It was another solid week for the market. Through the close Friday, the Dow rose 2.8%, the S&P gained 2.1%, and the Nasdaq added 0.8%. Bond prices and yields saw a lot of action this week, but closed with a slight gain in prices. Gold turned lower, off 1.7%. Oil prices were down yet again, declining 5.2% to close at $59.87 per barrel. The international Brent oil, which is used for much of the gas here on the East coast, closed down to $69.88.
Stocks continued their rebound off the lows of late-October and have risen over 6% since that time. Here’s a longer look at the market:
Well, the campaigns for the 2020 elections are now officially underway. We say this in jest, but it’s probably not incorrect given the nature of campaigns these days.
Yes, the midterm elections concluded this week and were the big story for investors. We’re sure you know the election results by now, where the Dems took the House while the Reps keep the Senate. The possibility of gridlock was given the thumbs up by the stock market, which had its best post-election rally since 1982.
The divided congress has its benefits and drawbacks. There is less uncertainty for companies over potential changes in rules, regulations, or policies. However, there is also less chance for new pro-business policies, too.
There are winners and losers among the different sectors in this situation. The manufacturing and construction sectors have the potential to do well as there is a greater chance for an infrastructure deal.
On the other hand, heavily-regulated industries like the banks have the potential to do poorly. Much of this comes from the Democrats penchant for tougher regulations.
A big worry for banks is the new head of the House Financial Services Committee. Democrat Maxine Waters looks to hold the top spot on this committee and favors strict regulations. She even once recommended shutting down Wells Fargo over some of their negative headlines.
We don’t often call out individual politicians in these commentaries, but the fact that an extreme ideologue like Mrs. Waters could hold such a prominent position is troubling.
For years we’ve watched House hearings on various financial matters and could always count on Mrs. Waters making some of the most nonsensical, incompetent, and head-scratching remarks we’ve ever seen. Her grasp on basic economic matters is nonexistent. Yet she is now the head of the banking committee? It’s enough to make you cringe.
Thankfully, there is little chance of the banking committee actually implementing any new policies. However, they do have the ability to block agenda items which we believe have been progressing in the right direction.
The banks are likely to see new headline risks, too, as the nonsensical comments from Mrs. Waters is bound to shine a bright spotlight on the industry – regardless of the merit or accuracy of those comments.
Switching gears – while the market rose on the election results, it fell after a Fed policy meeting this week.
The Fed reported no change in their economic policy and would continue raising interest rates at a steady pace. Investors were hoping the declines and volatility of the market over the last several weeks would prompt the Fed to suggest at least a slight chance they wouldn’t keep raising interest rates. The Fed’s comments indicated this was unlikely and markets fell as a result.
Economic data this week did little to stay the Fed’s hand, either, as economic data looks solid. Inflation at the producer level (PPI) rose at the fastest pace last month in six years. Further, there are more job openings than there are unemployed workers.
Yes, the midterm elections concluded this week and were the big story for investors. We’re sure you know the election results by now, where the Dems took the House while the Reps keep the Senate. The possibility of gridlock was given the thumbs up by the stock market, which had its best post-election rally since 1982.
The divided congress has its benefits and drawbacks. There is less uncertainty for companies over potential changes in rules, regulations, or policies. However, there is also less chance for new pro-business policies, too.
There are winners and losers among the different sectors in this situation. The manufacturing and construction sectors have the potential to do well as there is a greater chance for an infrastructure deal.
On the other hand, heavily-regulated industries like the banks have the potential to do poorly. Much of this comes from the Democrats penchant for tougher regulations.
A big worry for banks is the new head of the House Financial Services Committee. Democrat Maxine Waters looks to hold the top spot on this committee and favors strict regulations. She even once recommended shutting down Wells Fargo over some of their negative headlines.
We don’t often call out individual politicians in these commentaries, but the fact that an extreme ideologue like Mrs. Waters could hold such a prominent position is troubling.
For years we’ve watched House hearings on various financial matters and could always count on Mrs. Waters making some of the most nonsensical, incompetent, and head-scratching remarks we’ve ever seen. Her grasp on basic economic matters is nonexistent. Yet she is now the head of the banking committee? It’s enough to make you cringe.
Thankfully, there is little chance of the banking committee actually implementing any new policies. However, they do have the ability to block agenda items which we believe have been progressing in the right direction.
The banks are likely to see new headline risks, too, as the nonsensical comments from Mrs. Waters is bound to shine a bright spotlight on the industry – regardless of the merit or accuracy of those comments.
Switching gears – while the market rose on the election results, it fell after a Fed policy meeting this week.
The Fed reported no change in their economic policy and would continue raising interest rates at a steady pace. Investors were hoping the declines and volatility of the market over the last several weeks would prompt the Fed to suggest at least a slight chance they wouldn’t keep raising interest rates. The Fed’s comments indicated this was unlikely and markets fell as a result.
Economic data this week did little to stay the Fed’s hand, either, as economic data looks solid. Inflation at the producer level (PPI) rose at the fastest pace last month in six years. Further, there are more job openings than there are unemployed workers.
Also, the strength of the service sector was released this week and ticked slightly lower from last month, though it remains very high. Combined, the strength of the manufacturing and service sectors are still on the high side.
With economic data on the Fed’s side, it seems unlikely they will pause on their pullback in stimulus. While it means the economy is solid, it also means we are likely to see a more volatile market in the months ahead.
Next Week
Next week looks like it will be a little less volatile. Corporate earnings are winding down, though some big names will report results. We’ll get a handful of important economic reports, including the CPI report, retail sales, and industrial production.
Investment Strategy
The swift rebound in the markets has us less enthusiastic on putting new money in here. We still believe stocks will rise through the end of the year, but it may be a rockier path from here.
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, higher interest rates have historically pulled markets lower. It’s tough to say where we think the market will go in the longer run.
Bonds are also volatile at this time. Yields are on the high side (and prices on the low side), but we don’t think prices will fall much further and will continue to trade in the range they have been in for the last several months.
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
Next week looks like it will be a little less volatile. Corporate earnings are winding down, though some big names will report results. We’ll get a handful of important economic reports, including the CPI report, retail sales, and industrial production.
Investment Strategy
The swift rebound in the markets has us less enthusiastic on putting new money in here. We still believe stocks will rise through the end of the year, but it may be a rockier path from here.
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, higher interest rates have historically pulled markets lower. It’s tough to say where we think the market will go in the longer run.
Bonds are also volatile at this time. Yields are on the high side (and prices on the low side), but we don’t think prices will fall much further and will continue to trade in the range they have been in for the last several months.
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.
