Please note: Due to the Easter holiday next weekend, there will be no market commentary. Thank you.
A very rough and volatile week saw stocks go into negative territory for the year. On the week, the Dow lost 2.4%, the S&P fell 2.7%, and the Nasdaq saw its worst day in 2 ½ years en route to a 3.1% loss. Gold showed some life to rise 1.2%. As if gas prices weren’t high enough, oil climbed 2.6% to $103.74 per barrel. The international Brent oil rose to $107.15.
A very rough and volatile week saw stocks go into negative territory for the year. On the week, the Dow lost 2.4%, the S&P fell 2.7%, and the Nasdaq saw its worst day in 2 ½ years en route to a 3.1% loss. Gold showed some life to rise 1.2%. As if gas prices weren’t high enough, oil climbed 2.6% to $103.74 per barrel. The international Brent oil rose to $107.15.
Source: Yahoo Finance
The decline in stocks that began late last week spilled over into this week with the high-flying names that were hit hard continuing to lose ground. After the rise we’ve seen in the markets until recently, a decline is expected at some point. We’ll have to wait and see if this is a temporary setback or the start of a bigger decline we’ve worried about.
Like before, there is no real reason behind this sell-off. There have been worries about high valuations in stocks, the Fed removing its stimulus, and negative corporate earnings estimates, but these concerns have been with us a while. Even though there isn’t one thing we can point to for the decline, sometimes this is how these reversals happen.
While the week ended strongly in the red, at one point the market showed some life, as can be seen in the chart above. The Fed released the minutes of its latest meeting; the one where investors interpreted the Fed would pull back on its stimulus and low interest rates earlier than expected.
The minutes showed the Fed was worried about this very problem, but emphasized they were committed to holding rates low for a very long time (even though we believe it would be better for markets if they would exit immediately). They also cited concerns with low inflation (according to their metrics), which added to the belief rates would be held low for longer. The stock market likes low interest rates and soared on the news, showing us the Fed is still an important, if not most important, factor in stocks moving higher.
A Greek bond offering this week is an item probably regarded as unimportant to our readers, but is something we feel is worth noting. The country issued new bonds to help finance their country and was met with surprisingly strong demand. This indicates very little fear of default, a stunning contrast to a couple years ago.
The actions of the central banks around the world have pushed investors into riskier and riskier investments to find income, like these bonds. We feel this is becoming a very dangerous game, since the fundaments are very poor. These European countries have more debt now than before the debt crisis a few years ago, but the levels their debt trades at implies little concern. Strong demand for new Puerto Rican bonds shows it’s not just a European problem, either. We worry about another debt crisis down the road, but this time the consequences will be far more severe.
Since it is Masters week, we’ll conclude with a little-known tidbit about the tournament. It turns out the original architect of Augusta National proposed a 19th hole in his plans. This would be a very short hole which golfers could play as a “double or nothing” hole, where they could try to recoup their betting losses from the round. This interesting proposal never got off the ground, but could you imagine the course with a 19th hole today? Link to the original story.
Next Week
We’ll get a lot of info crammed into the holiday-shortened week, so it could be another volatile one. About 50 of the S&P 500 stocks will release their earnings and with expectations set so low for these, it could make it easier for companies to beat.
There will also be several economic reports to watch for, including retail sales, inflation at the consumer level, industrial production, the Fed’s Beige Book (which gives anecdotal accounts on the strength of the economy), and economic data for the Philadelphia region.
Finally, several regional Fed presidents will be making speeches, which we believe they will try to reassure markets stimulus will not end any time soon.
Investment Strategy
It’s too early to tell if this is the start of a larger decline we’ve worried about, or just a temporary blip. We’ve been fairly cautious with our outlook recently, but still think the actions of these central banks have the potential to boost stock prices in the short run. If this is the time they can’t, we fear a much larger move lower in stocks is possible.
The other thing we think can boost stocks would be corporate earnings. Since estimates show a flat to negative earnings quarter, even the slightest beat could help stocks higher.
While stocks have moved lower, we think it is still too early to put new money into the broader indexes. As usual, we prefer undervalued individual names, though this can be dicey around earnings time. There is nothing wrong with leaving some money in cash for the time being.
Bonds have done well as investor’s exited stocks and sought safer plays for their money. This still remains a volatile play in the short run, though. In the longer run, there are concerns for an increase in rates and a short position (bet on yields rising and prices falling) acts as a good hedge for that event. Floating rate bonds are also gaining popularity for this same reason, but they tend to be riskier, so caution is warranted.
Continuing with bonds, we think TIPs remain an important hedge against future inflation while municipal bonds 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 is another hedge for the portfolio, but it continues to be volatile.
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.
Like before, there is no real reason behind this sell-off. There have been worries about high valuations in stocks, the Fed removing its stimulus, and negative corporate earnings estimates, but these concerns have been with us a while. Even though there isn’t one thing we can point to for the decline, sometimes this is how these reversals happen.
While the week ended strongly in the red, at one point the market showed some life, as can be seen in the chart above. The Fed released the minutes of its latest meeting; the one where investors interpreted the Fed would pull back on its stimulus and low interest rates earlier than expected.
The minutes showed the Fed was worried about this very problem, but emphasized they were committed to holding rates low for a very long time (even though we believe it would be better for markets if they would exit immediately). They also cited concerns with low inflation (according to their metrics), which added to the belief rates would be held low for longer. The stock market likes low interest rates and soared on the news, showing us the Fed is still an important, if not most important, factor in stocks moving higher.
A Greek bond offering this week is an item probably regarded as unimportant to our readers, but is something we feel is worth noting. The country issued new bonds to help finance their country and was met with surprisingly strong demand. This indicates very little fear of default, a stunning contrast to a couple years ago.
The actions of the central banks around the world have pushed investors into riskier and riskier investments to find income, like these bonds. We feel this is becoming a very dangerous game, since the fundaments are very poor. These European countries have more debt now than before the debt crisis a few years ago, but the levels their debt trades at implies little concern. Strong demand for new Puerto Rican bonds shows it’s not just a European problem, either. We worry about another debt crisis down the road, but this time the consequences will be far more severe.
Since it is Masters week, we’ll conclude with a little-known tidbit about the tournament. It turns out the original architect of Augusta National proposed a 19th hole in his plans. This would be a very short hole which golfers could play as a “double or nothing” hole, where they could try to recoup their betting losses from the round. This interesting proposal never got off the ground, but could you imagine the course with a 19th hole today? Link to the original story.
Next Week
We’ll get a lot of info crammed into the holiday-shortened week, so it could be another volatile one. About 50 of the S&P 500 stocks will release their earnings and with expectations set so low for these, it could make it easier for companies to beat.
There will also be several economic reports to watch for, including retail sales, inflation at the consumer level, industrial production, the Fed’s Beige Book (which gives anecdotal accounts on the strength of the economy), and economic data for the Philadelphia region.
Finally, several regional Fed presidents will be making speeches, which we believe they will try to reassure markets stimulus will not end any time soon.
Investment Strategy
It’s too early to tell if this is the start of a larger decline we’ve worried about, or just a temporary blip. We’ve been fairly cautious with our outlook recently, but still think the actions of these central banks have the potential to boost stock prices in the short run. If this is the time they can’t, we fear a much larger move lower in stocks is possible.
The other thing we think can boost stocks would be corporate earnings. Since estimates show a flat to negative earnings quarter, even the slightest beat could help stocks higher.
While stocks have moved lower, we think it is still too early to put new money into the broader indexes. As usual, we prefer undervalued individual names, though this can be dicey around earnings time. There is nothing wrong with leaving some money in cash for the time being.
Bonds have done well as investor’s exited stocks and sought safer plays for their money. This still remains a volatile play in the short run, though. In the longer run, there are concerns for an increase in rates and a short position (bet on yields rising and prices falling) acts as a good hedge for that event. Floating rate bonds are also gaining popularity for this same reason, but they tend to be riskier, so caution is warranted.
Continuing with bonds, we think TIPs remain an important hedge against future inflation while municipal bonds 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 is another hedge for the portfolio, but it continues to be volatile.
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.
