Commentary for the week ending 2-24-17

Markets managed to eke out gains this week, though as momentum began to fade.  Through the Friday close, the Dow rose 1.0%, the S&P gained 0.7%, and the Nasdaq was up slightly by 0.1%.  Gold turned in a nice week, up 1.7%.  Oil remains in the low $50’s, where it has been since early December, rising 1.1% this week to $54.02 per barrel.  The international Brent oil, which is used for much of our gas here on the east coast, rose to $56.04.

Source: Google Finance

Stocks again pushed into record territory this week.  The Dow notched 11-straight record high closes, the first time this has happened in 30 years.  There wasn’t a lot of news driving markets this week, with the focus remaining on Washington. 

We did get one piece of news from the Fed with the release of the minutes from their latest meeting.  These help give us an insight into their thinking.  From the minutes, we could see that they are increasingly considering raising interest rates at their next meeting in March (low interest rates have helped send stocks higher, so an increase in rates is a headwind for stocks). 

In true Fed fashion, however, they also cite a low chance of “significant” inflation as a reason to not raise rates.  Note the use of “significant,” since inflation is already running at or near their target level.  With the lack of any real clarity on when rates will be increased, investors currently see little chance of a rate hike in March. 

Stocks have clearly been on a hot streak recently, but we worry investors may be getting too excited.  The financial news channel CNBC recently had a graphic suggesting the best move now may be to “Just buy everything.” 

Thanks to research by Charlie Bilello (@charliebilello) at investment firm Pension Partners, just one year ago the network had a graphic saying “Sell everything.”

The timing is what is remarkable here.  Just over a year ago, stocks opened 2016 strongly to the downside and continued to move lower through February, scaring investors into selling.  As we can see in the chart below, investors were advised to “sell everything,” right when stocks bottomed and moved higher, rising 22% over past year. 

Calls to “buy everything” or “sell everything” tend to happen at extremes in the market and as we see in the example above, are often followed by a reversal. 

Though we think the market still has momentum to the upside, we are cautious and see some cracks forming. 

The market has risen in anticipation of pro-business policies, but those policies may take longer than investors originally thought.  Tax reforms may be pushed until late-summer and possibly later.  Large infrastructure projects look like they are being pushed to next year.  And the border adjustment (import) tax was once shunned by the President, but he may be warming to it. 

This is something to keep an eye on. 


Next Week

It looks like we’ll see a busier week next week.  There will be a number of economic reports, including data on the strength of the manufacturing and service sectors, a revision to GDP, durable goods, inflation, and personal income and spending.  Several regional Fed presidents will also be making speeches.

Washington will also remain in focus with President Trump’s address to Congress.  Investors will be listening closely to see if any of the pro-business policies will be implemented soon. 


Investment Strategy

There is still no change to our investment strategy at this point.   Stocks keep moving higher, but we think the risks of putting new money in the market at this time are too high.  The market is long overdue for a correction, but it’s anyone’s guess as to when that will occur.

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 have spent the year stuck in a range, but do not look like an attractive investment for new money. 

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 2-17-17

Stocks pushed further into record territory this week.  Through the close Friday, the Dow gained 1.8%, the S&P rose 1.5%, and the Nasdaq was higher by 1.8%.  Gold moved higher for another week, up a slight 0.1%.  Oil prices have seen little change since the beginning of December, hovering in the low $50’s over that time.  This week was no exception, closing down 0.9% to $53.37 per barrel.  The international Brent oil, which is used for much of our gas here on the east coast, closed down to $55.72.

Source: Google Finance

Stocks continued their remarkable run this week, spurred by the promise of better economic policies.  Before modest losses on Thursday, the Dow, S&P, and Nasdaq saw five-straight days of record-high closes.  This hasn’t happened in 25 years.  The Dow rose every day this week, however, and has seen seven-straight record closes.  The S&P also had its longest winning streak since 2013 and the Nasdaq saw seven-straight days of record closes, which last happened in the late ‘90s. 

There were a few different stories driving the markets this week.  One was the Fed, where Fed chief Yellen testified in front of Congress for the first time since President Trump’s election. 

She signaled the economy was continuing to improve and it was possible they would raise interest rates at their next meeting in March.   Remember, these low interest rates have helped send stocks higher, so suggestions of a rate hike would normally be met with a move lower in the market.  However, stocks continued to rise.  It looks like investors think the pro-business policies will outweigh the negatives from rising rates. 

Higher interest rates are seen as good for banks, though, since it helps improve their profits.  This, and the potential for less regulation, has sent banking stocks on a remarkable run and nearly 20% of the banking sector stocks are at record highs. 

As can be seen in the image below, this is more than three-times as many as the next highest sector. 

We had several important economic data reports released this week, too.  Inflation is a hot topic as inflation is starting to heat up.  Inflation at the producer level (PPI) rose at its fastest pace since 2012.  Inflation at the consumer level (CPI) rose at its fastest pace since 2013. 

On a year-over-year basis, CPI is up 2.5% and core CPI (which excludes food and energy) is up 2.3%.  These are both higher than the 2% target from the Fed, which further raises the chance of a rate hike at their next meeting. 

Another metric notching new highs is the Philly Fed index, which is a report on the strength of manufacturing in the Pennsylvania, Delaware, and Jersey region.  This index rose to its highest level in 33 years. 

Yet another economic data point reaching record levels is small business optimism, which reached its highest level since 2004.  While clearly a positive, high readings in optimism often come at peaks in the market, so history suggest market returns could be lower in the near future.

Next Week

Next week will be fairly quiet for economic data, with the only notable reports coming from the housing sector.  Corporate earnings are slowing, too, but we’ll hear from some big companies like Wal-Mart, Home Depot, and Macys. 


Investment Strategy

Still no change here.   Stocks continue to move higher, but we think the risks of putting new money in the market at this time are too high.  The market is long overdue for a correction, but it’s anyone’s guess as to when that will occur.

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 2-10-17

Another record week for the stock markets.  Through the Friday close, the Dow rose 1.0%, the S&P added 0.8%, and Nasdaq gained 1.2%.  Gold also moved higher, up 1.4%.  Oil saw a volatile week only to close unchanged at $53.85 per barrel.  The international Brent oil, which is used for much of our gas here on the east coast, lost just nine cents to close at $56.61.

Source: Google Finance

The week was another mostly quiet one for data.  Stocks were helped by decent corporate earnings releases and talk about tax reform. 

The market had been treading water for roughly two months now, seeing little movement either direction.  Positive earnings and economic data have provided support, but worries have persisted that economic reforms from the new administration will get lost in the shuffle and may not materialize. 

Investors were then surprised and happy to hear President Trump announce “something phenomenal on taxes in the next two to three weeks” – his words, not ours.

The impression had been that these reforms were being pushed out to later in the year, to be taken up after changes were made to the healthcare law.  That, and the other issues currently dominating headlines, would eat up political capital and jeopardize future economic policy.  Seeing tax reform coming soon is a very positive development.  

It was also worth noting that the tax announcement came during a meeting between Trump and airline company CEO’s.  He has met with business leaders of many companies and industries, which is a great development and signals a focus on economic matters.  This is also a positive for investors. 

As for the volatility in the market – or lack thereof – this two-month stretch is becoming one for the record books.  We haven’t seen a move of more than 1% higher or lower in the S&P 500 in 39 days.  This is the longest stretch since 1975. 

It’s also been 85 days since we’ve seen a decline of more than 1%, which is the longest stretch since 2006.  This party has to end at some point, and history shows it usually isn’t pretty. 

As mentioned earlier, corporate earnings have helped the markets.  According to Factset, companies are on pace to report earnings growth of 5.0%, well above the 3.2% originally expected.  Improving earnings combined with possible tax reform would be very good for the market. 


Next Week

Next week looks to be a little busier for economic data.  We’ll get info on inflation at the consumer and producer levels, retail sales, and data on housing. 

The pace of corporate earnings releases is beginning to slow, but we’ll still see a pretty good amount of companies reporting results. 

Also, Fed chief Janet Yellen will be testifying before Congress this week.  Investors will be watching to see if her outlook for the economy or Fed policy has changed. 


Investment Strategy

No change here.   Stocks keep moving higher, but we think the risks of putting new money in the market at this time are too high.  The market is long overdue for a correction, but it’s anyone’s guess as to when that will materialize.

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 2-3-17

The markets spent all week in negative territory before a gain Friday pushed them back to the unchanged level.  For the week, the Dow was lower by 0.1% while the S&P and Nasdaq were up 0.1%.  Most commodities rose on the week, with gold up 2.8%.  Oil was higher by 1.3% to close at $53.85 per barrel.  The international Brent oil, which is used for much of our gas here on the east coast, closed up to $56.72.

Source: Google Finance

Washington still was a focus of investors this week, but corporate and economic fundamentals also played a role in the direction of the markets.

The week opened with the biggest decline of the year for stocks.  Investors were unnerved by the immigration halt (a “halt” is temporary, a “ban” is permanent) and subsequent protests. 

The worry is that the new administration will get bogged down with these tangential issues and lose political capital.  The markets have risen in anticipation of pro-business policies and the loss of political capital decreases the chances of reforms being implemented.  

While news out of Washington weighed on the markets this week, fundamentals helped them.  

Stocks rose sharply Friday after the monthly employment report, turning in the best day of the year for stocks.  The economy added 227,000 jobs last month, well above the 175,000 expected by economists. 

Data on the strength of the manufacturing sector came in very solid as well, and stands at its highest level in 2 years.  The service sector was not as strong as last month, but is still growing at a decent pace. 

Consumer spending and incomes rose last month, which is good, but spending rose more than incomes.  This means that people are using more debt to finance purchases, which is a bad trend if it continues for long enough. 

Corporate earnings were a big story as about 100 companies in the S&P 500 reported results.  There were some disappointing reports from some big names, like Under Armour, Exxon, Harley Davidson, UPS, and some banking companies.  This pressured the markets. 

However, we saw good results from companies like Apple and Facebook, which, in turn, helped markets. 

As it stands now, about half of the companies in the S&P 500 have reported earnings and the results have been decent.  According to Factset, earnings are on pace to rise 4.6% over the past year, much higher than the 3.1% expected just before earnings season started.   Revenue (or sales) have also risen 4.6% and though this is a decent gain, it has been less than expected. 

Finally, the Fed was in the news as they held a policy meeting this week.  The meeting was pretty unremarkable and they announced nothing new, so it had little impact on the markets. 


Next Week

Next week will be very quiet for economic data, but we’ll still see a lot of corporate earnings releases with about 75 companies in the S&P 500 reporting results. 


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.