Please note: Due to the Thanksgiving holiday next week, there will be no market commentary next weekend. Thank you.
A lot of movement this week, but ultimately the markets ended unchanged. For the week, the Dow gained 0.1% and both the S&P and Nasdaq returned nothing, 0.0%. Most commodities sold off, with oil down 4.0% and gold off 1.0%.
Source: MSN Moneycentral
As you can see in the chart above, the markets sold off strongly early in the week with several factors contributing to the drop. Last week we talked about China taking steps to slow down their red-hot economy, and those concerns carried over into this week. Also, worries about the Euro-zone were reignited with news of Ireland needing a bailout.
By Wednesday, all was forgotten and the markets popped higher. Ireland announced it was very likely to take the bailout they were resisting, which calmed the Euro fears (we won’t waste time discussing this, but Ireland is the complete opposite of Greece and we would have preferred them not take the bailout).
We did not see it reported anywhere, but we believe the CPI and PPI announcements had a lot to do with the Wednesday rally, too.
The producer price index (PPI) and consumer price index (CPI) were released on Tuesday and Wednesday, respectively. Both came in much lower than expected, which means there is little inflation in the economy. This is important because fighting deflation was a main reason for the Fed’s QE2 announcement. The Fed is injecting the $600 billion in the economy to spur inflation, which these reports show is needed. QE2 was a major reason the market has risen the past couple months, and any talk about cancelling it was likely thwarted by these CPI and PPI reports.
Like many of these statistics, however, there is always the possibility of manipulation. Any person living in the real world can tell you that things cost more. The recent record gain in commodities supports that. These statistics showing no inflation certainly makes us wonder.
Lastly, one of the biggest stories of the week was the initial public offering for General Motors. It was probably the most hyped IPO we have seen and the story dominated the airwaves this week. The initial price was set at $33 and it shot higher once the market opened. As the week progressed, the shares slowly trended lower, almost back to that $33.00 level. The price probably would have gone even lower if it were not for a stipulation that the underwriting banks must purchase more shares at $33 to keep it from going lower.
Frankly, we feel sorry for the original shareholders who lost everything, as well as the bondholders who got shafted in an illegal process that favored the unions. We will never purchase a GM product due to this fiasco and would not shed any tears if the stock dropped lower.
Next Week
A much lighter week next week due to the Thanksgiving holiday on Thursday. The market is open on Friday, but most people just take that day off, as well. Volume will be light next week, so we won’t read much into whatever happens on Wall Street.
Still, next week we will be getting some corporate earnings, notably from Deere, HP, and Tiffany. There will be the updated GDP number, as well as some housing and durable goods data.
Where are we investing now?
Little change here. There was a lot of volatility in the market this week, which typically happens when trends reverse. Still, we believe the market will close the year higher from here, but are certainly more cautious.
Headwinds like uncertainty over future tax hikes, increasing government involvement in the private sector, and a still-high unemployment rate, continues to worry us. We can’t forget, that when everyone seems to be on one side of the trade (currently still optimistic on stocks), that the tide usually changes.
If we were to increase our investments, in equities, we are focused on higher-quality and multi-national stocks, but some smaller stocks look promising, as well. A weak dollar would be a plus for export-oriented companies. We continue to avoid banking and insurance sector stocks. TIPs are important as we expect inflation to increase in the future, while U.S. treasuries are a sector we are very bearish (pessimistic) on as yields will increase over time.
Commodities remain a longer term favorite as inflation will also impact prices to the upside along with the weak dollar. Municipal bonds got hit hard this week, but will still play a more important role in our portfolios over the coming months and years as higher tax rates take effect. Finally, we are optimistic about international stocks, as emerging markets (with certain sectors in China) are areas we favor.
A lot of movement this week, but ultimately the markets ended unchanged. For the week, the Dow gained 0.1% and both the S&P and Nasdaq returned nothing, 0.0%. Most commodities sold off, with oil down 4.0% and gold off 1.0%.
Source: MSN MoneycentralAs you can see in the chart above, the markets sold off strongly early in the week with several factors contributing to the drop. Last week we talked about China taking steps to slow down their red-hot economy, and those concerns carried over into this week. Also, worries about the Euro-zone were reignited with news of Ireland needing a bailout.
By Wednesday, all was forgotten and the markets popped higher. Ireland announced it was very likely to take the bailout they were resisting, which calmed the Euro fears (we won’t waste time discussing this, but Ireland is the complete opposite of Greece and we would have preferred them not take the bailout).
We did not see it reported anywhere, but we believe the CPI and PPI announcements had a lot to do with the Wednesday rally, too.
The producer price index (PPI) and consumer price index (CPI) were released on Tuesday and Wednesday, respectively. Both came in much lower than expected, which means there is little inflation in the economy. This is important because fighting deflation was a main reason for the Fed’s QE2 announcement. The Fed is injecting the $600 billion in the economy to spur inflation, which these reports show is needed. QE2 was a major reason the market has risen the past couple months, and any talk about cancelling it was likely thwarted by these CPI and PPI reports.
Like many of these statistics, however, there is always the possibility of manipulation. Any person living in the real world can tell you that things cost more. The recent record gain in commodities supports that. These statistics showing no inflation certainly makes us wonder.
Lastly, one of the biggest stories of the week was the initial public offering for General Motors. It was probably the most hyped IPO we have seen and the story dominated the airwaves this week. The initial price was set at $33 and it shot higher once the market opened. As the week progressed, the shares slowly trended lower, almost back to that $33.00 level. The price probably would have gone even lower if it were not for a stipulation that the underwriting banks must purchase more shares at $33 to keep it from going lower.
Frankly, we feel sorry for the original shareholders who lost everything, as well as the bondholders who got shafted in an illegal process that favored the unions. We will never purchase a GM product due to this fiasco and would not shed any tears if the stock dropped lower.
Next Week
A much lighter week next week due to the Thanksgiving holiday on Thursday. The market is open on Friday, but most people just take that day off, as well. Volume will be light next week, so we won’t read much into whatever happens on Wall Street.
Still, next week we will be getting some corporate earnings, notably from Deere, HP, and Tiffany. There will be the updated GDP number, as well as some housing and durable goods data.
Where are we investing now?
Little change here. There was a lot of volatility in the market this week, which typically happens when trends reverse. Still, we believe the market will close the year higher from here, but are certainly more cautious.
Headwinds like uncertainty over future tax hikes, increasing government involvement in the private sector, and a still-high unemployment rate, continues to worry us. We can’t forget, that when everyone seems to be on one side of the trade (currently still optimistic on stocks), that the tide usually changes.
If we were to increase our investments, in equities, we are focused on higher-quality and multi-national stocks, but some smaller stocks look promising, as well. A weak dollar would be a plus for export-oriented companies. We continue to avoid banking and insurance sector stocks. TIPs are important as we expect inflation to increase in the future, while U.S. treasuries are a sector we are very bearish (pessimistic) on as yields will increase over time.
Commodities remain a longer term favorite as inflation will also impact prices to the upside along with the weak dollar. Municipal bonds got hit hard this week, but will still play a more important role in our portfolios over the coming months and years as higher tax rates take effect. Finally, we are optimistic about international stocks, as emerging markets (with certain sectors in China) are areas we favor.
