This week we received some much needed gains as volatility remained high. The Dow rose 1.7%, the S&P was up 2.1%, and the Nasdaq climbed 2.6%. Gold was up slightly, 0.9%, as prices linger in the mid-$1,600 an ounce level. Oil popped higher, up 4.8% to $83 a barrel.
Source: MSN Moneycentral
The week opened on a sour note with the markets moving sharply lower. On Tuesday, we officially entered bear market territory, which is defined as a 20% drop from the most recent peak to trough. That didn’t last long, though, as the markets popped sharply higher late that same day.
Even with all the volatility, we continue to trade in a narrow range, as you can see in the 3-month chart on the right. After a peak in the beginning of September, you can also see the markets have been making lower highs and lower lows. This downtrend gives us some concern.
As for the events of the week, it was again all about Europe. The sour note that opened the week was a worry over European banks and negative news from Greece. It was announced that Greece would not meet their deficit targets this year. However, they are taking steps to lay off more public workers and further raise taxes. The reduction of public workers is probably a wise step, but we have our reservations on increases in taxes. Economic growth is already being choked off and additional tax burdens don’t help.
Pulling stocks out of bear market territory on Tuesday was a rumor of a new plan by European leaders to save any potential failing banks. The markets are so hungry for good news that even rumors like this were enough to move the Dow almost 380 points.
That optimistic news out of Europe set the mood for the remainder of the week.
Back here at home, we received some positive economic reports. In the month of September, the U.S. added just over 100,000 jobs while the unemployment rate held steady at 9.1%. The private sector added 137k while the public sector lost 34k, a positive statistic. Past month employment numbers were also revised higher.
This was very welcomed news, but keep in mind it is still lower than numbers we saw earlier in the year. Additionally, 45,000 jobs were added this month as striking Verizon workers were added back onto the payroll (they were subtracted in the previous month, so the net effect is zero).
Manufacturing reports showed a higher than expected gain, but remains at a very low level of growth. The service sector is also slowly growing, but at a level below what many expected.
Lastly, ‘Operation Twist’ was officially underway this week as the Fed bought billions in longer term bonds. Remember, this latest Fed program is designed to lower long term rates to spur borrowing and lending. On the date of purchase, bonds yields did drop. The widely followed 10-year bond saw its yields drop to around 1.7%. As the week progressed, yields slowly rose and the 10-year closed out the week above 2%. Yields are currently at historic lows and we aren’t sure how much further they can fall from here, regardless of how much money is spent.
Next Week
Next week is the unofficial beginning of quarterly corporate earnings season. Dow member and aluminum producer Alcoa will release its earnings on Thursday. Having a rough couple of months and recently trading below $10 a share, we will see if that sell-off was justified. The drop in metal prices may have cut into their bottom line and could be an indicator for other commodity related stocks.
We will also get earnings from notable companies like Pepsi, JPMorgan, and Google. Economic data will be light as we get retail sales info and business inventory levels.
Investment Strategy
Again, little change as we remain cautious here. The market gain this week was welcomed, but we aren’t sure if it is sustainable. Euro problems just won’t go away and our economy remains weak. With the markets being driven largely by these macro events and the whims of politicians, it is a difficult investing environment.
The coming weeks will be interesting as we receive corporate earnings results. Past numbers have been decent and are expected to be similar this quarter. The bar is still set high, so any disappointments will likely affect the markets lower.
We will also be watching the forward guidance that accompanies these earnings. That is the company’s expectation for their future performance. With the poor economic conditions, many are worried that future earnings will in question. Poor forward guidance will add to the negative sentiment currently felt on Wall Street.
When looking for current investment opportunities, some quality companies can be found at cheap prices. However, it is easy for them to become even cheaper in this environment so caution is still warranted.
If we were to put new money to work, in equities we are focused on large cap higher-quality stocks, particularly companies with operations overseas. Smaller and little-known stocks with low correlation to the market are also promising, since correlation is high at the moment. We like commodities, even after their recent poor performance. Further money printing around the globe will also help gold and silver, but we aren’t sure if this is the time to get in yet.
TIPs are important as we still expect inflation to increase while U.S. Treasuries are a sector we are very bearish (pessimistic) on. We think yields will increase over time, but that has yet to happen due to the unprecedented intervention from the Fed. Steps must been taken to hedge here. Municipal bonds are important and there are some nice yielding bonds out there now (try to avoid muni funds and buy the actual bond if possible).
Finally, international stocks are facing many headwinds, most notably slower growth and inflation. Still, if we had to put new money in, we favor developed international markets as opposed to emerging.
These day-to-day and week-to-week fluctuations have little impact on positions we intend to hold for several years or longer. Our short and medium term investments are the only positions affected by these daily and weekly fluctuations.
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.
Source: MSN MoneycentralThe week opened on a sour note with the markets moving sharply lower. On Tuesday, we officially entered bear market territory, which is defined as a 20% drop from the most recent peak to trough. That didn’t last long, though, as the markets popped sharply higher late that same day.
Even with all the volatility, we continue to trade in a narrow range, as you can see in the 3-month chart on the right. After a peak in the beginning of September, you can also see the markets have been making lower highs and lower lows. This downtrend gives us some concern.
As for the events of the week, it was again all about Europe. The sour note that opened the week was a worry over European banks and negative news from Greece. It was announced that Greece would not meet their deficit targets this year. However, they are taking steps to lay off more public workers and further raise taxes. The reduction of public workers is probably a wise step, but we have our reservations on increases in taxes. Economic growth is already being choked off and additional tax burdens don’t help.
Pulling stocks out of bear market territory on Tuesday was a rumor of a new plan by European leaders to save any potential failing banks. The markets are so hungry for good news that even rumors like this were enough to move the Dow almost 380 points.
That optimistic news out of Europe set the mood for the remainder of the week.
Back here at home, we received some positive economic reports. In the month of September, the U.S. added just over 100,000 jobs while the unemployment rate held steady at 9.1%. The private sector added 137k while the public sector lost 34k, a positive statistic. Past month employment numbers were also revised higher.
This was very welcomed news, but keep in mind it is still lower than numbers we saw earlier in the year. Additionally, 45,000 jobs were added this month as striking Verizon workers were added back onto the payroll (they were subtracted in the previous month, so the net effect is zero).
Manufacturing reports showed a higher than expected gain, but remains at a very low level of growth. The service sector is also slowly growing, but at a level below what many expected.
Lastly, ‘Operation Twist’ was officially underway this week as the Fed bought billions in longer term bonds. Remember, this latest Fed program is designed to lower long term rates to spur borrowing and lending. On the date of purchase, bonds yields did drop. The widely followed 10-year bond saw its yields drop to around 1.7%. As the week progressed, yields slowly rose and the 10-year closed out the week above 2%. Yields are currently at historic lows and we aren’t sure how much further they can fall from here, regardless of how much money is spent.
Next Week
Next week is the unofficial beginning of quarterly corporate earnings season. Dow member and aluminum producer Alcoa will release its earnings on Thursday. Having a rough couple of months and recently trading below $10 a share, we will see if that sell-off was justified. The drop in metal prices may have cut into their bottom line and could be an indicator for other commodity related stocks.
We will also get earnings from notable companies like Pepsi, JPMorgan, and Google. Economic data will be light as we get retail sales info and business inventory levels.
Investment Strategy
Again, little change as we remain cautious here. The market gain this week was welcomed, but we aren’t sure if it is sustainable. Euro problems just won’t go away and our economy remains weak. With the markets being driven largely by these macro events and the whims of politicians, it is a difficult investing environment.
The coming weeks will be interesting as we receive corporate earnings results. Past numbers have been decent and are expected to be similar this quarter. The bar is still set high, so any disappointments will likely affect the markets lower.
We will also be watching the forward guidance that accompanies these earnings. That is the company’s expectation for their future performance. With the poor economic conditions, many are worried that future earnings will in question. Poor forward guidance will add to the negative sentiment currently felt on Wall Street.
When looking for current investment opportunities, some quality companies can be found at cheap prices. However, it is easy for them to become even cheaper in this environment so caution is still warranted.
If we were to put new money to work, in equities we are focused on large cap higher-quality stocks, particularly companies with operations overseas. Smaller and little-known stocks with low correlation to the market are also promising, since correlation is high at the moment. We like commodities, even after their recent poor performance. Further money printing around the globe will also help gold and silver, but we aren’t sure if this is the time to get in yet.
TIPs are important as we still expect inflation to increase while U.S. Treasuries are a sector we are very bearish (pessimistic) on. We think yields will increase over time, but that has yet to happen due to the unprecedented intervention from the Fed. Steps must been taken to hedge here. Municipal bonds are important and there are some nice yielding bonds out there now (try to avoid muni funds and buy the actual bond if possible).
Finally, international stocks are facing many headwinds, most notably slower growth and inflation. Still, if we had to put new money in, we favor developed international markets as opposed to emerging.
These day-to-day and week-to-week fluctuations have little impact on positions we intend to hold for several years or longer. Our short and medium term investments are the only positions affected by these daily and weekly fluctuations.
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.
