At the risk of sounding redundant – it was another record week for stocks. Through Friday’s close, the Dow was higher by 2.0%, the S&P gained 1.6%, and Nasdaq added 1.7%. Bonds were a big story this week, with prices moving much lower as yields rose. Gold had another positive week, up 1.2%. Oil prices hit their highest level in more than three years, up 4.8% on the week to close at $64.40 per barrel. The international Brent oil moved up to $69.81.
The record rally for stocks continues, with markets having their best start to a year since 1964. Again, there wasn’t much news driving stocks higher this week. Instead it’s a continuation of those favorable conditions for the markets – solid economic growth, pro-business economic reforms, and rising corporate earnings.
The recently passed tax law has played a big role in the markets ascent. Companies will pay less in taxes so more money will become profits. This boosts stock prices.
We’re also seeing many companies announce plans to give that extra money to their employees through higher wages and bonuses, like Wal-Mart did this week. This gives a boost to the economy, which is also good for markets.
The recently passed tax law has played a big role in the markets ascent. Companies will pay less in taxes so more money will become profits. This boosts stock prices.
We’re also seeing many companies announce plans to give that extra money to their employees through higher wages and bonuses, like Wal-Mart did this week. This gives a boost to the economy, which is also good for markets.
We don’t talk about bonds too often, but they were a big story this week. Bond prices have fallen the last several months (so yields have risen), but the selling has increased sharply since the beginning of the year. Much of this is money coming out of the bond market and going into the stock market.
A story this week sharply added to the selling, though. News reports suggested that China would slow or stop their purchases of U.S. bonds (purchasing bonds of other countries is common). Bond prices fell sharply on the news.
A story this week sharply added to the selling, though. News reports suggested that China would slow or stop their purchases of U.S. bonds (purchasing bonds of other countries is common). Bond prices fell sharply on the news.
However, China denied the reports, calling it “fake news.” Bond prices moderated a bit from there, but never fully recovered.
The pickup in economic growth has many investors wondering if inflation will also start increasing. Growth and wages are rising (the news from Wal-Mart this week adds fuel to this story) and commodity prices have begun to rise, so it’s fitting that many investors see inflation on the horizon.
Inflation reports released this week suggested a firming in inflation, but not really an acceleration. Inflation at the producer level (PPI) ticked slightly lower while inflation at the consumer level (CPI) ticked slightly higher. On a year-over-year basis, both remain near the 2% level, which is the Fed’s goal before they pull back further on their stimulus.
Inflation reports released this week suggested a firming in inflation, but not really an acceleration. Inflation at the producer level (PPI) ticked slightly lower while inflation at the consumer level (CPI) ticked slightly higher. On a year-over-year basis, both remain near the 2% level, which is the Fed’s goal before they pull back further on their stimulus.
As for other economic data this week, retail sales rose again last month. The figures for the previous two months were also revised higher, which resulted in a solid 5.5% growth in sales over the fourth quarter.
On the negative side, an employment report (the JOLTs report) showed a slight decline in both the amount of job openings and hirings from the previous month, though they both still stand near historic highs. Also, small business optimism ticked lower, but it, too, still stands near historic highs.
On the negative side, an employment report (the JOLTs report) showed a slight decline in both the amount of job openings and hirings from the previous month, though they both still stand near historic highs. Also, small business optimism ticked lower, but it, too, still stands near historic highs.
Lastly, corporate earnings for the fourth quarter began rolling in this week. Several big banks reported results on Friday, showing mixed results.
This quarter will be a bit squirrely due to companies taking charges and repositioning due to the tax law. However, analysts still predict an 11% increase in earnings according to Factset, which is a pretty high bar.
Next Week
Next week will be fairly quiet for economic data, where we’ll get info on housing, industrial production, and the Fed’s Beige Book, which gives an anecdotal look at the strength of the economy.
Investors will be watching corporate earnings, though, as earnings season really gets underway next week.
Investment Strategy
The stock markets continue to show strength here. While we think they are on the expensive side in the short run, many leading indicators we follow continue to show strength and suggest a large decline is unlikely.
Also showing that the market is strong was a selloff early Wednesday that had the Dow down by more than 100 points. The decline was quickly bought and stocks closed the day relatively unchanged. This tells us the market still has buyers that can push the market higher.
Our only concern is that everyone seems to be optimistic at this point. It’s at points of extreme optimism and pessimism that markets tend to reverse.
Bond prices have trended lower (and yields higher) the last few months, as mentioned earlier. We’ll be looking to see if buyers step in here to buy the higher yields as they have done in the past, or if this is a shift in the bond market and prices will keep falling.
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 prefer developed markets to emerging ones at this time.
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.
This quarter will be a bit squirrely due to companies taking charges and repositioning due to the tax law. However, analysts still predict an 11% increase in earnings according to Factset, which is a pretty high bar.
Next Week
Next week will be fairly quiet for economic data, where we’ll get info on housing, industrial production, and the Fed’s Beige Book, which gives an anecdotal look at the strength of the economy.
Investors will be watching corporate earnings, though, as earnings season really gets underway next week.
Investment Strategy
The stock markets continue to show strength here. While we think they are on the expensive side in the short run, many leading indicators we follow continue to show strength and suggest a large decline is unlikely.
Also showing that the market is strong was a selloff early Wednesday that had the Dow down by more than 100 points. The decline was quickly bought and stocks closed the day relatively unchanged. This tells us the market still has buyers that can push the market higher.
Our only concern is that everyone seems to be optimistic at this point. It’s at points of extreme optimism and pessimism that markets tend to reverse.
Bond prices have trended lower (and yields higher) the last few months, as mentioned earlier. We’ll be looking to see if buyers step in here to buy the higher yields as they have done in the past, or if this is a shift in the bond market and prices will keep falling.
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 prefer developed markets to emerging ones at this time.
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.
