Commentary for the week ending 1-27-17

Stocks climbed to new record highs this week.  Through the close Friday, the Dow rose 1.3%, the S&P added 1.0%, and Nasdaq was higher by 1.9%.  Bonds prices fell as their yields moved higher.   Gold closed the week down 1.2%.  Oil rose 1.5% to close at $53.20 per barrel.  The international Brent oil, which is used for much of our gas here on the east coast, closed down just three cents to $55.46.

Source: Google Finance

Dow 20,000!  You likely heard the news that the Dow index rose above the 20,000 level this week.  It doesn’t mean much since it is just 30 stocks that don’t always represent the overall economy accurately.  But it’s still a nice occasion to note, especially when the S&P 500 and Nasdaq are also reaching new highs. 

The focus this week continued to be on Washington.  Stocks moved lower early in the week on concerns over protectionism as President Trump discussed a border tax on companies moving operations outside the U.S.  Additional talks of a 20% tax on imports from countries with which we run a trade deficit could also be a big headwind for us to contend with.

However, stocks got a boost higher when Pres. Trump revived the pipeline projects that had been scuttled by the previous administration.  Perhaps more importantly was the promise to roll back regulations on these infrastructure projects that can add massive costs and drag out the permitting process for years.  Decades, even. 

Investors see these actions as a focus on growth and infrastructure, with Donald Trump quickly moving forward with a pro-business agenda.  This is good for the economy.

Also helping the markets this week was corporate earnings.  This was the busiest week of earnings data this earnings season.  Results have been decent – a few misses here and there but overall the data looks fine. 

The GDP report for the fourth quarter was also released this week.  Economists were expecting a 2.2% growth rate, only to be disappointed with a 1.9% result.  It shows a deceleration from the previous quarter and makes this the weakest year for the economy since 2011.  Hopefully economic policies from the new administration can break the malaise. 

Next Week

Next week will be a busy one for both economic data and corporate earnings, where many big-name companies will report.  For economic data, we’ll get info on income and spending, the strength of the manufacturing and service sectors, and employment for January. 

It will also be a busy week for central banks as our Fed, the Bank of Japan, and the Bank of England all hold policy meetings.  We don’t expect any new policy changes, but it will be interesting to get their take on global economic affairs. 


Investment Strategy

No change here.   Stocks are not at a level we find attractive to buy, but we aren’t concerned with a significant sell-off at this time.  We will say that the market is long overdue for a correction.  Stocks are at all-time highs while fear of a correction is low, which is often a recipe for trouble. 

While we are cautious in the short term, we are more 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.  

Bond prices no longer look cheap, either, and we would hesitate to add to short-term fixed income positions at this time.  

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 1-20-17

The markets closed the week with mixed results.  Through Friday’s close, the Dow fell 0.7%, the S&P was down 0.3%, and Nasdaq was higher by 0.6%.  Bonds prices sold off as yields rose.   Gold closed the week up 1.2%.  Oil rose 1.6% to close at $52.33 per barrel.  The international Brent oil, which is used for much of our gas here on the east coast, closed down to $55.49.

Source: Google Finance

A gain in the markets Friday halted a five-day decline that put stocks in negative territory for the first time this year. 

Friday’s gain was actually rare – rare in that stocks were higher on inauguration day.  Of the last nine Presidential inaugurations, stocks have only risen twice.  Per the Wall Street Journal, Friday’s rise of 0.48% made this the second-best inauguration day performance behind Eisenhower’s 0.50% gain.  By contrast, President Obama’s first inauguration was the worst in history with a 5.2% drop on just that day. 

The performance of the market since the election has been historic, too.   Stocks rose sharply right after the vote, making it the best short-term performance in history.  The gains stalled out in mid-December, though, and we are now up 6% since the election.  Despite this, it still ranks as the fifth-best election-to-inauguration performance of all Presidents.

Source: MarketWatch, Dow Jones.

By contrast, here are the 10 worst performances by President:

Source: MarketWatch.

Investors have been buying up stocks, encouraged by the pro-business policies likely to come from a Trump administration.  However, comments from Fed chief Janet Yellen this week suggested the Fed doesn’t believe the policies will help the economy much.   

They indicated they do not see a need for new stimulus programs, but will be cautious in pulling back these stimulative policies.  This gave the markets some relief that interest rates would not be rising faster than expected (remember, stocks like low interest rates).

The focus was on Washington this week, but we did get a few economic reports.  Inflation is coming in at a strong level as prices continue to rise.  Industrial production was positive and is now positive on a year-over-year basis.  This is an important point to note since industrial production rarely goes negative outside of a recession.


Next Week

Next week will be another fairly quiet one for economic data, but there will be a couple important reports, including GDP for the fourth quarter and durable goods.  Also, corporate earnings reports will come in at a steady pace. 


Investment Strategy
Still no change here.  We continue to think stocks are on the expensive side in the short-term.  We would wait for a pullback before putting any new money into the market. 

While we are cautious in the short term, we are more 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.  

Bond prices no longer look cheap, either, and we would hesitate to add to short-term fixed income positions at this time.  

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 1-13-17

Stocks closed out the week relatively unchanged.  Through the Friday close, the Dow was lower by 0.4%, the S&P was down a slight 0.1%, and Nasdaq did well with a 0.9% gain.  Bond prices again moved higher as yields fell this week.   Gold had another nice week, up 2.1%.  Oil took a tumble, falling 2.6% to close at $52.52 per barrel.  The international Brent oil closed down to $55.59.

Source: Google Finance

The week was a fairly uneventful one.  The markets haven’t been able to find any momentum either direction and remain stalled around a level first reached in mid-December.  The Dow came frustratingly close to the 20,000 level last week but remains unable to punch through it. 

Much of the focus remains on Washington.  Investors are still encouraged by the pro-business policies coming from the new Trump administration, but we learned few new policy details this week.  While we know we’ll see pro-business policies, we aren’t sure when we will see them or how big they will be. 

One of the interesting reports to come out this week was small business optimism. It saw a massive surge after the election as more small business owners turn optimistic on the future.  Optimism now stands at the highest level since 2004.  This is a very positive sign for the economy.  Chart courtesy Zerohedge.com

Trump’s policies may be good for business, but he also has the power to take them lower.  He has shown a willingness to call out individual companies or sectors whose actions he disagrees with.  Last week it was car companies operating in Mexico.  This week it was healthcare and pharmaceutical companies. 

Healthcare-related stocks saw nice gains after the election, relived to see a Trump victory since they were often demonized by the left.  However, Donald Trump called them out in a press conference this week, saying they had “gotten away with murder” since the federal government does not bid on drug prices for government programs.   The possibility of lower revenue from the government sent the sector sharply lower. (Chart courtesy Wall Street Journal)

Ideally we’d like to see these company-specific matters resolved more diplomatically, but as it stands now, it looks like this unpredictability could be a factor for investing going forward.

Finally, corporate earnings for the fourth quarter started coming in this week.  Banks were a big focus as several big names reported results.  They were mostly “okay,” with Bank of America and JP Morgan posting decent numbers.  However, Wells Fargo did very poorly, perhaps since this was the quarter of the bad press about fake bank accounts. 

It’s too early to get an idea of the broader earnings picture.  Analysts are predicting growth of 3.2% and though modest, it shows a continued improvement in growth over the last few years. 


Next Week

Next week will be fairly quiet for economic data.  We’ll get info on inflation at the consumer level, industrial production, and housing.  Corporate earnings will come more into focus as earnings releases really start to pick up next week. 


Investment Strategy

Still no change here.  We continue to think stocks are on the expensive side in the short-term.  We would wait for a pullback before putting any new money into the market. 

While we are cautious in the short term, we are more 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.  

Bond prices no longer look cheap, either, and we would hesitate to add to short-term fixed income positions at this time.  

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 1-6-17

The markets closed out the first week of 2017 with solid gains.  For the holiday-shortened week, the Dow was higher by 1.0%, the S&P rose 1.7%, and Nasdaq turned in a nice 2.5% gain.  Bond prices took a turn higher as yields fell this week.   Gold had nice week, up 2.0%.  Oil was relatively flat, losing just 2 cents to end at $53.70 per barrel.  The international Brent oil closed at $56.75.

Source: Google Finance

Welcome to a new year – we hope you had a nice holiday season. 

It was a slow start to the year for stocks, but they again reached new highs by the week-end.  Though they are at new highs, stocks have really been stalled around this same level since mid-December.  We’ll see if the new year gives them any momentum either direction. 

The gains in the market this week reminded us to break out the old Stock Trader’s Almanac.  History has shown that if stocks (the S&P 500) are higher in their first five days of trading, there is an 86% chance they close the year higher.  Of course, last year stocks got off to the worst start in history and closed with near double-digit gains, so maybe we shouldn’t put too much faith in these predictors.  

As for the events of the week, we’ll start with the Fed.  Minutes from their latest meeting were released.  This was the meeting where they raised interest rates for the first time in a year, so investors were interested to see what they had to say. 

The biggest takeaway was their uncertainty over the Trump policies.  It’s not just uncertainty over things like what the level of lower tax rates will ultimately be or how much infrastructure spending we’ll see.  The Fed questions if these policies will even be a positive for the economy. 

This is telling since these policies always result in economic growth.   The Fed is mostly comprised of academics that see government control and spending as the way to economic growth.  It tells us a lot about their thinking – and why they’ve been wrong so often. 

For a stock-specific story this week, shares of retail companies were hit hard after poor Christmas-season sales figures were released from Macy’s and Kohl’s on Thursday. 

More and more people are buying online and avoiding stores, resulting in the lower sales at these stores.  The announcements from the two companies brought the entire sector lower, as can be seen in the nearby chart.

As for economic data this week, the results were mixed.  Reports on the strength of the manufacturing and service sectors came in at multi-year highs. 

The final employment report of 2016 was also released this week.  Results were below expectations, with the economy adding 156,000 jobs when estimates were closer to 180,000. 

The year was also a disappointment for employment.  We averaged 180,000 monthly job gains, making this the weakest year for employment since 2011.


Next Week

Corporate earnings for the fourth quarter start rolling in next week.  A modest 3.2% growth expected, but analysts expect this to pick up over the next year to see double-digit returns by the end of the year.

It will be a little quieter for economic data, where we’ll see reports on retail sales and inflation at the producer level.

Many regional Fed presidents will be out making speeches, too, which always has the potential to move the market. 


Investment Strategy

Still no change here.  We continue to think stocks are on the expensive side in the short-term.  We would wait for a pullback before putting any new money into the market. 

While we are cautious in the short term, we are more 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.  

While stocks look expensive here, bonds prices still 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.