Markets saw some volatility this week but managed to close with little change. For the week, the Dow gained a slight 0.1%, the S&P was off 0.2%, and the Nasdaq returned a decent 0.6%. Gold turned in a gain of 0.4%, but has done little over the last two months. Oil participated in the increases, too, rising 1.8% to $94.37 per barrel. The international Brent crude, used in much of our gas here in the East, closed higher at $106.32 per barrel.
Source: Yahoo Finance
The week started on a bad foot as stocks opened with their worst day since September. It actually seemed like a hangover from the poor jobs report we received the previous Friday. Regardless, stocks rebounded sharply on Tuesday to close the week relatively unchanged.
For the year-to-date, both the Dow and S&P are still negative. Over the last 20 years, at this point stocks were higher 70% of the time, so we are in unfamiliar territory. Many think this indicates rougher times ahead, and it could well be. Stocks are on the expensive side and the Fed has indicated a continued reduction in their stimulus. For the first time in a long time, there are genuine concerns on the direction of the market.
One thing we have noticed, it does seem the broader market is responding more to corporate earnings results. In the past, they had little impact as the entire focus was on the Fed and their stimulus.
This week, however, we saw the market go up when banking companies reported decent earnings. On the other hand, retail companies weighed on the market as many warned of a weaker Christmas period sales. Maybe we are starting to return to normal?
Continuing with earnings, the bar for earnings growth has been set high as Factset reports an increase of more than 6% is expected. This would be a significant increase from the previous quarter. If we were to hit this high number, it would still show slower annual growth than the previous two years.
As for economic data this week, the results were mixed. Retail sales showed a slight increase, as did manufacturing data. The Fed’s Beige Book, which takes an anecdotal look at the strength of the economy, pointed to continued moderate growth. Inflation ticked higher at both the producer and consumer level, but remains below the Fed’s inflation target. Finally, both consumer sentiment and housing data were disappointingly lower.
Next Week
Next week will be extremely light for economic data. However, one-fourth of the S&P 500 stocks will be reporting their earnings in the holiday-shortened week, so it will be a very busy one for earnings. Since the market seems to be moving more on earnings, it may lead to a volatile week.
Investment Strategy
Coming into the year, virtually everyone we heard was optimistic on the market. That was enough to make us worry since the market tends to do the opposite of what most believe, so it makes the lack of an increase in stocks not all that surprising. Even though we are lower for the year, stocks held their own for the week. They still look expensive at these levels, though, so we wouldn’t be adding to broader market indexes.
Instead of buying the broader market, right now we still prefer finding undervalued individual names to invest in. Fundamental analysis tells us how good a company is, while the technical (or the charts) side gives us a good idea of when to buy. We would avoid stocks in sectors with a strong correlation to the broader stock market and interest rates. Our timeframe is shorter (looking out a couple weeks or months), so we can keep one foot out the door in case the market turns abruptly.
Bonds yields moved lower this week (so prices rose). A short position (bet on the decline in prices) didn’t fare too well here, but still acts as a nice hedge. It isn’t intended to be a longer term investment.
Continuing with bonds, TIPs have shown weakness recently, however, they remain an important hedge against future inflation. Municipal bonds are in the same boat and work for the right client. 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 has been stuck in the $1,200-1,300 range for many weeks now. It’s good as a long term hedge, but there may still be weakness in the short term. Interesting to note, we are seeing many more stories on central banks manipulating gold prices lower. If this were the case, it’ll be interesting to see how gold plays out in the coming months.
We like other commodities for the long term, especially due to weaker currencies around the globe. This is a longer-term play, so buying on the dips may work with a longer time horizon.
Finally, in international stocks, we see weakness around the globe and favor neither the developed or emerging markets.
Please note, 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.
For the year-to-date, both the Dow and S&P are still negative. Over the last 20 years, at this point stocks were higher 70% of the time, so we are in unfamiliar territory. Many think this indicates rougher times ahead, and it could well be. Stocks are on the expensive side and the Fed has indicated a continued reduction in their stimulus. For the first time in a long time, there are genuine concerns on the direction of the market.
One thing we have noticed, it does seem the broader market is responding more to corporate earnings results. In the past, they had little impact as the entire focus was on the Fed and their stimulus.
This week, however, we saw the market go up when banking companies reported decent earnings. On the other hand, retail companies weighed on the market as many warned of a weaker Christmas period sales. Maybe we are starting to return to normal?
Continuing with earnings, the bar for earnings growth has been set high as Factset reports an increase of more than 6% is expected. This would be a significant increase from the previous quarter. If we were to hit this high number, it would still show slower annual growth than the previous two years.
As for economic data this week, the results were mixed. Retail sales showed a slight increase, as did manufacturing data. The Fed’s Beige Book, which takes an anecdotal look at the strength of the economy, pointed to continued moderate growth. Inflation ticked higher at both the producer and consumer level, but remains below the Fed’s inflation target. Finally, both consumer sentiment and housing data were disappointingly lower.
Next Week
Next week will be extremely light for economic data. However, one-fourth of the S&P 500 stocks will be reporting their earnings in the holiday-shortened week, so it will be a very busy one for earnings. Since the market seems to be moving more on earnings, it may lead to a volatile week.
Investment Strategy
Coming into the year, virtually everyone we heard was optimistic on the market. That was enough to make us worry since the market tends to do the opposite of what most believe, so it makes the lack of an increase in stocks not all that surprising. Even though we are lower for the year, stocks held their own for the week. They still look expensive at these levels, though, so we wouldn’t be adding to broader market indexes.
Instead of buying the broader market, right now we still prefer finding undervalued individual names to invest in. Fundamental analysis tells us how good a company is, while the technical (or the charts) side gives us a good idea of when to buy. We would avoid stocks in sectors with a strong correlation to the broader stock market and interest rates. Our timeframe is shorter (looking out a couple weeks or months), so we can keep one foot out the door in case the market turns abruptly.
Bonds yields moved lower this week (so prices rose). A short position (bet on the decline in prices) didn’t fare too well here, but still acts as a nice hedge. It isn’t intended to be a longer term investment.
Continuing with bonds, TIPs have shown weakness recently, however, they remain an important hedge against future inflation. Municipal bonds are in the same boat and work for the right client. 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 has been stuck in the $1,200-1,300 range for many weeks now. It’s good as a long term hedge, but there may still be weakness in the short term. Interesting to note, we are seeing many more stories on central banks manipulating gold prices lower. If this were the case, it’ll be interesting to see how gold plays out in the coming months.
We like other commodities for the long term, especially due to weaker currencies around the globe. This is a longer-term play, so buying on the dips may work with a longer time horizon.
Finally, in international stocks, we see weakness around the globe and favor neither the developed or emerging markets.
Please note, 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.
