Well, it’s that time of year again. As many of you know, our office is located at the entrance of the TPC Sawgrass, home of the Players Championship. Tournament practice rounds begin Monday and we will be attending for much of the week. However, we will be in the office every day, though our hours will vary day-to-day. We will continue to monitor the market even though we may not be in the office. Any phone calls not immediately answered will be returned the same day. We foresee little to no inconvenience to our clients and hope for your understanding. Additionally, there will be no weekly market commentary next week due to Mother’s Day. Thank you.
Stocks found some stability this week. Through the close Friday, the Dow gained 0.9%, the S&P rose 1.0%, and the Nasdaq returned 1.2%. Gold was steady all week all, ending up a slight 0.2%. Oil prices moved lower, falling 0.8% to $99.76 per barrel. The international Brent oil, used for much of our gas here in the east, moved down to $108.90 per barrel.
Stocks found some stability this week. Through the close Friday, the Dow gained 0.9%, the S&P rose 1.0%, and the Nasdaq returned 1.2%. Gold was steady all week all, ending up a slight 0.2%. Oil prices moved lower, falling 0.8% to $99.76 per barrel. The international Brent oil, used for much of our gas here in the east, moved down to $108.90 per barrel.
Source: Yahoo Finance
A lot of data was released this week on the economy and corporate earnings, but as you can tell by the steady chart above, it had relatively little impact on the market.
Starting with economic data, the first important economic news of the week was a downer. The first look at GDP showed a growth of just 0.1%, one of the worst figures since the recession ended.
Much of the blame was placed on the cold weather, and it may have legitimately played a part. However, economists figure the weather into their estimates and still expected growth of more than 1%. This GDP report was much worse than expected.
The other major report came on Friday with the April employment figures. 288,000 jobs were added, the best number in over two years. The weather was again cited as a factor in the gain, since employers had a pent up demand for hiring now that the cold winter had passed.
Here’s where the employment picture gets interesting, though. The unemployment rate dropped to 6.3% from 6.7%, the best since 2008. This number comes from a different survey than the one which produced the 288k number, which actually showed a net loss in jobs.
It also saw almost 800,000 people leave the labor force, putting the size of the labor force at its lowest level since 1978. This skewed the unemployment rate lower. We now have 92 million able-bodied Americans not in the labor force, the largest in history (and quite alarming since there are just over 300 million Americans in total). Employment may not be as robust as some numbers indicate.
Other economic data this week was mostly positive. Manufacturing showed a nice tick higher from the previous month. Income and spending were both higher too, though spending rose more than income, which is a worry to us (but not to others). On the other hand, consumer confidence moved lower and weekly jobless claims rose dramatically.
With all this economic data, investors were closely watching what would come out of the Fed meeting this week. The result was nothing unexpected. They will continue to pull back on their stimulus program of buying bonds (and printing money to do so) to push down interest rates. They also reaffirmed their commitment to keeping interest rates low for a long time.
Lastly, the week was another busy one for corporate earnings. So far more than 60% of the companies in the S&P 500 have reported, with earnings growing 0.7% over the past year. Revenue, what a company earned in sales, grew 2.7%. These figures are all higher than expected, but remember, the bar was set extremely low so the outperformance was relatively easy. On an absolute basis, earnings growth is very low.
Next Week
The pace of economic data and earnings releases will slow next week. There will still be earnings from 75 of the S&P 500 companies, so while it won’t be quiet, it is a slower pace than the previous two weeks. For economic data, there will be info on the strength of the service sector, trade, and business productivity.
More eyes will probably be on the Fed chief next week as she makes two appearances before Congress.
We also can’t forget about the events in the Ukraine. It has not received much attention even though the situation continues to worsen, but this is something worth watching.
Investment Strategy
There is no change here as we are not looking to modify our investment strategy at this time. Markets have bounced around these levels for some time now, but aren’t at buying or selling levels. While we wouldn’t add or subtract money to the broader indexes, there are some individual names that may warrant buying or selling, especially for those with a shorter-term view.
Bonds continue to do well as prices are climbing and yields falling. This still remains a volatile play in the short run, though. In the longer run, there are concerns of an increase in interest rates so a short position (bet on yields rising and prices falling) acts as a good hedge in that case. 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 remains 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.
Starting with economic data, the first important economic news of the week was a downer. The first look at GDP showed a growth of just 0.1%, one of the worst figures since the recession ended.
Much of the blame was placed on the cold weather, and it may have legitimately played a part. However, economists figure the weather into their estimates and still expected growth of more than 1%. This GDP report was much worse than expected.
The other major report came on Friday with the April employment figures. 288,000 jobs were added, the best number in over two years. The weather was again cited as a factor in the gain, since employers had a pent up demand for hiring now that the cold winter had passed.
Here’s where the employment picture gets interesting, though. The unemployment rate dropped to 6.3% from 6.7%, the best since 2008. This number comes from a different survey than the one which produced the 288k number, which actually showed a net loss in jobs.
It also saw almost 800,000 people leave the labor force, putting the size of the labor force at its lowest level since 1978. This skewed the unemployment rate lower. We now have 92 million able-bodied Americans not in the labor force, the largest in history (and quite alarming since there are just over 300 million Americans in total). Employment may not be as robust as some numbers indicate.
Other economic data this week was mostly positive. Manufacturing showed a nice tick higher from the previous month. Income and spending were both higher too, though spending rose more than income, which is a worry to us (but not to others). On the other hand, consumer confidence moved lower and weekly jobless claims rose dramatically.
With all this economic data, investors were closely watching what would come out of the Fed meeting this week. The result was nothing unexpected. They will continue to pull back on their stimulus program of buying bonds (and printing money to do so) to push down interest rates. They also reaffirmed their commitment to keeping interest rates low for a long time.
Lastly, the week was another busy one for corporate earnings. So far more than 60% of the companies in the S&P 500 have reported, with earnings growing 0.7% over the past year. Revenue, what a company earned in sales, grew 2.7%. These figures are all higher than expected, but remember, the bar was set extremely low so the outperformance was relatively easy. On an absolute basis, earnings growth is very low.
Next Week
The pace of economic data and earnings releases will slow next week. There will still be earnings from 75 of the S&P 500 companies, so while it won’t be quiet, it is a slower pace than the previous two weeks. For economic data, there will be info on the strength of the service sector, trade, and business productivity.
More eyes will probably be on the Fed chief next week as she makes two appearances before Congress.
We also can’t forget about the events in the Ukraine. It has not received much attention even though the situation continues to worsen, but this is something worth watching.
Investment Strategy
There is no change here as we are not looking to modify our investment strategy at this time. Markets have bounced around these levels for some time now, but aren’t at buying or selling levels. While we wouldn’t add or subtract money to the broader indexes, there are some individual names that may warrant buying or selling, especially for those with a shorter-term view.
Bonds continue to do well as prices are climbing and yields falling. This still remains a volatile play in the short run, though. In the longer run, there are concerns of an increase in interest rates so a short position (bet on yields rising and prices falling) acts as a good hedge in that case. 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 remains 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.
