debts.  However, their creditors want to see structural reforms made, too. 

Most importantly, Greece must lower their spending.  Plus they need to make other reforms like raising the retirement age.  Many Greeks are able to retire in their 50’s, while people in other European countries must retire in their 60’s.  Since it’s the people of these other European countries whose are paying for the Greek bailout, these terms seem perfectly reasonable. 

That didn’t sit well with the Greeks and we find ourselves at yet another impasse.  Talks are set to continue this weekend, but the outcome remains uncertain.  Greece has a debt payment due next week and without any assistance, they will be unable to make this payment. 

We’ve seen this same story many times over the past few years and they’ve all ended the same way: Greece will avoid paying in exchange for some promise to pay further down the road.  We see no reason why this won’t be the result yet again.  No one wants to make any tough decisions and we’ll be right back here again in a few months. 

Switching gears, our Fed had an impact on the market this week, too.  A Fed governor sent markets lower when he said a September interest rate hike was likely (the low interest rates have helped send stocks higher).  Further, a December rate hike was also possible.  This spooked investors, who didn’t seem to think a September rate hike was in the cards, much less two this year. 

Finally, last week we discussed China and their stock market.  Their market had soared until a recent pullback and now stands nearly 20% off the high set three weeks ago.  This week continued the downtrend as it fell more than 7% on Friday alone.  Investors had hoped the Chinese government would step in with more stimulus to prop the market up, but the government seems reluctant to do so.  The Chinese market could have a ways to fall. 

Next Week

Next week is a short week, but there will some important events crammed in.  The main story is again likely to be Greece.  With a deadline Tuesday, we’ll see if they are able to make their payment or if the can will somehow be kicked further down the road. 

With the month ending next week, we’ll get a few important economic reports on the month of June.  All eyes will be on the employment report in Thursday, plus we’ll get info on the manufacturing sector on Wednesday.  There will also be data on housing, consumer confidence, and construction spending. 


Investment Strategy

No change here.  With the market stuck in this range over past several months, there has been little to change our investment strategy.  We just haven’t seen momentum in either direction.  If anything, the market may be a bit more on the cheap side in the short-term, so stocks may move a little higher from here.  This isn’t the most attractive entry point for new money into the broader market, though, but there are many individual stocks the look undervalued. 

Our longer term view remains unchanged, too.  The market is on the expensive side from a longer-term perspective.  Also, we continue to have concerns for the long run as we worry the longer these stimulus programs remain in place, the greater the distortions in the market become.  This makes the correction even more painful when it does correct.  The “when” is anyone’s guess, though.  Further, companies have shown little interest in reinvesting in themselves, which signals less growth down the road. 

The volatility in the bond market continued this week, with yields on the high side and prices on the low side.  Bonds, like stocks, have traded in a range over the last several months, though yields are currently on the high end of the range.  We think foreign issues will keep our bonds attractive to foreign investors, so this will keep yields low and prices high, so we see little change in bonds at this time. 

Bonds to protect against inflation, or TIPs, remain a good long term hedge for inflation.  Floating-rate bonds will do well if interest rates eventually do rise. 

Some municipal bonds look attractive for the right client, too.  We like buying individual, insured names for these bonds, avoiding muni index bonds if possible. They have not done well recently as a record supply has kept prices low.  Therefore, we keep a longer term focus with these investments. 

Gold is another good hedge for the portfolio.  It is only a hedge at this point – rising on geopolitical issues and when more stimulus looks likely and falling on the opposite. 

Finally, in international stocks, we see weakness around the globe and favor neither the developed or emerging markets.  However, the stimulus programs in Europe and Japan do make for interesting investments, as long as the currency effects are hedged. 

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.

Commentary for the week ending 6-19-15

We saw another week with big swings in the market.  By the close Friday, the Dow was higher by 0.7%, the S&P gained 0.8%, and the Nasdaq topped them both on a 1.3% rise.  Gold was higher on international worries, climbing a solid 1.9%.  Oil prices closed the week down slightly, off 0.6% to $59.61 per barrel.  The international Brent oil, which is used to make much of our gas here in the east, lost about a dollar to close at $63.62 per barrel.

Source: Barchart.com (a lower open Monday skewed this week’s chart)

This week had two main items moving the market, the Fed and issues overseas.

We’ll start with the Fed, who held another policy meeting this week.  Investors have been waiting to see if there would be any change in their stimulus policies, since the current policy of zero interest rates has helped send stocks higher.

The Fed announced no increase in interest rates, citing weaker economic growth than originally expected.  This pleased investors, since stimulus matters more than the economy in boosting stocks.  So yes, people are happy about a poor economy, and unfortunately this is what our markets have become.

While the Fed won’t raise rates now or in the coming months, they still seem adamant about raising them later this year.  Many analysts believe a September or December rate hike is the most likely scenario in that case.  However, many months ago they seemed adamant about a June rate hike, and we just saw how well that panned out. 

Regardless, the news gave a green light to stocks, since a reduction in stimulus was not on the horizon.

As for the overseas troubles affecting stocks, Greece was yet again in the headlines.  Greek leaders continue to show little willingness to give in to demands of their creditors – “defiant” was the term used most often.  Failure to reach a deal means they are unlikely to get any additional bailout money. 

This is very important because the country is nearly out of money.  It raises the chance Greece will not pay back their debts and makes them more likely to leave the Euro, throwing the whole structure of the Euro into doubt.  This uncertainty is likely to send our markets lower. 

We also saw troubling news out of China this week.  We haven’t talked about them much lately, but their stock market has been soaring.  Their main index is up over 50% this year and well over 100% for the past 12 months.  An index of smaller stocks is up even more.  The chart below shows just how fast the rise has been - and how similar it looks to 2007. 

The success of the stock market is attracting more and more newcomers.  Rural villagers with no investing experience are opening accounts.  The Wall Street Journal had an article about the owner of a manufacturing company pulling back on his business and instead focusing on the stock market.  Apparently it is easier to make money in the stock market than in manufacturing.

Many see this as a bubble.  Their economy has been cooling.  Economic growth is at its lowest level since 2009.  Corporate profits are down over the past year.  Clearly, things are not going well and such a rise in their market is not justified. 

Well, this week saw some cracks forming.  The market had its worst performance in seven years, off 13% this week.  Friday alone saw a drop of 6%.   This is an area to keep an eye on, for the bursting of the bubble is likely to spill over into our markets. 


Next Week

The ongoing drama in Greece is likely to be the big story next week.  An important meeting is scheduled for Monday, so investors will be watching that closely. 

There will also be a few economic reports to keep an eye on.  We’ll get info on housing, durable goods, personal income and spending, and the final revision to first quarter GDP. 


Investment Strategy

With the market stuck in this range over past several months, there has been little to change our investment strategy.  We just haven’t seen momentum in either direction.  If anything, the market may be a bit more on the cheap side in the short-term, so stocks may move a little higher from here.  This isn’t the most attractive entry point for new money into the broader market, though, but there are many individual stocks the look undervalued. 

Our longer term view remains unchanged, too.  The market is on the expensive side from a longer-term perspective.  Also, we continue to have concerns for the long run as we worry the longer these stimulus programs remain in place, the greater the distortions in the market become.  This makes the correction even more painful when it does correct.  The “when” is anyone’s guess, though.  Further, companies have shown little interest in reinvesting in themselves, which signals less growth down the road. 

The volatility in the bond market continued this week, with yields on the high side and prices on the low side.  Bonds, like stocks, have traded in a range over the last several months, though yields are currently on the high end of the range.  We think foreign issues will keep our bonds attractive to foreign investors, so this will keep yields low and prices high, so we see little change in bonds at this time. 

Bonds to protect against inflation, or TIPs, remain a good long term hedge for inflation.  Floating-rate bonds will do well if interest rates eventually do rise. 

Some municipal bonds look attractive for the right client, too.  We like buying individual, insured names for these bonds, avoiding muni index bonds if possible. They have not done well recently as a record supply has kept prices low.  Therefore, we keep a longer term focus with these investments. 

Gold is another good hedge for the portfolio.  It is only a hedge at this point – rising on geopolitical issues and when more stimulus looks likely and falling on the opposite. 

Finally, in international stocks, we see weakness around the globe and favor neither the developed or emerging markets.  However, the stimulus programs in Europe and Japan do make for interesting investments, as long as the currency effects are hedged. 

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.

Commentary for the week ending 6-12-15

The week saw an increase in volatility in the market, only to see it end with little change.  For the week, the Dow gained 0.3%, the S&P rose a slight 0.06%, and the Nasdaq moved lower by 0.3%.  Bonds remained in focus this week as the prices hit the lowest levels of the year (and yields at the highest level).  Gold gained on the week, up 0.9%.  Oil prices also hit the highest level of the year, up 1.4% to just shy of $60 per barrel.  The international Brent oil, which is used to make much of our gas here in the east, moved up to $64.69 per barrel.

Source: Barchart.com

Stocks saw some big moves this week, with economic data and news out of Europe again the main driver behind the moves.  Normally, the news stories we saw this week wouldn’t have as much impact on the market.  However, we are inching closer to the Fed pulling back on their stimulus so with a Fed meeting scheduled for next week, investors are a little more jittery.

Despite the big swings in the stock market this week, stocks are still within the narrow range they’ve been in all year, as seen in the nearby chart.  The research firm, Bespoke Financial, cites that this is the longest streak of less than 1% weekly moves since 1993.  It’s been a frustrating investing environment as the market hasn’t had any momentum either direction. 

Getting into the week, Monday opened on a down note as investors worried the positive employment report we saw the previous Friday would cause the Fed to pull back from its stimulus program sooner rather than later.  We’ve discussed this theme with economic data a lot lately – good news is bad for stocks, since it means less stimulus is likely. 

We saw more positive economic reports this week, too.  An employment report (the JOLTs report) showed job openings stand at the highest level on record.  Retail sales saw an increase for the first time in six months, although we must say the increase in sales was due to people spending more at the gas pump, which isn’t necessarily a good thing.  More money spent at the pump means less money for everything else. 

Along those same lines, inflation at the producer level (the PPI) saw a sharp increase, but this was also due to higher energy prices.  

Finally, the soap opera in Greece continued to provide some good entertainment.  It was announced that the IMF offered to extend the Greek bailout until March of next year – a full nine months of can-kicking.  We can never underestimate their desire to put off the tough decisions. 

To get this generous extension, Greece had to agree to a few common-sense reforms like making it easier to hire and fire workers, reforming their pension system, and increasing the sales tax (although we disagree with this last term). 

Greece flatly refused to make any reforms, so the deal was off.  Greece’s creditors seem to be running out of patience, so it will be interesting to see how this plays out.  We’re sure they will find a way to put off making tough decisions somehow and the bailout will continue. 


Next Week

All eyes will be on the Fed next week as they hold another policy meeting.  Analysts don’t expect any pullback from their stimulus programs at this point, but their assessment on the economy is likely to give clues as to when they will. 

Other economic data next week includes industrial production figures, housing data, and inflation at the consumer level. 


Investment Strategy

No change here.  As mentioned above, stocks remain in a range and it’s tough to find any momentum to either direction.  If anything, we are bit more on the cheap side at present, so stocks may move a little higher from here.  It all depends on the Fed, which is unpredictable, at best.  We aren’t looking to put money into the broader index at this point, but there are many individual stocks the look undervalued. 

Our longer term view remains unchanged, too.  We continue to have concerns for the long run as we worry the longer these stimulus programs remain in place, the greater the distortions in the market become.  This makes the correction even more painful when it does correct.  The “when” is anyone’s guess, though.  Plus, a lack of companies reinvesting in themselves signals less growth down the road. 

The volatility in the bond market continued this week, too, but they remain stuck in a range, too.  They may be near the top of that range, but we don’t see a breakout from that range occurring, so we don’t see a lot of movement from bond prices or yields coming.  Stimulus from global central bankers will keep our bonds attractive to investors and therefore keep yields low (and prices high).

Bonds to protect against inflation, or TIPs, remain a good long term hedge for inflation and floating-rate bonds will do well if interest rates do rise. 

Some municipal bonds look attractive for the right client, too.  We like buying individual, insured names for these bonds, avoiding muni index bonds if possible. They have not done well recently as a record supply has kept prices low.  Therefore, we keep a longer term focus with these investments. 

Gold is another good hedge for the portfolio.  It is only a hedge at this point – rising when more stimulus looks likely and falling on the opposite.  But it does protect against negative effects from policymakers. 

Finally, in international stocks, we see weakness around the globe and favor neither the developed or emerging markets.  However, the stimulus programs in Europe and Japan do make for interesting investments, as long as the currency effects are hedged. 

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.

Commentary for the week ending 6-5-15

Stocks turned in another negative week, hitting their lowest levels in a month.  Through the Friday close, the Dow lost 0.9%, the S&P fell 0.7%, and the Nasdaq fared the best with a slight 0.03% drop.  Bonds were a big story this week as prices plunged and yields hit the highest level of the year.  Gold was lower again, too, down 1.8%.  Oil prices declined this week by 1.9% to $59.13 per barrel.  The international Brent oil, which is used to make much of our gas here in the east, moved lower to $63.90 per barrel.

Source: Barchart.com

The story this week was much the same as last week.  Investors are keeping an eye on economic data, looking at it in terms of the Fed and their stimulus.  Plus, news from Europe and Greece added to the volatility of the market. 

While stocks had some big moves this week, the story was really in the bond market.  Bond prices dropped sharply and the speed at which they moved was highly unusual.  The move was strong here in U.S. bonds, but even stronger in Europe.  Germany, for example, saw the biggest move since these records began back in the year 2000. 

So what’s going on and why should we care?   First, the bond market often picks up signals before the stock market, so a big move in bonds could be indicating something to the stock market.  Bonds may be boring, but this is why we care about the bond market.  

There were a few reasons for the activity in the bond market.  It started with Europe, where two big stories impacted markets.  First, economic data in Europe came in a bit better than expected, with inflation rising (they still see inflation as a positive – we don’t), employment improving, and retail sales rising.  Their central bank is printing tons of money in stimulus that is flowing into the markets, so an improving economy means less need for stimulus and therefore less printed money pushing up the market. 

Another European factor rattling the market was Greece.  They had a debt repayment scheduled for Friday, which no surprise to us, they found a way to not pay.  They found a little known provision that allows them to take this week’s payment and the other three due this month and make one lump sum at the end of the month.  This was not what the provision was intended for, but regardless, it bought them some time. 

We are sure there will be more drama surrounding Greece and their debts once this new due date approaches. 

While these stories are enough to move the market, they didn’t seem big enough to move the market as dramatically as it did.  That brings up another factor than many hadn’t considered – new regulation. 

New regulations on banks (like Dodd-Frank) prevent them from being active and taking positions in some of these markets.  Normally they can dampen volatility by stepping in to place trades when markets were experiencing big swings.  This is important because we may now see bigger swings in the market than we otherwise would.

Switching gears, we saw some important economic reports this week.  As mentioned above, investors are closely watching the data, for good reports would mean less stimulus and vice-versa. 

The big report of the week came on Friday with the May employment figures.  Jobs were better than expected with a solid gain of 280,000.  While the unemployment rate ticked up, it did so because more people entered the labor force, generally a good sign. 

Of course, good news is bad news for the market, so stocks were lower on the report.

Other economic data this week was mixed, but leaned to the negative side.  The strength of the manufacturing sector improved, but the service sector – which is a larger part of our economy – came in at the weakest level in more than a year.  Personal income saw a decent increase, but spending was flat.  Factory orders were down and an inflation report showed little in the way of inflation. 

In the end, the mixed data was enough to keep us guessing on what the response would be from the Fed. 


Next Week

We’ll see a few more economic reports next week, but nothing too significant.  There will be a report on retail sales, which will be interesting to see since the last several months have been rather poor.  There will also be a report on employment, inflation at the producer level, and import prices. 

The story this week was the volatility in the bond market, so that’s what many traders will be keeping an eye on next week.  Volatility in the bond market could spill over into the stock market. 


Investment Strategy

Still no change here.  While stocks have trended lower the last three weeks, they are not at a level we would consider doing any buying.  From a slightly longer-term perspective, stocks have been stuck in a range since February and we haven’t seen any clear buy or sell signals over that time.  While we wouldn’t put any new money in the broader index at this time, there are many individual stocks the look undervalued. 

Our longer term view remains unchanged, too.  We continue to have concerns for the long run as we worry the longer these stimulus programs remain in place, the greater the distortions in the market become.  This makes the correction even more painful when it does correct.  The “when” is anyone’s guess, however.  Plus, a lack of companies reinvesting in themselves signals less growth down the road. 

While bond prices fell sharply recently (and yields higher) they still remain in a range we’ve seen over the past year.  Granted, they are at the top of that range, but we don’t see a breakout from that range occurring.  Stimulus from global central bankers will keep our bonds attractive to investors and therefore keep yields low (and prices high).

Bonds to protect against inflation, or TIPs, remain a good long term hedge for inflation and floating-rate bonds will do well if interest rates do rise. 

Some municipal bonds look attractive for the right client, too.  We like buying individual, insured names for these bonds, avoiding muni index bonds if possible. They have not done well recently as a record supply has kept prices low.  Therefore, we keep a longer term focus with these investments. 

Gold is another good hedge for the portfolio.  It is only a hedge at this point – rising when more stimulus looks likely and falling on the opposite.  But it does protect against negative effects from policymakers. 

Finally, in international stocks, we see weakness around the globe and favor neither the developed or emerging markets.  However, the stimulus programs in Europe and Japan do make for interesting investments, as long as the currency effects are hedged. 

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.