It was another record week for stocks. Through the close Friday, the Dow was up 0.2%, the S&P rose a scant 0.04%, and the Nasdaq added 0.2%. Gold was relatively flat, up just 0.02%. Oil joined the other asset classes in moving higher, climbing 6.5% to close at $44.69 per barrel. The international Brent oil closed up to $47.11.
Source: Google Finance
The week was mostly an uneventful one with very little news.
The only day the market saw any significant movement was Thursday where the Dow added nearly 120 points. The rally was led by energy companies who saw their shares rise on news that oil demand may be greater than supply. This will push up prices – a positive for oil companies.
The gain sent all three major indexes into record territory – the first time this occurred since 1999 (leading to many “Party like it’s 1999” headlines).
Economic data did little to help the market this week. Retail sales were flat from the previous month, well below estimates. Inflation at the producer level also fell by more than expected (which we see as a positive, but the Fed believes higher inflation indicates a healthy economy, though this has rarely been the case throughout history).
The only day the market saw any significant movement was Thursday where the Dow added nearly 120 points. The rally was led by energy companies who saw their shares rise on news that oil demand may be greater than supply. This will push up prices – a positive for oil companies.
The gain sent all three major indexes into record territory – the first time this occurred since 1999 (leading to many “Party like it’s 1999” headlines).
Economic data did little to help the market this week. Retail sales were flat from the previous month, well below estimates. Inflation at the producer level also fell by more than expected (which we see as a positive, but the Fed believes higher inflation indicates a healthy economy, though this has rarely been the case throughout history).
Worker productivity is an important metric that shows the level of goods and services produced by a worker in an hour. Data this week showed productivity fell for the third-straight quarter, something that hasn’t happened since 1979.
This adds pressure on corporate profits. Rising wages (mandated by minimum wage increases) and lower productivity is a serious headwind for companies to deal with. (Chart source: zerohedge.com)
Finally, we’d like to note a Bloomberg article from this week (LINK). The number of executives and insiders at a company buying their own stock fell to the lowest level on record. Further, the amount of selling outpaced buying at a level only seen twice before.
This is a warning sign that insiders aren’t confident in their own stock and are using the record highs to sell and take some profits.
Oddly enough, corporate executives are selling at a record pace but the companies themselves are buying back their own stock at a near-record pace. They are taking advantage of record-low borrowing costs to take on debt to buy the stock back. This does cause the stock price to rise, but it comes at the expense of investing in the company for future growth.
This adds pressure on corporate profits. Rising wages (mandated by minimum wage increases) and lower productivity is a serious headwind for companies to deal with. (Chart source: zerohedge.com)
Finally, we’d like to note a Bloomberg article from this week (LINK). The number of executives and insiders at a company buying their own stock fell to the lowest level on record. Further, the amount of selling outpaced buying at a level only seen twice before.
This is a warning sign that insiders aren’t confident in their own stock and are using the record highs to sell and take some profits.
Oddly enough, corporate executives are selling at a record pace but the companies themselves are buying back their own stock at a near-record pace. They are taking advantage of record-low borrowing costs to take on debt to buy the stock back. This does cause the stock price to rise, but it comes at the expense of investing in the company for future growth.
Next Week
Next week looks to be another relatively uneventful one. We’ll get economic data on inflation, industrial production, housing, and the minutes from the latest Fed meeting. Many retail companies will also be reporting earnings, including Wal-Mart, Target, and Home Depot.
Investment Strategy
We remain in expensive territory here. That’s not to say the market can’t go higher from here, but there is reason to be cautious in the short-term.
Looking out a little further, we see headwinds for stocks but the response from central banks will have the most influence on the direction of the market. Additional support, whether it is stimulus from printing money or lowering interest rates, will reassure the markets and likely see them head higher – or at least ease the decline.
In the long term we remain very cautious. 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 were relatively quiet this week as yields fell slightly (so prices rose slightly). We think prices will remain high and yields low, though, as demand from investors will continue to be strong.
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.
Next week looks to be another relatively uneventful one. We’ll get economic data on inflation, industrial production, housing, and the minutes from the latest Fed meeting. Many retail companies will also be reporting earnings, including Wal-Mart, Target, and Home Depot.
Investment Strategy
We remain in expensive territory here. That’s not to say the market can’t go higher from here, but there is reason to be cautious in the short-term.
Looking out a little further, we see headwinds for stocks but the response from central banks will have the most influence on the direction of the market. Additional support, whether it is stimulus from printing money or lowering interest rates, will reassure the markets and likely see them head higher – or at least ease the decline.
In the long term we remain very cautious. 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 were relatively quiet this week as yields fell slightly (so prices rose slightly). We think prices will remain high and yields low, though, as demand from investors will continue to be strong.
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.
