Commentary for the week ending 12-16-16

Please note: Since Christmas and New Year’s both fall on the weekend this year, there will be no market commentary for the next two weeks.  We’ll be back in January and would like to wish you all a great holiday season!

Stocks lost some steam this week with the major markets finishing mixed.  For the week, the Dow rose 0.4% while the S&P and Nasdaq were slightly lower by 0.1%.  Bond yields rose again this week, so bond prices have fallen.  Gold hit a 10-month low with a drop of 2.1%.  Oil was slightly higher, up 1.1% to $52.03 per barrel.  The international Brent oil ended the week up $1 to $55.33.

Source: Google Finance

The excitement for pro-business policies from the Trump administration continues to help stocks.  New money is pouring into the market, with Bank of America research indicating the latest week saw the ninth-largest amount of money ever flowing into stocks.

The Wall Street Journal reports that the 8% rise in the Dow since the election is the biggest post-election gain in history.  They find that there has been five other instances where the market was up more than 5% after an election, and in all but one time stocks were higher six months later. 

That doesn’t mean we should throw caution to the wind.  Many comparisons have been made to the Reagan era, which also saw stocks shoot higher over enthusiasm for a pro-business agenda.  However, stocks ended up declining for nearly two years to be down almost 20% before eventually rebounding.  These economic policies will undoubtedly be good for the economy, but that doesn’t mean stocks can’t still go lower. 

The Fed meeting this week showed how vulnerable stocks can be to any upsets.  The Fed announced an increase in interest rates on Wednesday, which was largely expected.  However, they forecasted more rate hikes last year than many investors were expecting and stocks sold off on the potential for tighter policies. 

This reminds us a lot of last year.  The Fed hiked rates in December and rattled the markets, especially overseas.  Stocks fell sharply at the beginning of the year as a result. Pro-business policies from the new administration may help stem the tide, but we see this as another reason for caution. 

As for economic data this week, the results were largely negative.  Industrial production declined and remains in negative territory on a year-over-year basis.  Never has industrial production been negative for so long and the economy not be in a recession.  Also, retail sales were disappointing, inflation reports shows prices are rising faster than expectations, and housing data released this week was very poor. 


Next Week

Next week will be a fairly quiet one for scheduled news as investors start gearing up for Christmas.  For economic data, we’ll get reports on durable goods and some housing stats.  Other than that, it looks like it could be a quiet week.  


Investment Strategy

No change here.  We still think stocks are on the expensive side in the short-term, though we have thought that the last few weeks and stocks keep moving higher.  We would wait for a pullback before putting any new money into the market. 

While we are cautious in the short term, we are optimistic in the longer run.  We had been cautious on the long term – and still are to some degree – because much of the rise in the market over the past few years has been due to the central banks and their stimulus.  It may have caused markets to rise, but has also distorted markets and created bubbles, which usually ends badly.

Our optimism comes from the new pro-business policies that may balance out or negate the distortions caused by the stimulus.  We are unsure how this will eventually play out, but pro-growth policies will be a net positive for the economy.   However, the path of the economy can differ from that of the stock market.  

While stocks look expensive here, bonds prices look cheap and this could be a good opportunity to add to fixed income positions. 

As for the rest of the portfolio, 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.  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 as a flight to safety. 

Finally, in international stocks, we see weakness around the globe and favor neither the developed or emerging markets, though they are looking cheap.

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 12-9-16

The Trump rally continued this week as stocks again reached new record highs.  For the week, the Dow gained 3.0%, the S&P rose 3.1%, and the Nasdaq saw a solid 3.6% return.  Bonds prices continue to hover around the lowest level in a year as yields have risen.  Gold moved lower on the week, off 1.4%.  Oil prices saw little change, closing at $51.48 per barrel.  The international Brent oil ended the week at $54.36.

Source: Google Finance

This week was the first one in five years where all three major indexes rose five days in a row.  Clearly investors are enthusiastic about the potential for economic growth under a Trump administration and are pouring new money into the market, pushing stocks to new record highs.  

More cabinet appointments released this week were also cheered by investors.  These are business leaders with real leadership experience, not the bureaucrats we often find in Washington.  The news was cheered by investors as it is a positive sign for U.S. businesses. 

Investors are being more selective here, too, as new money is flowing into companies whose revenue mostly comes from the U.S.  Transport-related stocks, in particular, have benefitted.  These are companies in sectors like airlines, railroads, and shipping.  This is worth mentioning since their performance is confirming the “Dow Theory.”

The Dow Theory basically suggests that new highs in the broader market need to see transportation stocks also moving higher.  Transports are seen as a proxy for the health of the economy since they move the goods and raw materials used in manufacturing and construction.  So if they do well, the broader market tends to do well. 

Transports rarely make highs when the broader market is about to fall, which suggests the rally has legs and could continue. 

The week did not have a lot of other market moving news.   One bit of news we did have came from Europe with their central bank’s policy meeting. 

The stimulus policy from the European Central Bank (or ECB) is set to wind down in March.  Investors believed the ECB would announce an extension of this program since their economy still remains fragile. 

The ECB did announce a stimulus extension, though at a smaller amount than expected.  They are currently printing the equivalent of $85 billion a month to pour into the markets, but will be lowering the amount to $63 billion a month.  However, the program is expected to run until the end of 2017, which is longer than originally expected.  So all-in-all, it was a wash that met expectations. 

All these years of money printing have produced little in the way of results and we don’t think more of the same will produce anything different.  We only need to look at the reaction of our markets over the past month to see what needs to be done.  Pro-growth policies will get them out of this rut – lower taxes, less regulations, stable currency, etc.  They keep digging the hole deeper until real reforms like these are enacted.


Next Week

The big news next week will come from our Fed and their policy meeting.  There is a nearly 100% chance they raise interest rates at this meeting.  The unknown is the pace of future rate hikes.  They are likely to take a wait-and-see approach and not announce anything too drastic, but a stronger stance with more rate hikes will probably weigh on the market.

There will be a handful of important economic reports, too.   There will be data on retail sales, industrial production, housing, and inflation at the consumer level. 


Investment Strategy

We still think stocks are on the expensive side in the short-term, but have thought that the last couple weeks as stocks continued to rise.  We aren’t selling here and have enjoyed the rise, but are very cautious.  We would wait for a pullback before putting any new money into the market. 

While we are cautious in the short term, we are optimistic in the longer run.  We had been cautious – and still are to some degree – because much of the rise in the market over the past few years has been due to the central banks and their stimulus.  The money they have printed has caused markets to rise and may have inflated bubbles.

However, we could see the new pro-business policies balance out or negate the distortions caused by the stimulus.  We are unsure how this will eventually play out, but pro-growth policies will be a net positive for the economy.   Often the path of the economy can differ from the stock market.  

While stocks look expensive here, bonds prices look cheap and this could be a good opportunity to add to fixed income positions. 

As for the rest of the portfolio, 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.  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 as a flight to safety. 

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.

Commentary for the week ending 11-18-16

Please note: there will be no market commentary for the next two weeks.  Don’t worry – we’ll be back with our commentary for the week ending 12/9/16.  Thank you. 

The rally in stocks moderated a bit this week, but stocks still remain at or near all-time highs.  For the week, the Dow rose a modest 0.1%, the S&P added 0.8%, and the Nasdaq fared the best with a 1.6% gain.  Bonds prices hit the lowest level in a year as yields continue to rise.  Gold continued to move lower as the dollar hit its highest level in 13 years, off 1.6% this week.  Oil rose on talks of limiting supply, gaining 5.7% to close at $45.58 per barrel.  The international Brent oil rose to $46.89.

Source: Google Finance

The “Trump Rally” continued this week, though the initial euphoria has worn off.  However, it looks like the market continues to believe his policies will be good for the economy and has been encouraged by the personnel appointments he has made so far.

This has new money pouring into stocks and coming out of bonds.  For the one-week period ending November 16th (that’s how they measure these things), U.S. stock funds saw a record amount of money flowing into them.  Specific sectors like financials, healthcare, biotech, and industrials also saw record inflows.

It hasn’t been great for everything, though, as money is flowing out of sectors like utilities, emerging markets, and gold.  Plus, money is leaving bonds, too. 

While the market mostly moved on Trump news the week, there was some other news in the market, too. 

Many Fed speakers were making the rounds and the consensus seems to be that the Fed will raise interest rates in December (this is important because the record low rates have helped push stocks higher).  Even chair Yellen said they were likely to raise rates relatively soon as she made an appearance in front of Congress. 

We heard something interesting in her congressional appearance, too.  She noted that the level of U.S. government debt was a concern and she would be wary of increasing government spending. 

We have to wonder if these comments were made as a result of the Trump election since he has discussed new government spending projects. Just a few months ago, Yellen was advocating for more government spending to boost the economy (LINK).  The comments certainly appear political. 

Also raising some eyebrows for political reasons was economic data released this week.  Several economic reports were unusually good.  The level of people applying for unemployment plunged to its lowest level since 1973.  Plus, the construction of new homes saw its biggest monthly gain since 1982. 

Cynical investors saw these extremely unusual reports as a way to end the current President’s tenure on a solid note.  With politics the way it is today, it wouldn’t be surprising. 


Next Week

Next week will be fairly quiet due to the Thanksgiving holiday.  Technically the market is only closed Thursday, but Friday is usually a very quiet day, too.

As for the economic data we’ll receive, we’ll get info on housing and durable goods.  The minutes from the latest Fed meeting will also be released, but since nothing new came from the meeting, it is doubtful we’ll learn anything new from the minutes of the meeting. 


Investment Strategy

No change here.  We think the economic policies coming from a Trump administration will be positive in the long run.

That said, we are a bit cautious on the market in the short run.  A lot of asset classes have moved to extremely oversold or overbought levels.  Stocks look expensive, bonds look cheap.  The dollar looks to be at an overly-high level, gold, the opposite.  Reversals often occur at these extreme levels.   

Turning to the longer term, we think much of the rise in the market over the past few years has been due to the central banks and their stimulus.  After all, it’s unusual to see record highs in the market while corporate earnings are in a recession.  That would normally make us worry about stocks as the Fed pulls back from its stimulus. 

However, we could see the pro-business policies balance out or negate the pullback in stimulus.  We are unsure how this will eventually play out.  

As for the rest of the portfolio, 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.  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 as a flight to safety. 

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.

Commentary for the week ending 11-11-16

Election week saw record highs in stocks as they tuned in their best week since 2011.  Through Friday’s close, the Dow rose a solid 5.3% and hit an all-time high, the S&P gained 3.8%, and the Nasdaq rose a nice 3.7%.  Bonds were also a big story as prices dropped dramatically and yields hit their highest level since January.  Gold reversed course and moved lower.  Oil also fell with a 2.3% drop to close at $44.13 per barrel.  The international Brent oil lost a little more than $1 to close down to $44.52.

Source: Google Finance

When I prepare to write these commentaries, I go back and review the news from the past week.  It’s amusing now to see how certain the press was in a Clinton victory.  Not only were they wrong on the election, but they were wrong on the market reaction to a Trump victory. 

The worry behind a Trump win was the uncertainty it would bring to the markets.  We have a pretty good idea how a Clinton presidency would go.  Regardless of it being good or bad, it would have certainty. 

The range of outcomes is wider with an unknown like Trump.  It may be good, but it may be bad.  This is the uncertainty that analysts thought would weigh on the markets.  We saw estimates as high as a 15% drop in stocks with a Trump victory. 

The market did initially fall on the results.  In overnight trading, the Dow was briefly lower by 800 points.  We came into the office reading headlines like “Market Bloodbath” and “Global panic in stocks.” 

Obviously this didn’t last long. 

We slowly started to hear people actually assessing the Trump economic policies:

“Wait, so we will get lower taxes?” 
“We’ll get lower regulations?”
“There will be a repatriation of corporate earnings on cash stuck overseas?”
“We’ll actually get a business-friendly Washington?”

Investors began to realize that this administration could be very good for business.  It was frustrating to many that this was not realized before the election, regardless of how loud it was shouted. 

Regardless, stocks moved higher on the potential for pro-business policies.  Specific sectors that would do well under a Trump administration (like banks, insurance, oil, coal, infrastructure, pharma and biotech, defense, industrials, and manufacturing) provided an extra boost to the market. 

The consensus is that it will be nice to finally get some pro-business policies in Washington. 

Switching gears a bit, corporate earnings season is winding down.  90% of companies in the S&P 500 have reported results and according to Factset, earnings are on pace to rise 2.9%.  This is much better than the negative number analysts were estimating. 

Since the election is the theme of this commentary, we’ll fit earnings into that theme.  A common excuse for companies missing earnings this quarter has been to blame the election.  It’s like the weather excuse we highlight often (where it’s cold, so people didn’t shop, or it was warm and people didn’t buy jackets, which have higher profit margins), but this quarter the election often took the blame for bad earnings.

It was cited by Starbucks and McDonalds.  Dunkin Donuts blamed the “overwhelming dampening effect of presidential election.”  And apparently people take fewer cruises because of the election, as was cited by Carnival Cruise Lines. 

In the end, 80 companies in the S&P 500 used the election as an excuse for lower earnings.  However, this was lower than the 100 who cited it in 2012, which we suppose is an improvement.

We think the economic policies coming from a Trump administration will be positive in the long run.

That said, we are a bit cautious on the market in the short run.  Stocks have very quickly moved from cheap to expensive and we wouldn’t be surprised to see them take a breather here.  

One concern, while we are seeing an increase in the stocks making new highs for the year, we’re also seeing an increase in companies making new lows.  This is not a sign of a healthy market and is something to keep an eye on. 

Another concern is the sharp move lower in bond prices (which means a higher move in yields).  This could signal trouble is afoot.  Investors might be seeing higher inflation,

or it may be a flight to quality, or it might just be a rotation out of bonds and into stocks.  At this point, it’s too early to tell, but is something to keep an eye on. 

Turning to the longer term, we think much of the rise in the market over the past few years has been due to the central banks and their stimulus.  After all, it’s unusual to see record highs in the market while corporate earnings are in a recession.  That would normally make us worry about stocks as the Fed pulls back from its stimulus. 

However, we could see the pro-business policies balance out or negate the pullback in stimulus.  We are unsure how this will eventually play out.  

As for the rest of the portfolio, 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.  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 as a flight to safety. 

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.

Commentary for the week ending 11-4-16

It was another week with the markets ending in the red.  Through the Friday close, the Dow was lower by 1.5%, the S&P fell 1.9%, and the Nasdaq fared the worst with a 2.8% drop.  Gold did nicely with a 2.3% gain.  Oil fell to its lowest level in six weeks with a 9.3% decline to close at $44.13 per barrel.  The international Brent oil lost $4 to close down to $45.60.

Source: Google Finance

The week was very similar to last week – stocks moved steadily lower as cautious investors refused to make any big bets on the market before the election. 

This decline in the market has been historic, too.  The loss on Friday marked a nine-day losing streak for the S&P 500.  The last time the S&P was lower for nine straight days was in 1980.  Of course, the magnitude of this decline has been nowhere near the losses of 1980.  This decline has seen a modest loss of 2.9% compared to a large drop in 1980, so a little perspective is important. 

As for the events of the week, we had many economic reports and still a lot of corporate earnings coming in. 

Starting with earnings, Factset reports roughly 400 companies in the S&P 500 have reported results, with earnings on pace to rise 2.6%.  This is much better than the negative quarter analysts expected and could mark the end to the earnings recession we have seen over the last six quarters. 

Economic data was heavy due to the end of the month and results were generally good, but not great.  Both the service and manufacturing sectors showed expansion, though were both less than expected.  Personal spending was better than expected while personal income was worse than expected.  Productivity was a bright spot, rising for the first quarter in a year. 

The employment report for October was somewhat weak, adding 161,000 jobs.  This number is closely watched since it is one of the Fed’s main focuses.  The result was not too hot or cold, so it likely had little impact on the Fed’s economic policy. 

The Fed did hold a policy meeting this week, too.  No changes to their policy were expected and none were announced.  However, it is looking more likely that they will change their stimulative policy in December and raise interest rates. 

We’ve seen the Fed talk tough about raising rates before, only to find many excuses not to.  A lot will transpire between now and December, so there are many possibilities to keep them from raising rates.

Finally, this weekend we have the Blue Angels performing here in Jacksonville.  Thursday and Friday were their practice days and they flew right outside out office.  Below is a couple pictures – our favorite is the last picture.  In it you can see the plane above a tree with two Bald Eagles in the lower part of the picture.  You can’t get much more America than that! 

Next Week

Next week looks very quiet for economic data and the pace of corporate earnings will slow.  Of course, the election will dominate the news and will have the most impact on the market. 


Investment Strategy

Again, no change here.  Stocks have sold off recently, but it is difficult to really tell what the market will do until after the election.  Stocks look to be on the cheap side in the short term (a week to a few weeks) and could be poised for a rebound, but we’ll have to wait and see. 

From a longer term perspective, everything looks expensive.  Central bank policies have driven asset classes higher, which leaves few places to hide if the market were to turn.  We worry this is an asset bubble that will end badly – but knowing when that day of reckoning is remains anyone’s guess. 

Bond yields fell this week (so prices ticked higher), but remain at the top of the range of the uptrend that started in July.  We don’t expect a significant change here as we think prices will remain relatively high and yields low as demand from investors will keep prices elevated, even with higher rates from the Fed.     

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.  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 as a flight to safety. 

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.

Commentary for the week ending 10-28-16

The markets declined throughout the week, with the performance of the three major markets ending with a wide disparity.  For the week, the Dow was higher by 0.1%, while the S&P fell 0.7% and the Nasdaq lost 1.3%.  Gold saw some volatility but closed with a 0.7% gain.  Oil moved steadily lower with a loss of 4.6% to close at $48.66 per barrel.  The international Brent oil closed down to $49.60.

Source: Google Finance

The markets have been fairly quiet as investors have been unwilling to place any big bets on the direction of the market before the election. 

The biggest impact on the market this week was corporate earnings, as this was one of the busiest weeks for third quarter results.  According to Factset, we may see the first quarter of higher earnings in a year-and-a-half.  About 60% of companies in the S&P 500 have reported and are seeing an earnings increase of 1.6%.  Though modest, it shows we are moving the right direction. 

Revenue, or sales, are on pace to be higher for the first time in six quarters. 

Bonds were a big story this week, too, as their yields hit the highest level since late-May (so prices are the lowest since that time).  It’s not just in the U.S. either, as yields are rising around the globe.  This is important because it means it will cost more to borrow funds. 

We’ve heard the higher bond yields are due to higher inflation expectations, since higher inflation means investors would seek a higher yield to outpace inflation.  That is probably true to some extent, but we think yields are higher mostly because of our Fed (and possibly other central banks) and the expectations they will be raising interest rates.  This is causing investors to try to get out in front of that action by selling bonds. 

The third quarter report on the strength of the economy, the GDP, also came in this week.  The economy grew at 2.9%, better than the low-2% number many were expecting.  It’s much better than the 1.4% from last quarter, too.  We’re still on pace to grow just below 2% for the year, though, which shows a deceleration from the 2.6% of last year.  While the recent number was encouraging, we are still stuck in a growth rut. 

Finally, you’ve probably seen some of the large merger and acquisition announcements recently.  We’re actually closing out the busiest month ever for M&A. 

Part of the reason for so many deals is the lack of growth – companies can’t increase their earnings so they buy other companies in order to do so. 

The other – and probably main – reason for so many deals is the possibility for higher borrowing costs in the coming months.  Companies take on debt to do these deals and the low borrowing costs make financing easy.  Higher borrowing rates will make this more difficult, so companies seem to be taking advantage now before rates rise. 


Next Week

A lot of economic reports will come in next week after the month ends.  We’ll get info on the strength of the manufacturing and service sectors, plus the always important employment report.  Corporate earnings will again be a big story, too.

There will also be a Fed policy meeting, but no changes are expected at that time. 

Finally, the approaching election is sure to add some volatility to the markets, especially with the news from the FBI late Friday. 


Investment Strategy
Still no change here.  Stocks remain in a rut since early September and it is difficult to find any momentum in either direction.  If anything, stocks may be a bit on the cheap side, but not at a level we would find attractive for new buying. 

From a longer term perspective, everything looks expensive.  Central bank policies have driven asset classes higher, which leaves few places to hide if the market were to turn.  We worry this is an asset bubble that will end badly – but knowing when that day of reckoning is remains anyone’s guess. 

As mentioned above, bond prices fell this week as yields ticked higher.  We don’t expect a significant change here as we think prices will remain relatively high and yields low as demand from investors will keep prices elevated, even with higher rates from the Fed.     

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.  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 as a flight to safety. 

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.

Commentary for the week ending 10-21-16

Markets continued to be volatile, but again ended not far from where they started.  For the week, the Dow rose just 0.04%, the S&P added 0.4%, and the Nasdaq was higher by 0.8%.  Gold rose steadily throughout the week, up 1.2%.  Oil again hit new highs for the past year, but closed the week down just a few pennies to $51.00 per barrel.  The international Brent oil closed at 51.92.

Source: Google Finance

The week was very quiet for market-moving news.  We had some activity from central banks and earnings continue to come in better than expected, though they are still slightly negative.  These haven’t given the market any traction in either direction. 

Trading volume has been very light, as well.  It looks like investors are becoming more uncertain on the direction of the market and are unwilling to place any big bets and be caught on the wrong side. 

Bank of America Merrill Lynch puts out a survey of fund managers every month that measures the levels of stocks, bonds, etc. in their portfolios. The most recent survey shows managers holding the largest amount of cash in their portfolios since the “Brexit” vote earlier this year.  This supports the idea that investors are reluctant to make any big bets at this time.

What is causing the uncertainty is up for debate, but whether it is uncertainty about the policies of central banks or even the election, markets haven’t moved much over the last two months.

As for events of the week, the markets opened with news from Fed chief Yellen that she was open to letting inflation run above their target of 2% in order to stimulate economic growth. 

While we believe their policies are misguided and ineffective, to us, the comments signaled the Fed will not be pulling back on stimulus any time soon.  We would’ve thought stocks would rise on the news, but they actually moved lower.

The other central bank news came from the European Central Bank (or ECB).  They are currently printing money to buy bonds and stimulate the market, but this program is scheduled to end in March.  Investors are worried this stimulus may not be around much longer and have hoped the ECB would extend the program past the March deadline.

The ECB meeting held this week touched on this subject, but gave no specifics.  They said the program will not end, but had not discussed any details.  They suggested more information will be ready at their next meeting in December. 

The markets were disappointed by the lack of clarity and saw an immediate reaction, especially in the currency markets.  Unfortunately, this is a sign of just how dependent these markets are on central banks.


Next Week

Company earnings will be a big story in the next week as about a third of the companies in the S&P 500 report results.  We’ll get info from a handful of big companies like Apple, Google, 3M, and GM.

We’ll also see economic reports on durable goods, housing, and GDP for the third quarter.


Investment Strategy

No change here.  Stocks remain in a rut since early September and it is difficult to find any momentum in either direction.  If anything, stocks may be a bit on the cheap side, but not at a level we would find attractive for new buying. 

From a longer term perspective, everything looks expensive.  Central bank policies have driven asset classes higher, which leaves few places to hide if the market were to turn.  We worry this is an asset bubble that will end badly – but knowing when that day of reckoning is remains anyone’s guess. 

Bonds prices were up slightly this week as yields ticked lower.  We don’t expect much change here as we think prices will remain relatively high and yields low as demand from investors will keep prices elevated, even with higher rates from the Fed.     

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.  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 as a flight to safety. 

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.

Commentary for the week ending 10-14-16

Another bumpy ride saw stocks end the week down slightly.  Through Friday’s close, the Dow was lower by 0.6%, the S&P was down 1.0%, and the Nasdaq fared the worst with a 1.5% drop.  Gold fell 0.6% on the week.  Oil hit its highest price in a year with a 1.3% gain to close at $50.32 per barrel.  The international Brent oil rose to $52.00.

Source: Google Finance

There was a lot going on this week that contributed to the volatility. 

We’ll start with corporate earnings for the third quarter which started coming in this week.  Analysts have set expectations low and predict yet another quarter of negative earnings, making this the sixth quarter of negative earnings in a row.  Back in June they saw higher earnings this quarter, but have since revised down their expectations. 

This is important to note since stock prices move on expectations.  A lowered bar makes expectations easier to beat.  Even poor earnings will see stocks rise if the result is better than an even-worse expectation. 

That played out to some degree this week.  Several big banks reported their earnings and the results were not great.  However – they were better than expectations, which was seen as a positive and stocks rose. 

We think this will be a common story in the coming weeks.

The Fed was also a big story this week.  The minutes from their last meeting in September were released and showed them inching towards an increase in interest rates (this is important because the low rates have helped send stocks higher).  The decision not to raise rates at the September meeting was a “close call,” suggesting to investors that a rate hike at their meeting in December is likely. 

The Fed last raised rates in December of last year.  This weighed on the market and if you remember, January saw the worst start to a year in history as stocks fell sharply.  We think that could be a very real possibility again this year.

Another big factor behind that January drop was worries about the Chinese economy.  China has faded from the headlines recently, but new worries resurfaced this week.  Exports from the country have fallen 10% over the past year.  This is significant since China makes and exports so many products, making them a bellwether for the global economy.  The large decline in exports is a signal of lower global economic growth.  This is something to keep an eye on. 


Next Week

Corporate earnings will again be a big story next week as the pace of companies releasing their data picks up.  About 16% of companies in the S&P 500 will be reporting earnings, including some big names like Microsoft, McDonalds, Bank of America, and GE. 

We’ll also see a few important economic reports, including data on industrial production, inflation at the consumer level (CPI) and housing stats. 


Investment Strategy

Stocks have been stuck in a rut since early September and it is difficult to find any momentum in either direction.  If anything, stocks may be a bit on the cheap side, but not at a level we would find attractive for new buying. 

From a longer term perspective, everything looks expensive.  Central bank policies have driven asset classes higher, which leaves few places to hide if the market were to turn.  We worry this is an asset bubble that will end badly – but knowing when that day of reckoning is remains anyone’s guess. 

Bonds prices fell this week as yields rose in anticipation of higher rates from the Fed.  However, we think prices will remain relatively high and yields low as demand from investors will keep prices elevated.     

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.  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 as a flight to safety. 

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.

Commentary for the week ending 9-30-16

An extremely volatile week saw stocks close slightly positive.  For the week, the Dow and S&P both rose 0.2% and the Nasdaq was higher by 0.1%.  Gold fell steadily throughout the week, off 1.7%.  Oil was a big story this week, rising 7.8% to close at $48.05 per barrel.  The international Brent oil added $3 to close at $49.05.

Source: Google Finance

While the week was volatile, we finally didn’t have the Fed to blame.  Instead, the big stories this week were the banks and oil. 

The week opened strongly to the downside after a negative story on the big European bank, Deutsche Bank, appeared over the weekend. 

First a little background.  The bank’s financial condition has been on shaky ground lately and a $14 billion fine earlier this month by our Dept. of Justice added to their problems.  The bank is important because it is one of the biggest in the world and the biggest in Germany, which is the largest economy in Europe.  They are also one of the largest employers in the country.  A failure of the bank would ripple throughout Europe and throughout the globe. 

With that in mind, over the weekend the German government announced it would not bail out the bank if they were to fail.  This sent their share price to record lows and dragged the rest of the market with it. 

The bank was further damaged later in the week when reports surfaced that some large clients were withdrawing their funds from the bank.  The news sparked concerns of a run on the bank and stocks sold off.

The whole situation was very reminiscent of the ’08 financial crisis, causing investors to worry about the health of the banks.  This has caused financial stocks to be the worst performing sector so far this year. 

We don’t think this turn into another crisis (yet).  While Deutsche Bank has seen billions withdrawn, the bank has hundreds of billions more.  Plus, markets are far more liquid at this time than they were in 2008.  Further, the $14 billion fine from the DOJ is likely to be far less when finalized, so that likely will not be an issue. 

Confidence is key at this point.  It is one of the most important assets a bank needs to survive.  If confidence erodes we could see additional problems, but the positive market reaction Friday suggests confidence is not waning. 

On to the other big story of the week: oil.  An OPEC meeting was held this week where they were looking for an agreement on production levels.  The high supply of oil on the market has reduced the price, so they were looking to reduce the amount of oil in order to raise its price.  This is a difficult task when there are a dozen different countries all with different views on the subject. 

On Wednesday they did announce an agreement on a slight production cut.  This immediately raised the price of oil, which brought the stock market along, too. 

One issue with the OPEC announcement was that it is just a verbal agreement at this point – the details would be worked out at their next meeting in November.  By the end of the week, we already heard doubts emerge about an agreement being formalized.  Iraq complained about the methodology OPEC used to determine production and smaller countries like Iran, Nigeria, and Libya wanted to produce more. 

So while an agreement was struck in theory, it may be unlikely to materialize. 


Next Week

With the end of the month and quarter this week, economic data for both periods will start rolling in next week.  We’ll see some important reports like employment and the strength of the manufacturing and service sectors. 

A few regional Fed members will be making speeches, too.  They didn’t have much impact on the market this week, so they may not have much impact next week, either. 

Finally, the banks were a big focus this week, so we’ll keep our eye on that sector, too.


Investment Strategy

No change here.  The market has moved off the lows seen earlier this month and we no longer see a good buying opportunity for the short term.  We think a move higher in the market is more likely at this point, but the volatility of the past week shows just how quickly things can change in the market. 

Our longer view remains unchanged as we continue to have serious concerns.  These massive stimulus programs have masked many problems, causing a misallocation of resources and allowed bubbles to form.  It prevented necessary changes from occurring at both a corporate and political level – changes that would actually help the economy.  Just how far out this day of reckoning is remains anyone’s guess, however. 

Bonds prices rose this week as yields fell, but remain in the range of a rising trend we have seen since July.  There are talks of the bubble bursting in the bond market (where prices would fall) and we do agree that bond prices are very high.  However, we think prices will remain relatively high and yields low as demand from investors will keep prices elevated.     

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.  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 as a flight to safety. 

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.

Commentary for the week ending 9-23-16

Stocks turned in decent gains on the week.  Through Friday’s close, the Dow added 0.8%, the S&P rose 1.2%, and the Nasdaq was higher by 1.2%.  Bonds prices also rose as their yields fell.  Gold turned in a solid week with a 2.1% rise.  Oil rose, too, up 3.2% to close at $44.59 per barrel.  The international Brent oil added just two cents to close at $46.07.

Source: Google Finance

All eyes were on the central banks this week.  The U.S. and Japanese central banks held policy meetings and investors were anxious for any policy changes. 

Both Monday and Tuesday saw the markets open with large gains as optimistic investors bought stocks in anticipation that further stimulus would boost stock prices.  However, those early gains faded as investors thought there may be a chance the Fed will pull back on their stimulus by raising interest rates.  This back-and-forth showed how undecided investors were about Fed policy – and how important it is for the market. 

In the end, the Fed left rates unchanged.  As you can see in the chart above on Wednesday, the market liked the news. 

Fed chief Yellen did make note that conditions are improving and a rate hike at their meeting in December was on the table.  These comments were interesting since the Fed’s official forecast actually lowered its expectations for economic growth.  They now see the economy growing just above stall-speed in the years ahead, which is even more worrisome since they have always – always – been too high in their economic projections.  At least they are constant in that regard.

The Bank of Japan (BOJ) was the other central bank investors were keeping an eye on.  They are important because they have already thrown in the kitchen sink when it comes to stimulus.  They’re printing tons of money to buy stocks and bonds and have lowered interest rates to negative territory.  None of this has failed to produce any economic growth, so investors wondered what else they could throw at it – if anything.

They announced no new changes to interest rates or money-printing programs outside of printing a bit more money to buy more stocks.  They also will target a specific interest rate of zero on their ten-year bond, which may see them printing more money to accomplish. 

At this point they are throwing everything at the wall and hoping something will stick.  Their actions are very important to follow since we are following their exact path. 

Finally, there was an interesting development from Facebook this week that could spell trouble for many of these tech firms.  The company significantly overstated (lied) about how long users spent watching ads.  Most of these large tech companies rely on advertising dollars, so companies may reduce their advertising spending if they find them to be ineffective.  This will impact the bottom line of these tech companies – which we feel are already grossly overvalued. 


Next Week

Next week looks to be a pretty busy one.  The Fed will still be in the news, with Fed chief Yellen appearing before Congress and many regional presidents making speeches. 

There will also be several economic reports out, including data on housing, durable goods, and a revision to second quarter GDP.

Finally, an OPEC meeting this week could add some volatility to the oil markets.  Our stock market has been pretty closely correlated to the oil market recently, so it may add to stock market volatility. 


Investment Strategy

We have rallied off the lows of the past two weeks and no longer see a good buying opportunity for the short term.  Of course, comments from central bankers have the potential to swing markets strongly one way or another, so it is difficult to make any credible predictions.

Our longer view remains unchanged as we continue to have serious concerns.  These massive stimulus programs have masked many problems, causing a misallocation of resources and allowed bubbles to form.  It prevented necessary changes from occurring at both a corporate and political level – changes that would actually help the economy.  Just how far out this day of reckoning is remains anyone’s guess, however. 

Bonds prices rose this week as yields fell, but remain in the range of a rising trend we have seen since July.  There are talks of the bubble bursting in the bond market (where prices would fall) and we do agree that bond prices are very high.  However, we think prices will remain relatively high and yields low as demand from investors will keep prices elevated.     

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.  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 as a flight to safety. 

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.

Commentary for the week ending 9-16-16

It was another volatile week that saw stocks end not far from where they started.  For the week, the Dow rose 0.2%, the S&P was up 0.5%, while the Nasdaq added a solid 2.3%.  Bonds prices have fallen the last two weeks as yields have risen.  Gold moved steadily lower all week, falling 1.4%.  Oil was also lower, down 5.5% to close at $43.19 per barrel.  The international Brent oil fell to $46.05.

Source: Google Finance

Until last week, stocks had not seen a daily move of more than 1% in almost two months.  Just this week we had three days with moves of more than 1%.  It’s safe to say volatility has returned to the market.

The volatility has increased recently due to the upcoming Fed policy meeting.  Last week, several regional Fed presidents suggested the Fed may pull back on their stimulative policy by increasing interest rates.  This triggered the strong selling in the market. 

Speeches from regional Fed presidents this week indicated the Fed was unlikely to raise interest rates any time soon.  The news helped send stocks higher. 

The mixed messages we hear from the Fed can be frustrating.  They are “committed to transparency,” but sometimes this transparency can be a little too much.  The strong reaction in the market the last two weeks is a perfect example of why. 

Inflation data out this week also helped the markets.  This is another important metric in terms of the Fed since they need to see higher inflation before pulling back on their stimulus.  Inflation at the producer level (PPI) was flat over the past month and inflation at the consumer level (CPI) ticked slightly higher.  On an annual basis, both are below the Fed’s target of 2%.

However, a version of inflation that doesn’t include food and energy prices – referred to as “core” inflation – has been above 2% for 10 months now.  We don’t think this is an accurate measure of inflation, but it has been the preferred method for the Fed in the past, making it something to keep an eye on. 

Other economic data this week was generally poor.  Sales at retail companies were lower over the past month.  Plus, businesses are not increasing their inventory, a signal they don’t see higher growth and sales in the future. 

Poor economic data seems to be the trend around the globe.  We’re hearing more concerns from investors that the central banks have gone to enormous lengths to stimulate economies but have been unable to produce results.  They fear the central banks are running out of bullets and will not be able to support the markets any longer.

While we do believe these central banks will ultimately be ineffective, we think they will try to go even bigger before it ultimately unravels. 


Next Week

The Fed will be in focus next week as they hold another policy meeting.  There is a small chance they could raise interest rates at this meeting, but we believe it is unlikely.   The language from the Fed will be important – suggestions a rate hike is near will weigh on stocks.  A “patient” approach will probably give stocks a reason to move higher.

The Japanese central bank will also be holding a policy meeting.  This may have even more impact on the market.  They are expected to announce even more stimulus – despite doing unfathomable amounts already.  The market has been greatly distorted by these policies, so any changes will see a reaction in the market. 


Investment Strategy

No change here.  The direction of the market is still heavily dependent on Fed policy, so it is difficult to make any predictions.  It is a frustrating investing environment when the direction of the market is dependent not on economic fundamentals, but the actions – or even just the words – of central bankers. 

That said, we are near an oversold (cheap) level for stocks.  The market has been lower on the potential for higher interest rates, but we don’t believe the Fed will raise rates any time soon.  This would be a positive for stocks and could help send them higher. 

Looking out a little longer, we are very worried about the market.  The money printed through stimulus has masked many problems, causing a misallocation of resources and allowing bubbles to form.  It prevented necessary changes from occurring at both a corporate and political level – changes that would actually help the economy.  Just how far out this day of reckoning is remains anyone’s guess, however. 

Bonds prices fell this week as yields rose and have been trending this way for the last two months.  There are talks of the bubble bursting in the bond market (where prices would fall further) and we do agree that bond prices are very high.  However, we think prices will remain relatively high and yields low as demand from investors will keep prices elevated.     

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.  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 as a flight to safety. 

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.