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.
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.
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.
