Please note: There will be no market commentary for the next two weeks as next weekend is Christmas and the following weekend the author of these commentaries will be attending the bowl game of his alma mater. We would like to wish you a Merry Christmas and Happy New Year and will resume commentaries the first week of 2011.
An uneventful week saw the Dow and S&P quietly climb to new two-year highs. At the close Friday, the Dow rose 0.7%, the S&P was up 0.3%, and the Nasdaq was higher by just 0.2%. The commodity sector was mostly quiet, too, with gold up just 0.4% and oil higher by 0.3% and still clinging to its high level. Other commodities like sugar and coffee recorded significant gains this week, though.
Source: MSN Moneycentral
There was very little news making headlines this week. We received several economic indicators that showed the economy continues to grow, and the news helped push the markets higher. Industrial production is up, retail sales are improving, and leading economic indicators continue to rise. Corporate earnings are also looking decent.
Reminding us to be cautious, though, was a report showing a significant drop in imports. Perhaps this is a function of the weak dollar, as imports will cost more when our currency is weaker. Or perhaps our recent economic strength was due to companies rebuilding a depleted inventory, and the drop in imports is a leading indicator of a U.S. slowdown. We aren’t sure. Also, we can’t forget that other indicators like high unemployment continue to weigh on the economy, so caution is always warranted.
The last economic data we will touch on is the Consumer and Producer Price Indexes (CPI & PPI). The CPI shows the gains in the prices consumers pay for products, while PPI is the prices businesses pay for their input materials.
The CPI showed very little movement, rising just 0.1% in November and 1.1% for the past year, indicating inflation is benign. According to the government, anyway. The PPI showed a rather large rise of 0.8%, however. That is like saying the input costs for businesses rose 0.8% last month. Going forward, these costs could weigh on the profits of many companies since they have been reluctant to pass on these costs to their customers.
A big story from the previous week was a drop in bond prices. That story continued for much of this week, too, until a late week rally. The ratings service, Moody’s, reduced their rating on Ireland, which fired up those Euro worries again. Investors fled to the (perceived) safety of U.S. bonds, and that helped reverse some of the losses on U.S. bonds. Still, we feel the trend for bonds is downward, so caution is extremely necessary in this sector.
Lastly, the tax rate extension has finally been passed. We were even pleased with the Presidents speech on Friday, as his tone has mellowed and the vitriol has disappeared. Could this be a new Obama? Only time will tell, but this was a nice change.
Next Week
With Christmas right around the corner, volume will be much lighter over the next two weeks as many investors go on vacation. There will be a few economic and corporate earnings releases next week, but nothing important enough to really impact the markets. Euro concerns have been building again, so we will need to keep an eye on action from overseas.
It is important to realize that with light volume, market movements can be amplified and move much more that they regularly would. Unless due to legitimate concerns, any big movements over the next two weeks should not be something to panic over. Going into the end of the year, we will see investors taking losses on losers for tax purposes and locking in gains on winners, so it might get jumpy.
Where are we investing now?
No change here. With the markets continuing to go up and the Fed there to make sure that it does, it is hard to bet against it. Economic data has been improving and corporate earnings have been relatively decent. However, growing government involvement in the private sector and new regulations has us worried. There has been a very strong rise the past couple months and the market is overdue for a sell-off. In normal times we would be betting against the market here, but with the Fed ramping up its printing press, you just can’t be bearish (pessimistic) here.
We can’t forget about investment managers that have missed the rise and need to get some good returns for the year-end. This will push the markets higher, too, as new money enters the market.
In order to avoid the market manipulation by the Fed, the high frequency traders, and hedge fund algorithms, we are increasingly turning to smaller individual stocks. The lack of correlation to these other factors is a nice change. By no means is this a major portion of our portfolios, but something we given more attention to.
For the rest of our portfolio, in equities, we are focused on higher-quality and multi-national stocks. 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, with metals, agriculture, and now energy showing solid gains that we believe will continue. Municipal bonds are still important, but with tax rates in place for the next two years, they are not as important. They have experienced a significant drop in the last several weeks, so there may be opportunities to find some good value here. Finally, we are optimistic about international stocks, as emerging markets (with certain sectors in China) are areas we favor. This sector has had an incredible run this year, so caution is warranted as the odds of a sell-off are increasing.
An uneventful week saw the Dow and S&P quietly climb to new two-year highs. At the close Friday, the Dow rose 0.7%, the S&P was up 0.3%, and the Nasdaq was higher by just 0.2%. The commodity sector was mostly quiet, too, with gold up just 0.4% and oil higher by 0.3% and still clinging to its high level. Other commodities like sugar and coffee recorded significant gains this week, though.
Source: MSN MoneycentralThere was very little news making headlines this week. We received several economic indicators that showed the economy continues to grow, and the news helped push the markets higher. Industrial production is up, retail sales are improving, and leading economic indicators continue to rise. Corporate earnings are also looking decent.
Reminding us to be cautious, though, was a report showing a significant drop in imports. Perhaps this is a function of the weak dollar, as imports will cost more when our currency is weaker. Or perhaps our recent economic strength was due to companies rebuilding a depleted inventory, and the drop in imports is a leading indicator of a U.S. slowdown. We aren’t sure. Also, we can’t forget that other indicators like high unemployment continue to weigh on the economy, so caution is always warranted.
The last economic data we will touch on is the Consumer and Producer Price Indexes (CPI & PPI). The CPI shows the gains in the prices consumers pay for products, while PPI is the prices businesses pay for their input materials.
The CPI showed very little movement, rising just 0.1% in November and 1.1% for the past year, indicating inflation is benign. According to the government, anyway. The PPI showed a rather large rise of 0.8%, however. That is like saying the input costs for businesses rose 0.8% last month. Going forward, these costs could weigh on the profits of many companies since they have been reluctant to pass on these costs to their customers.
A big story from the previous week was a drop in bond prices. That story continued for much of this week, too, until a late week rally. The ratings service, Moody’s, reduced their rating on Ireland, which fired up those Euro worries again. Investors fled to the (perceived) safety of U.S. bonds, and that helped reverse some of the losses on U.S. bonds. Still, we feel the trend for bonds is downward, so caution is extremely necessary in this sector.
Lastly, the tax rate extension has finally been passed. We were even pleased with the Presidents speech on Friday, as his tone has mellowed and the vitriol has disappeared. Could this be a new Obama? Only time will tell, but this was a nice change.
Next Week
With Christmas right around the corner, volume will be much lighter over the next two weeks as many investors go on vacation. There will be a few economic and corporate earnings releases next week, but nothing important enough to really impact the markets. Euro concerns have been building again, so we will need to keep an eye on action from overseas.
It is important to realize that with light volume, market movements can be amplified and move much more that they regularly would. Unless due to legitimate concerns, any big movements over the next two weeks should not be something to panic over. Going into the end of the year, we will see investors taking losses on losers for tax purposes and locking in gains on winners, so it might get jumpy.
Where are we investing now?
No change here. With the markets continuing to go up and the Fed there to make sure that it does, it is hard to bet against it. Economic data has been improving and corporate earnings have been relatively decent. However, growing government involvement in the private sector and new regulations has us worried. There has been a very strong rise the past couple months and the market is overdue for a sell-off. In normal times we would be betting against the market here, but with the Fed ramping up its printing press, you just can’t be bearish (pessimistic) here.
We can’t forget about investment managers that have missed the rise and need to get some good returns for the year-end. This will push the markets higher, too, as new money enters the market.
In order to avoid the market manipulation by the Fed, the high frequency traders, and hedge fund algorithms, we are increasingly turning to smaller individual stocks. The lack of correlation to these other factors is a nice change. By no means is this a major portion of our portfolios, but something we given more attention to.
For the rest of our portfolio, in equities, we are focused on higher-quality and multi-national stocks. 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, with metals, agriculture, and now energy showing solid gains that we believe will continue. Municipal bonds are still important, but with tax rates in place for the next two years, they are not as important. They have experienced a significant drop in the last several weeks, so there may be opportunities to find some good value here. Finally, we are optimistic about international stocks, as emerging markets (with certain sectors in China) are areas we favor. This sector has had an incredible run this year, so caution is warranted as the odds of a sell-off are increasing.
