It’s hard to believe Thanksgiving is almost here, but since it is next week, there will be no market commentary.
Volatility picked up this week as markets closed with mixed results. For the week, the Dow was lower by 0.3%, the S&P was relatively flat with just a 0.1% decline, and Nasdaq was higher by 0.5%. Bond prices were mostly higher as their yields moved lower. Gold had a nice week, up 1.6%. Oil prices had their first down week in six weeks, off 0.2% to $56.68 per barrel. The international Brent oil moved lower to close at $62.72.
Volatility picked up this week as markets closed with mixed results. For the week, the Dow was lower by 0.3%, the S&P was relatively flat with just a 0.1% decline, and Nasdaq was higher by 0.5%. Bond prices were mostly higher as their yields moved lower. Gold had a nice week, up 1.6%. Oil prices had their first down week in six weeks, off 0.2% to $56.68 per barrel. The international Brent oil moved lower to close at $62.72.
Source: Google Finance
There were a few stories impacting the markets this week, from economic data to corporate earnings and news out of Washington. However, the market itself was the big story as volatility picked up. This week stocks had both their worst day and best day since early September.
Stocks have had quite a run over the last several months as they have steadily risen. In fact, until a pullback Wednesday, the S&P had not seen a decline of more than 0.5% in 50 days, something that hasn’t happened in over 50 years!
The high stock prices and lack of any significant pullback has made investors nervous, but there hadn’t been a solid reason to sell. Recent uncertainties around the tax bill gave nervous investors that reason to sell, causing the volatility we’ve seen the last two weeks.
What’s been interesting, though, is that when stocks would open the day lower, buyers would step in a push markets back higher. It showed that other investors were still putting money in the market and “buying the dip,” which is a positive for stocks.
Stocks have had quite a run over the last several months as they have steadily risen. In fact, until a pullback Wednesday, the S&P had not seen a decline of more than 0.5% in 50 days, something that hasn’t happened in over 50 years!
The high stock prices and lack of any significant pullback has made investors nervous, but there hadn’t been a solid reason to sell. Recent uncertainties around the tax bill gave nervous investors that reason to sell, causing the volatility we’ve seen the last two weeks.
What’s been interesting, though, is that when stocks would open the day lower, buyers would step in a push markets back higher. It showed that other investors were still putting money in the market and “buying the dip,” which is a positive for stocks.
The latter part of November can be a volatile period, so perhaps we shouldn’t be too surprised by the moves in the market. It’s worth noting that stocks have historically risen into the end of the year from here, but so far this year stocks have followed very few of the historical norms, so nothing is certain.
Washington was the main focus of investors this week as the tax bills moved through both the House and Senate. While the House passed their version, the Senate made additional tweaks to their bill and don’t seem to be making much progress. There’s a real chance the tax bill will fail. The market appears to be pricing in a tax deal, so the lack of a deal is likely to pressure the market.
Economic data this week was mostly positive. Retail sales picked up, industrial production rose, and housing info was positive.
Inflation reports also appear to be on the high side. Inflation at the producer level continues to climb and while inflation at the consumer level moderated over the last month, it is still on the high side.
Economic data this week was mostly positive. Retail sales picked up, industrial production rose, and housing info was positive.
Inflation reports also appear to be on the high side. Inflation at the producer level continues to climb and while inflation at the consumer level moderated over the last month, it is still on the high side.
Inflation is one of the major metrics the Fed looks at when determining their stimulative economic policy. With inflation high, it increases the chances they pull back on stimulus by raising interest rates at their next meeting in December.
Next Week
It will be a short week for the markets as they will be closed Thursday and have a half-day Friday. That doesn’t mean it will be quiet, though, as the volatility of this week can carry into next week. Washington will be in focus as the Senate works on their version of the tax bill.
Next week will be fairly quiet for economic data, where we’ll get info on durable goods and housing.
Investment Strategy
Volatility has been high as the tug-of-war continued between the bulls and the bears (the optimistic and pessimistic investors). For the last few weeks we’ve thought the market has been trading on the high side and was due for a correction. We’ve seen a correction (it’s too soon to tell if this was “the” correction) and stock prices are still on the high side, but we are less concerned about a large pullback from here. The amount of money coming in to buy the dips shows there are still investors looking to get into the market.
Below is an update to some of the market indicators we follow. They showed an uptick late this week and we’ll keep an eye on them to see if it continues. It will be a positive for the market if they continue to do so.
It will be a short week for the markets as they will be closed Thursday and have a half-day Friday. That doesn’t mean it will be quiet, though, as the volatility of this week can carry into next week. Washington will be in focus as the Senate works on their version of the tax bill.
Next week will be fairly quiet for economic data, where we’ll get info on durable goods and housing.
Investment Strategy
Volatility has been high as the tug-of-war continued between the bulls and the bears (the optimistic and pessimistic investors). For the last few weeks we’ve thought the market has been trading on the high side and was due for a correction. We’ve seen a correction (it’s too soon to tell if this was “the” correction) and stock prices are still on the high side, but we are less concerned about a large pullback from here. The amount of money coming in to buy the dips shows there are still investors looking to get into the market.
Below is an update to some of the market indicators we follow. They showed an uptick late this week and we’ll keep an eye on them to see if it continues. It will be a positive for the market if they continue to do so.
We’ll also be keeping an eye on Washington. A failure by Congress to complete a tax reform is likely to weigh on the market.
Our longer term outlook remains positive, but less rosy than it was several months ago. We’re encouraged to see pro-business reforms coming out of Washington, although they are increasingly becoming watered-down. Additionally, companies have favored returning cash to shareholders through dividends and buybacks over the last several years and we believe the lack of reinvestment in their companies will weigh on earnings in the future.
Bond yields may move a bit higher from here and prices lower in the short run, but we don’t see a lot of movement here.
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.
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.
Our longer term outlook remains positive, but less rosy than it was several months ago. We’re encouraged to see pro-business reforms coming out of Washington, although they are increasingly becoming watered-down. Additionally, companies have favored returning cash to shareholders through dividends and buybacks over the last several years and we believe the lack of reinvestment in their companies will weigh on earnings in the future.
Bond yields may move a bit higher from here and prices lower in the short run, but we don’t see a lot of movement here.
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.
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.
