Stocks ended the first week of the year at new record highs. For the week, the Dow rose 2.3%, the S&P gained 2.6%, and Nasdaq added a solid 3.4%. Bond prices didn’t see a lot of change on the week, but remain around the lowest level of the past few months. Gold continued to rise, up 0.8%. Oil prices hit their highest level in three years, up 1.9% on the week to close at $61.59 per barrel. The international Brent oil moved up to $67.79.
Welcome to 2018! We hope you had a nice holiday season.
As we enter a new year for the markets, we can only hope it will be as good as 2017. The year was one for the record books, not just by hitting new highs, but for the lack of volatility. The S&P didn’t see a single down month and the Dow only had 10 days with a move of more than 1%. That is historic.
The steady rise in the S&P for 2017 can be seen in this chart:
As we enter a new year for the markets, we can only hope it will be as good as 2017. The year was one for the record books, not just by hitting new highs, but for the lack of volatility. The S&P didn’t see a single down month and the Dow only had 10 days with a move of more than 1%. That is historic.
The steady rise in the S&P for 2017 can be seen in this chart:
After this remarkable run, it is natural that some investors would be cautious. History has shown us, though, that markets often keep rising after a big year.
According to research done by Bespoke Investments, the S&P 500 has seen 32 years with gains of more than 20% (the S&P was up 22.5% in 2017 when including dividends). In the year that followed, the market was up two out of three times and had an average gain of 10.5%. Five times it was up more than 20%!
According to research done by Bespoke Investments, the S&P 500 has seen 32 years with gains of more than 20% (the S&P was up 22.5% in 2017 when including dividends). In the year that followed, the market was up two out of three times and had an average gain of 10.5%. Five times it was up more than 20%!
Getting into the week, stocks kicked off the year in historic fashion, hitting record highs every day. The last time this happened was 1964 when it opened the year with six-straight records.
Several important economic reports were released this week and the results leaned to the negative side. The strength of the manufacturing sector hit its highest level since 2004, but the service sector weakened to a four-month low.
The employment report for December was also much weaker than expected. Estimates were for 180,000 jobs to be added, but the number came in at only 148,000. This is a considerable slowdown from the 228,000 added last month.
Several important economic reports were released this week and the results leaned to the negative side. The strength of the manufacturing sector hit its highest level since 2004, but the service sector weakened to a four-month low.
The employment report for December was also much weaker than expected. Estimates were for 180,000 jobs to be added, but the number came in at only 148,000. This is a considerable slowdown from the 228,000 added last month.
Lastly, the Fed was also in the news as the minutes from their December meeting were released. They didn’t reveal anything new as the Fed continues to see a gradual increase in interest rates over the next year. They see growing economic growth with a boost from the tax cuts, but don’t suggest stronger growth will cause them to raise rates at a faster pace.
Funny enough, the disappointing jobs report this week reduced the odds of the Fed raising rates at a faster pace. This was seen as a positive by the market and helped stocks rise.
Next Week
Corporate earnings for the fourth quarter start rolling in next week, with many banks in particular reporting results. Next week will be fairly busy for economic data, too. Of the notable reports, we’ll get info on inflation, retail sales, and employment.
Investment Strategy
The turn of the calendar often prompts people to think about changing their investment strategies, but the dynamics of the markets don’t change because of the calendar. We still see strong economic growth, solid corporate earnings, and a pro-business government – all of which are long-term positives.
Stocks look to be on the expensive side in the short-term, though this doesn’t mean they can’t keep rising from here. We’re not seeing a lot to worry about at this point, which is reflected in some of our indicators we often show here:
Funny enough, the disappointing jobs report this week reduced the odds of the Fed raising rates at a faster pace. This was seen as a positive by the market and helped stocks rise.
Next Week
Corporate earnings for the fourth quarter start rolling in next week, with many banks in particular reporting results. Next week will be fairly busy for economic data, too. Of the notable reports, we’ll get info on inflation, retail sales, and employment.
Investment Strategy
The turn of the calendar often prompts people to think about changing their investment strategies, but the dynamics of the markets don’t change because of the calendar. We still see strong economic growth, solid corporate earnings, and a pro-business government – all of which are long-term positives.
Stocks look to be on the expensive side in the short-term, though this doesn’t mean they can’t keep rising from here. We’re not seeing a lot to worry about at this point, which is reflected in some of our indicators we often show here:
Bond prices have trended lower (and yields higher) the last few months. 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.
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.
