Please note: Due to the Thanksgiving holiday, there will be no market commentary next week.
Stocks continued the slide that began after the Presidential election as markets hit their lowest level in over four months. For the week, the Dow was lower by 1.8%, the S&P was down 1.5%, and the Nasdaq had a return of -1.8%. Gold moved a bit lower, returning -0.9% for the week. Oil moved on activity in the Mid East, but only rose 0.7% on the week to $86.67 a barrel. Brent crude closed just below $109 per barrel.
Stocks continued the slide that began after the Presidential election as markets hit their lowest level in over four months. For the week, the Dow was lower by 1.8%, the S&P was down 1.5%, and the Nasdaq had a return of -1.8%. Gold moved a bit lower, returning -0.9% for the week. Oil moved on activity in the Mid East, but only rose 0.7% on the week to $86.67 a barrel. Brent crude closed just below $109 per barrel.
Source: Yahoo Finance
The week was similar to last as the same worries drove stocks lower. Investors still seem to be taking gains off the table before higher tax rates likely go into effect next year. Concerns on the “fiscal cliff” remain in the forefront while conflict in the Middle East and a recession in Europe also added to the worries.
Fiscal cliff talks were ratcheted up this week as President Obama met with leaders from a variety of groups and concluded with Congressional members.
Early in the week, he laid out his starting point in negotiations asking for twice as much in revenue than originally thought and continued to stress higher taxes for the wealthy. In fact, he claimed “a modest tax increase for wealthy families wouldn’t break their back.” The rhetoric raised the anxiety level in the markets.
We could see more of where the White House was leaning as some of their ideas were made public. In addition to raising taxes on those over $250,000 in income, targeted tax breaks would be eliminated. Perhaps not surprising, the groups targeted aren’t exactly left-leaning ones. Taxes would be increased on commodities and options traders, corporate life insurance policies, oil and gas drillers, and even golf course owners.
By the end of the week, Congressional leaders seemed optimistic that a deal could be reached and the market rose on the news. Words mean little, though, and we’ll see how it plays out in the coming days and weeks.
Also, the Wall Street Journal reported on Friday that the White House may scrap the required spending cuts and instead substitute smaller targeted spending cuts. In our view, that would only add to the uncertainty and send markets lower.
Another worry this week was the Middle East. After having hundreds of rockets fired into its country, Israel decided it wasn’t going to take any more. Launching remarkably precise counter-strikes, the conflict escalated and the rhetoric from surrounding countries intensified.
The significance of the timing should not be underestimated. Israel’s enemies recognize that an administration that isn’t the friendliest to Israel was reelected here in the US. These emboldened countries could spell problems in the region down the road, particularly if Iran enters the fray.
Here in the US, economic data was mostly negative. Retail sales fell from the previous month, manufacturing in the Mid-Atlantic showed a surprising drop, and industrial production also declined. As expected, Hurricane Sandy bore the brunt of the blame.
The storm was cited as the reason behind the very large increase in weekly jobless claims. Averaging in the mid-300k range before the election, weekly jobless claims rose to 439,000 this week, a gain of 78,000 from the previous week.
A similar story played out after Hurricane Katrina as jobless claims rose by 100,000 following the storm, returning to more normal levels the following week. Indeed, figures from New Jersey showed a sharp increase. However, New York showed an improvement. More unusual was the large job losses in states like Ohio and Pennsylvania.
Only time will tell if the storm was the culprit here, or if the economy is actually worse than it appeared.
Next Week
Even though next week is shortened by the Thanksgiving holiday, there will be some events with the potential to move the market. Of course a major focus will still be on progress towards averting the “fiscal cliff.” But the market also will be looking towards Europe as the economy slows, while a few Fed members here will be speaking.
Economic data will be rather light as we will get info on housing and the leading economic indicators.
Investment Strategy
As we saw with the gain on Friday, the market is looking to Washington for a resolution on the fiscal cliff. Not surprisingly, we’ll probably move higher with a deal and vice-versa on the opposite.
A deal alone is not enough, though, as the substance of a deal will impact how much the market moves. If we get straight tax rate increases and little spending reduction, the market will not be happy. On the other hand, if a deal is made to increase revenue from pro growth policies and (importantly) capital gains rates don’t see a dramatic change, we should see a larger pop.
Bearish (negative) sentiment stands at the highest level since August of 2011 according to AAII. When that many investors are on one side of the trade, the tide often reverses course. The market is looking oversold here.
Of course, we could keep heading lower if headlines from Washington disappoint, so it’s not wise to try to catch a falling knife. Friday was encouraging and if we see the market stabilizing, we like that as an opportunity to add to our stock positions.
We’ve seen dividend stocks get hit especially hard as investors fear a tax hike next year. Dividend stocks are investments we intend to hold for a long period, so we aren’t looking to sell at this time. We also like smaller and mid sized stocks that don’t have a strong correlation to the market and Europe.
Gold was reaffirmed as a favorite after the election. We will continue the easy money policies that have fueled its rise to this point. Continued money printing, bailouts, and stimulus around the globe will help in the long run. Though it sold off on weaker demand this week, we aren’t looking to reduce our positions, but wouldn’t add to them, either.
We like other commodities for the long term, especially due to weaker currencies around the globe. A slowdown in global growth may weigh on commodity prices in the short run, though.
The election also helped the bond sector. Though Treasury bonds yields aren’t at their historic lows (where prices were near historic highs), the trend is moving back that direction. A short position (bet on a decline in price) provides a nice hedge here but we believe the potential for profit is low at this time.
On the bond theme, we think TIPs are important as we still expect inflation to increase. Municipal bonds also work as higher taxes loom on the horizon (try to avoid muni funds and buy the actual bond if possible), though our concern has increased as the pace of distressed municipalities is increasing.
Finally, in international stocks, we are less enthusiastic on developed markets, but not totally sold on emerging, either.
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.
Fiscal cliff talks were ratcheted up this week as President Obama met with leaders from a variety of groups and concluded with Congressional members.
Early in the week, he laid out his starting point in negotiations asking for twice as much in revenue than originally thought and continued to stress higher taxes for the wealthy. In fact, he claimed “a modest tax increase for wealthy families wouldn’t break their back.” The rhetoric raised the anxiety level in the markets.
We could see more of where the White House was leaning as some of their ideas were made public. In addition to raising taxes on those over $250,000 in income, targeted tax breaks would be eliminated. Perhaps not surprising, the groups targeted aren’t exactly left-leaning ones. Taxes would be increased on commodities and options traders, corporate life insurance policies, oil and gas drillers, and even golf course owners.
By the end of the week, Congressional leaders seemed optimistic that a deal could be reached and the market rose on the news. Words mean little, though, and we’ll see how it plays out in the coming days and weeks.
Also, the Wall Street Journal reported on Friday that the White House may scrap the required spending cuts and instead substitute smaller targeted spending cuts. In our view, that would only add to the uncertainty and send markets lower.
Another worry this week was the Middle East. After having hundreds of rockets fired into its country, Israel decided it wasn’t going to take any more. Launching remarkably precise counter-strikes, the conflict escalated and the rhetoric from surrounding countries intensified.
The significance of the timing should not be underestimated. Israel’s enemies recognize that an administration that isn’t the friendliest to Israel was reelected here in the US. These emboldened countries could spell problems in the region down the road, particularly if Iran enters the fray.
Here in the US, economic data was mostly negative. Retail sales fell from the previous month, manufacturing in the Mid-Atlantic showed a surprising drop, and industrial production also declined. As expected, Hurricane Sandy bore the brunt of the blame.
The storm was cited as the reason behind the very large increase in weekly jobless claims. Averaging in the mid-300k range before the election, weekly jobless claims rose to 439,000 this week, a gain of 78,000 from the previous week.
A similar story played out after Hurricane Katrina as jobless claims rose by 100,000 following the storm, returning to more normal levels the following week. Indeed, figures from New Jersey showed a sharp increase. However, New York showed an improvement. More unusual was the large job losses in states like Ohio and Pennsylvania.
Only time will tell if the storm was the culprit here, or if the economy is actually worse than it appeared.
Next Week
Even though next week is shortened by the Thanksgiving holiday, there will be some events with the potential to move the market. Of course a major focus will still be on progress towards averting the “fiscal cliff.” But the market also will be looking towards Europe as the economy slows, while a few Fed members here will be speaking.
Economic data will be rather light as we will get info on housing and the leading economic indicators.
Investment Strategy
As we saw with the gain on Friday, the market is looking to Washington for a resolution on the fiscal cliff. Not surprisingly, we’ll probably move higher with a deal and vice-versa on the opposite.
A deal alone is not enough, though, as the substance of a deal will impact how much the market moves. If we get straight tax rate increases and little spending reduction, the market will not be happy. On the other hand, if a deal is made to increase revenue from pro growth policies and (importantly) capital gains rates don’t see a dramatic change, we should see a larger pop.
Bearish (negative) sentiment stands at the highest level since August of 2011 according to AAII. When that many investors are on one side of the trade, the tide often reverses course. The market is looking oversold here.
Of course, we could keep heading lower if headlines from Washington disappoint, so it’s not wise to try to catch a falling knife. Friday was encouraging and if we see the market stabilizing, we like that as an opportunity to add to our stock positions.
We’ve seen dividend stocks get hit especially hard as investors fear a tax hike next year. Dividend stocks are investments we intend to hold for a long period, so we aren’t looking to sell at this time. We also like smaller and mid sized stocks that don’t have a strong correlation to the market and Europe.
Gold was reaffirmed as a favorite after the election. We will continue the easy money policies that have fueled its rise to this point. Continued money printing, bailouts, and stimulus around the globe will help in the long run. Though it sold off on weaker demand this week, we aren’t looking to reduce our positions, but wouldn’t add to them, either.
We like other commodities for the long term, especially due to weaker currencies around the globe. A slowdown in global growth may weigh on commodity prices in the short run, though.
The election also helped the bond sector. Though Treasury bonds yields aren’t at their historic lows (where prices were near historic highs), the trend is moving back that direction. A short position (bet on a decline in price) provides a nice hedge here but we believe the potential for profit is low at this time.
On the bond theme, we think TIPs are important as we still expect inflation to increase. Municipal bonds also work as higher taxes loom on the horizon (try to avoid muni funds and buy the actual bond if possible), though our concern has increased as the pace of distressed municipalities is increasing.
Finally, in international stocks, we are less enthusiastic on developed markets, but not totally sold on emerging, either.
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.
