Commentary for the week ending 3-21-14

Please note: there will be no market commentary next week. 

After a strongly negative week last week, stocks turned in a decent performance this week.  Through the close Friday, the Dow rose 1.5%, the S&P gained 1.4%, and the Nasdaq returned 0.7%.  Gold declined as geopolitical worries receded, falling sharply by 3.1%.  Oil prices shot back up this week, climbing 0.9% to $99.46 per barrel.  The international Brent oil moved slightly lower to $106.94. 

Source: Yahoo Finance

The volume of trades this week was relatively light, possibly as investors took time off for spring break.  The market saw some big swings on that light volume, with stocks again hitting new all-time highs.  

Events in Crimea opened the week, with the country taking steps to become part of Russia.  This was not unexpected, but markets were anxious to see the response to these actions. 

Since the stock market doesn’t usually fare well with conflicts, it was reassured when we saw the response by the U.S., a response so weak even the targets of the sanctions laughed over their weakness.  It was clear there will be no military action and very little in the way of sanctions.  This may mean trouble down the road, but in the near-term, it was a non-event for the market.  

The Fed also had a big impact on the market this week as they held their first meeting with Janet Yellen as the new chairman.  First, they announced no unexpected new events and will continue to reduce the amount of bonds they purchase/money they print each month. 

However, the market was rattled by what was perceived as new information.  Her remarks indicated interest rates could rise sooner than expected, possibly within a year (low interest rates have been helpful in boosting stock prices).  Stocks sold off strongly on the remarks, as can be seen in the chart above, late-Wednesday. 

While those comments were interpreted to mean less stimulus, we viewed her remarks on the whole as still pointing to stimulus for a very long time.  We don’t believe they will end within a year, though we would like them to due to the distorting effects on the market and long term unintended consequences. 

The Fed also reduced its expectations for economic growth in the coming quarters and years, which added to the downward pressure on stocks. 

Economic data this week was mostly positive and helped stocks higher.  Despite fears of the weather, industrial production ticked up slightly.  Manufacturing in the northeast also improved.  However, existing home sales fell to their lowest level in 19 months. 

Also, inflation data indicated very little inflation at the consumer level and stands at just 1.1% over the past year.  This may be contradictory to the soaring prices you see on an everyday basis, which is one of our criticisms in the way inflation is measured.  This 1.1% is roughly half the amount of inflation the Fed is seeking, so unfortunately we believe they will take further steps to increase inflation in the future, which means further money printing.  


Next Week

While there is always the chance geopolitical worries will spring up next week, right now the focus appears to be on economic reports.  We’ll start the week off with data on manufacturing for March, then get info on housing, durable goods, the strength of the service sector, the revision to GDP, and last but not least, personal income and spending. 

There will also be several regional Fed presidents making speeches.  After the market interpreted Janet Yellen’s comments to mean less stimulus in the coming months, we believe these regional Fed presidents will go out of their way to say the stimulus is not ending any time soon.  It may boost the markets higher. 


Investment Strategy

Our investment strategy remains unchanged.  The gains this week make the market look a bit more expensive again, but there may still be room to run higher.  We wouldn’t put new money into the broader market at this point, but there are a few undervalued individual stocks out there.  We would avoid stocks with a correlation to the broader market and to interest rates.  Additionally, we continue to have concerns for the longer run, so our outlook for these investments is shorter-term.   

Bond yields jumped higher this week on the comments from the Fed chief.  Still, they have been in this range for some time now and trying to figure out where they’ll go from here is a guessing game, at best.  Bonds will always have their place in a portfolio, but there is a worry about rates rising (so prices would fall).  A short position (bet on the decline in prices) acts as a nice hedge if yields do rise.  Floating rate bonds are also gaining popularity for this same reason, but they tend to be riskier investments, so caution is warranted. 

Continuing with bonds, TIPs remain an important hedge against future inflation and 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 fell this week as the geopolitical tensions subsided, but it remains volatile.  As we’ve seen recently, it acts as a good hedge, but we’d be cautious with this investment. 

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.

Commentary for the week ending 3-14-14

Stocks turned in their worst week since January with five-straight down days.  Through the Friday close, the Dow plunged 2.4%, the S&P dropped 2.0%, and the Nasdaq returned -2.1%.  Gold had a fantastic week, hitting six-month highs with a 3.1% gain.  Oil prices fell on global growth concerns and a strategic petroleum reserve release, falling 3.6% to just below $99 per barrel.  The international Brent oil actually moved slightly higher to $108.50. 

Source: Yahoo Finance

It was a very rough week for stocks and we can’t point to one single causefor the decline.  Instead, there were several external factors impacting an already expensive market.

We’ll start with China, where a slew of bad news weighed on the market. 

Last week we mentioned the default of a Chinese solar company, notable since it was the first Chinese company to default.  Concerns are increasing that slowing growth in the country could trigger a wave of additional bankruptcies.  Their economy is loaded with debt, so this could become a serious problem. 

Worrisome economic data released this week showed the Chinese economy growing even slower than many feared.  Spending by Chinese consumers hit the lowest level in three years.  Industrial output hit the lowest level in five years.  They notched their biggest trade deficit in two years as exports plunged.  Now, year-over-year growth stands near a 15-year low. 

Since China is the world’s largest consumer raw materials like copper, these commodities plunged on reports of slower growth.  This is important, since companies and investors buy up copper and use it as collateral to make other investments.  The dropping prices make their collateral worth less and would force them to sell other holdings, like stocks or these commodities, to raise cash.  This likely played a part in the decline in stocks.  See how it’s all connected?

The other external factor weighing on the market was the situation occurring in Ukraine.  Tensions have been escalating since the initial Russian invasion, but the markets had paid little attention since that first encounter. 

This week, though, worries increased as Russian troops have been building on the edge of Ukraine.  It is feared that they are readying for a possible invasion.  John Kerry warned of a serious response to further actions in the region, either by Russia or Crimean leaders.  It’s clear Russia does not take us seriously, so sanctions are likely.   

Lastly, a U.S. topic.  Recent economic reports have been poor with weather taking the blame.  After all, the message has been that cold weather keeps people inside and prevents them from spending money, thus weighing on economic reports

A recent survey by the bank, RBC, showed that people actually spent more during this cold period.  This contradicts these economists’ theories and shows the economy may not be as strong as many believe. 

Next Week

There will be a lot to look out for next week.  Since geopolitical events played a part in the decline this week, it will be important to watch the events unfolding in Crimea as they hold a vote on joining Russia.  Sanctions could be imposed in that case, which will have an impact on the economies in the area. 

As for here at home, we’ll have several economic reports to watch.  There will be data on industrial production, inflation at the consumer level, and housing info.  The Fed will also be in the news with their announcement on interest rates, although no changes are expected. 


Investment Strategy

Despite the recent weakness, we aren’t making changes to our investment outlook.  The broader market is still on the expensive side and we aren’t looking to buy, but aren’t selling, either.  The sell-off has knocked some individual names down to a more attractive buying level, though, so there are a few potential buys out there. 

Yields plunged this week and bond prices rose.  However, they have been in this range for some time now and trying to figure out where they’ll go from here is a guessing game, at best.  Bonds will always have their place in a portfolio, but there is a worry about rates rising (so prices would fall).  A short position (bet on the decline in prices) acts as a nice hedge if yields do rise.  Floating rate bonds are also gaining popularity for this same reason, but they tend to be riskier investments, so caution is warranted. 

Continuing with bonds, TIPs remain an important hedge against future inflation and 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 keeps climbing, but remains volatile.  We’d still be cautious, but it acts as a good hedge in the longer run. 

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.

Commentary for the week ending 3-7-14

In a week where stocks turned in both their worst day in a month and best of the year, stocks ended modestly higher.  For the week, the Dow rose 0.8%, the S&P climbed 1.0%, and the Nasdaq gained 0.7%.  Gold saw some volatility, too, but closed with a nice gain of 1.3%.  Oil prices continue to hover around these high levels, closing the week almost exactly where it began, losing just one cent to $102.58 per barrel.  The international Brent oil fell slightly to $108.23. 

Source: Yahoo Finance

The week opened strongly to the downside as Russian troops moved into and essentially occupied Crimea.  Military activity always is a concern for the market and this time was no different. 

It was (and still is) unclear how high tensions would escalate and what the response to Russia’s aggressions would be.  It’s not just concerns about a military response, but economic sanctions have a negative impact on economies dependent on imports and exports from Russia.  

The mood reversed on Tuesday when Russian president Vladimir Putin ordered combat troops back to their bases, although they remained in Crimea.  It signaled the conflict may not be as bad as anticipated and stocks turned in their best day of the year. 

After Tuesday, the markets seemed to care little about the events of this region.  Russia remains in the Crimea region and show no signs of turning back.  In fact, the rhetoric seems to be escalating and little, if any, response is planned.  Still, it is having little impact on the market, but could change if conditions deteriorate. 

This week we also received a number of economic reports from February.  There have been concerns over how much impact the weather will have on this data, so the bar was set very low. 

The most important report was the employment figures released on Friday.  With the bar set so low, it was a surprise to see a relatively decent 175,000 new jobs added.  Though mediocre when looking at the bigger picture, it was an improvement from the previous months and shows the economy is still growing.  It also shows weather had little effect on employment. 

As for other economic reports, manufacturing ticked higher last month, though still remains near an eight-month low.  The service sector showed a sharp drop, falling to the worst level in four years.  Of course the weather was blamed for this drop, but it is hard to reconcile the weather having an impact on one report while having little impact on another. 

Finally, an event that received little attention, but could be very important.  This week a Chinese company was unable to make the interest payment to its bondholders.  Big deal, you say.  However, it is important because this is the first company in China to default on a bond. 

Until now, the Chinese government would step in to help a failing company make their debt payments, essentially bailing them out.  It has made risky investments look far less so when investors know that backstop was there. 

It is unclear why this is the first company allowed to default, but it signals the Chinese government is stepping back from bailing out companies.  This news has investors questioning their investments, making this the possible prick of the bubble many have worried about.  It is something to watch very closely.  


Next Week

After a fairly busy week, next week will be much quieter.  For economic data, we’ll get reports on retail sales and inflation at the producer level.  A confirmation hearing on two Fed positions will be much more watched, as the vice chair and a governor position will be discussed.  We doubt any surprises will occur, but will be interesting to watch, nonetheless. 


Investment Strategy

No change here.  Stocks keep creeping higher and may have a bit more room to run in the short term.  We continue to worry about the longer run, with a slow economy and unintended consequences from government interventions in the market.  Keeping interest rates for so low, so long, have distorted stock valuations and we worry eventual rising rates will hurt stocks. 

We wouldn’t put new money into the broader market at this point, instead, preferring to buy on declines in the market (remember, buy low, sell high, which is often easier said than done).  There are fewer undervalued stocks out there presently, too, so it’s likely we’ll do some selling before any buying.  

On bonds, yields have remained around these levels for some time now and trying to figure out where they’ll go from here is a guessing game, at best.  Bonds will always have their place in a portfolio, but there is a worry about rates rising (so prices would fall).  A short position (bet on the decline in prices) acts as a nice hedge if yields do rise.  Floating rate bonds are also gaining popularity for this same reason, but they tend to be riskier investments, so caution is warranted. 

Continuing with bonds, TIPs remain an important hedge against future inflation and 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 again reached its highest level in four months and has performed well recently.  It remains volatile, so we’d still be cautious, but it acts as a good hedge in the longer run. 

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.

Commentary for week ending 2-28-14

An uneventful week produced solid gains for stocks.  For the week, the Dow gained 1.4%, the S&P 500 was higher by 1.3%, and the Nasdaq returned 1.1%.  Gold closed down slightly, -0.4%, and well off the highs seen earlier in the week.  Oil prices moderated, though remain at these high levels, up 0.4% to $102.59 per barrel.  The international Brent oil, used for much of our gas here in the east, fell slightly to $108.65. 

Source: Yahoo Finance

There was little news to move the markets this week, but stocks continued to push higher.  

Several disappointing economic reports were released, but were largely ignored by the market.  The most anticipated report was the revision to fourth quarter GDP, which had originally presented a decent 3.2% gain.  However, it was revised significantly lower to just 2.4%, showing the economy was not as strong as originally thought.   

Continuing the theme of a weaker economy, the report on durable goods (which are items with a longer life, like a car or television) showed a decline last month and the previous month’s number was revised even lower.  Then we had consumer confidence decline and initial jobless claims hit the worst level of the year. 

Much of the blame for these poor reports has been attributed to the weather.  While it may play a part, the impact is much less than advertised since we see weak numbers from areas not affected by the weather.  It does provide a convenient excuse any time there is poor data, however. 

Likely playing a part in the market rise was comments from the new Fed chief.  Janet Yellen testified in front Congress, commenting that the Fed may resume its stimulus program if conditions warrant (while they are still doing stimulus at the moment, they are committed to slowly withdrawing it). 

Granted, she noted it would take a substantial deterioration in the economy if they were to do so, but the option is still is on the table.  This gave investors reassurance that the Fed is there to backstop the market if conditions worsen.  Stocks liked that news, but we worry about the long term consequences of these constant interventions. 

Finally, several international issues gave investors a reason to be cautious.  The situation in the Ukraine has been making headlines, especially as Russia has become more aggressive in their actions.  Military conflicts tend to have a negative impact on the market, but even non-military responses like sanctions can have an effect.  Russia produces over 10% of the world’s oil and almost a quarter of its natural gas, so sanctions will cause a disruption in these markets.

We may have condemned and set another red line against Russian aggression, but as the world has realized, our red lines are laughable.  We worry this has emboldened possible aggressors and may result in more volatile geopolitical events.  

China has been in the news, too, as it is taking steps to cool the growth in the country.  Their economy has slowed from the recent highs, but is still growing at levels that worry Chinese officials.  A slowdown in the world’s fastest growing market, whether intentional or not, could have a negative impact on our markets. 


Next Week

With the month ending on Friday, we’ll start getting economic data reports for February next week.  Most important will be the employment report on Friday, but we’ll also get data on the strength of the manufacturing and service sectors, personal income, and the Fed’s Beige Book (which gives anecdotal reports on the strength of the economy).

The results of these economic reports will matter little.  If they are positive, fantastic.  If they are negative, they will be blamed on the cold weather and ignored.  We don’t see them having much impact on the market. 


Investment Strategy

Stocks keep creeping higher and may have a bit more room to run in the short term.  We continue to worry about the longer run, with a slow economy and unintended consequences from government interventions in the market.  Keeping interest rates for so low, so long, have distorted stock valuations and we worry eventual rising rates will hurt stocks. 

We wouldn’t put new money into the broader market at this point, instead, preferring to buy on declines in the market (remember, buy low, sell high, which is often easier said than done).  There are fewer undervalued stocks out there presently, too, so it’s likely we’ll do some selling before any buying.  

On bonds, yields have remained around these levels for some time now and trying to figure out where they’ll go from here is a guessing game, at best.  Bonds will always have their place in a portfolio, but there is a worry about rates rising (so prices would fall).  A short position (bet on the decline in prices) acts as a nice hedge if yields do rise.  Floating rate bonds are also gaining popularity for this same reason, but they tend to be riskier investments, so caution is warranted. 

Continuing with bonds, TIPs remain an important hedge against future inflation and 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 again reached its highest level in four months and has performed well recently.  It remains volatile, so we’d still be cautious, but it acts as a good hedge in the longer run. 

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.