The markets ended the week not far from where they began it. Through the Friday close, the Dow rose 0.2%, the S&P gained just 0.02%, and the Nasdaq fell 0.1%. Bonds prices moved slightly lower as yields ticked higher. Gold continues to fall, losing 0.6% this week. Oil prices fell too, losing 4.1% to close at $70.31 per barrel. The international Brent oil moved lower to close at $73.00.
There were several different stories impacting the markets this week, from corporate earnings to economic data to the Fed Chairman testifying before Congress. Worries about trade garnered the most attention, but it continues to only have short-lived and modest effects on the market.
We’ll start with the Fed, where Chairman Powell made one of his semi-annual testimonies before Congress.
These are usually dull events and the only thing you really come away with is Congress’ ignorance on financial matters. This testimony was no different in that regard but we did notice one new development worth mentioning. Chairman Powell answered the questions asked of him in a clear, concise manner without the jargon-filled ramblings like his predecessor(s). It really was like a breath of fresh air.
In regards to the content of his testimony, he expressed that the economy is on solid footing and they will continue to pull back on their stimulus program at a steady pace. The comments helped push stocks higher.
We’ll start with the Fed, where Chairman Powell made one of his semi-annual testimonies before Congress.
These are usually dull events and the only thing you really come away with is Congress’ ignorance on financial matters. This testimony was no different in that regard but we did notice one new development worth mentioning. Chairman Powell answered the questions asked of him in a clear, concise manner without the jargon-filled ramblings like his predecessor(s). It really was like a breath of fresh air.
In regards to the content of his testimony, he expressed that the economy is on solid footing and they will continue to pull back on their stimulus program at a steady pace. The comments helped push stocks higher.
Switching gears to corporate earnings, where about 16% of companies in the S&P 500 have reported their second quarter results. While it’s still very early in earnings season, earnings are currently on pace to grow 22% over the past year according to Factset. This is a good sign since estimates were for 19-20% growth.
The bulk of the big banks have now reported and their earnings look solid. The only exception is Wells Fargo, which has seen some higher costs due to legal issues.
The bulk of the big banks have now reported and their earnings look solid. The only exception is Wells Fargo, which has seen some higher costs due to legal issues.
Lastly, economic data released this week was solid. The amount of filings for unemployment benefits hit their lowest level since 1969, industrial production ticked higher, and retail sales rose over the last month.
These positive reports have boosted estimates for second quarter GDP which comes out next week. GDP looks solid – most estimates are in the 4-5% growth range with a handful of economists even predicting more than 5% growth.
The positive impact of the recently passed tax law on the economy cannot be overstated – though many would like to. The law has boosted the business sector, who have expanded and hired more workers who then go out and buy more “things.” It’s a circular effect that improves the economy and helps businesses and workers alike.
Next Week
Next week will be very busy for corporate earnings with about one-third of companies in the S&P 500 reporting results. For economic data, we’ll get reports on the strength of the housing sector, durable goods, and the big GDP report comes on Friday.
Investment Strategy
Stocks remain on the expensive side (or “overbought” in investment lingo) from a short term perspective. We would hesitate to put new money in at this time, but we are not looking to sell and aren’t concerned with a large decline at this time.
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.
Next week will be very busy for corporate earnings with about one-third of companies in the S&P 500 reporting results. For economic data, we’ll get reports on the strength of the housing sector, durable goods, and the big GDP report comes on Friday.
Investment Strategy
Stocks remain on the expensive side (or “overbought” in investment lingo) from a short term perspective. We would hesitate to put new money in at this time, but we are not looking to sell and aren’t concerned with a large decline at this time.
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.
