Please note: there will be no market commentary next week. Thank you and have a nice 4th!
A very volatile week ended with markets lower. Through the close Friday, the Dow and S&P were both down 1.3% while the Nasdaq was lower by 2.4%. Bonds prices saw slight increases as their yields moved lower. Gold lost ground again, off 1.0%. Oil prices continue to rise, up 8.4% to close at $74.25 per barrel. The international Brent oil gained $4 to close at $79.42.
A very volatile week ended with markets lower. Through the close Friday, the Dow and S&P were both down 1.3% while the Nasdaq was lower by 2.4%. Bonds prices saw slight increases as their yields moved lower. Gold lost ground again, off 1.0%. Oil prices continue to rise, up 8.4% to close at $74.25 per barrel. The international Brent oil gained $4 to close at $79.42.
Stocks saw some big swings this week as trade tensions dominated headlines.
The week opened with reports President Trump was considering new measures to prevent China from investing in tech companies here in the U.S. This is important because China is notorious for stealing the secrets of these companies.
The week opened with reports President Trump was considering new measures to prevent China from investing in tech companies here in the U.S. This is important because China is notorious for stealing the secrets of these companies.
The restrictions President Trump proposed were notable in that they would be more stringent than the process currently in place. Right now these deals must go through the Committee on Foreign Investment in the U.S. (or CFIUS), which to this point has been fairly effective at preventing many deals. According to market research firm Rhodium Group, Chinese investment is down 92% over the past year.
Investors were worried that this new policy was stoking the trade war flames even further and stocks sold off strongly.
After floating this idea, however, President Trump appeared to back off and indicate the CFIUS process would remain the method for approving these transactions. Markets took some relief in the comments and moved higher.
This was the trend of the week – markets would move lower when someone in the administration took a tough stance on China and rise on the opposite.
The Chinese stock market didn’t fare as well as it continues to fall. This is good news for the U.S. as it strengthens our hand in the negotiations.
Investors were worried that this new policy was stoking the trade war flames even further and stocks sold off strongly.
After floating this idea, however, President Trump appeared to back off and indicate the CFIUS process would remain the method for approving these transactions. Markets took some relief in the comments and moved higher.
This was the trend of the week – markets would move lower when someone in the administration took a tough stance on China and rise on the opposite.
The Chinese stock market didn’t fare as well as it continues to fall. This is good news for the U.S. as it strengthens our hand in the negotiations.
Switching gears, Friday marked the end of the second quarter and there were some interesting moves in different parts of the market.
So far the technology sector has been the top performing sector to invest in. They have seen strong growth and were thought to be the least exposed to a tariff fight (until the fight over China investing in tech companies arose this week).
However, this quarter they lost the title of top performer to the energy sector. Energy stocks have long been laggards but the recently rising gas prices have reversed their fortunes.
So far the technology sector has been the top performing sector to invest in. They have seen strong growth and were thought to be the least exposed to a tariff fight (until the fight over China investing in tech companies arose this week).
However, this quarter they lost the title of top performer to the energy sector. Energy stocks have long been laggards but the recently rising gas prices have reversed their fortunes.
Oil prices have been rising due to limited supply increases from OPEC, falling production in Venezuela, and a looming ban on Iranian oil.
This has pushed the energy sector higher by 12% this quarter. By contrast, the S&P 500 is up about 3%.
As for economic data this week, we got news that home sales rose and prices are up 6.4% over a year ago. Interestingly, home prices continue to outpace the growth in earnings, which we learned this week rose only 4.0% over the same period. As you can see in the chart below, the gap between prices and wages is widening:
This has pushed the energy sector higher by 12% this quarter. By contrast, the S&P 500 is up about 3%.
As for economic data this week, we got news that home sales rose and prices are up 6.4% over a year ago. Interestingly, home prices continue to outpace the growth in earnings, which we learned this week rose only 4.0% over the same period. As you can see in the chart below, the gap between prices and wages is widening:
As for other economic data, an inflation report (the PCE report, which is the primary inflation report the Fed looks at) shows inflation rising at its fastest pace in six years with a 2.3% growth over the past year.
Also, GDP from the first quarter was revised down from 2.2% growth to just 2.0%. However, GDP estimates for the second quarter still look strong:
Also, GDP from the first quarter was revised down from 2.2% growth to just 2.0%. However, GDP estimates for the second quarter still look strong:
Next Week
With the end of the month and quarter on Friday, next week will be fairly busy for economic data. We’ll get info on the strength of the service and manufacturing sectors and the monthly employment report. The minutes from the latest Fed meeting will also be released, giving us more insight on the path of their stimulus program.
Trade will also remain in the headlines. The U.S. is expected to put $34 billion in tariffs on Chinese goods next Friday, so investors will be closely watching how this plays out.
On an interesting note, the first trading day of July is historically the best day of the year for stocks, so we have that going for us.
Investment Strategy
This week the overall stock market reached an oversold (cheap) level that is usually a pretty good entry point on a short term basis. There are still pockets that look expensive, like tech and small caps, but it may be a good time to do some nibbling. Continued trade tensions are likely to add to volatility in the future, but as we have seen, these sell-offs tend to be short lived.
With the end of the month and quarter on Friday, next week will be fairly busy for economic data. We’ll get info on the strength of the service and manufacturing sectors and the monthly employment report. The minutes from the latest Fed meeting will also be released, giving us more insight on the path of their stimulus program.
Trade will also remain in the headlines. The U.S. is expected to put $34 billion in tariffs on Chinese goods next Friday, so investors will be closely watching how this plays out.
On an interesting note, the first trading day of July is historically the best day of the year for stocks, so we have that going for us.
Investment Strategy
This week the overall stock market reached an oversold (cheap) level that is usually a pretty good entry point on a short term basis. There are still pockets that look expensive, like tech and small caps, but it may be a good time to do some nibbling. Continued trade tensions are likely to add to volatility in the future, but as we have seen, these sell-offs tend to be short lived.
There is no change in our longer term forecast, which remains difficult to predict. Fundamentals are still very good with pro-business policies out of Washington providing a solid tailwind. However, rising interest rates have historically pulled markets lower. It’s tough to say where we think the market will go the long run.
Bonds are also volatile at this time. Yields have come off their recent highs (and prices off their recent lows) and we think they will continue to trade in this range for the foreseeable future.
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 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.
Bonds are also volatile at this time. Yields have come off their recent highs (and prices off their recent lows) and we think they will continue to trade in this range for the foreseeable future.
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 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.
