Another positive week for stocks. Through the Friday close, the Dow gained 1.1%, the S&P rose 2.0%, and the Nasdaq fared the best with a 3.2% increase. Bonds sold off strongly (so yields rose) as many investors believe an interest rate hike from the Fed is nearing. Gold was fairly active on the week but closed with a modest loss of 0.6%. Oil moved higher again, up 2.1% to $52.78 per barrel. The international Brent oil, used for much of our gas here in the east, moved up to $61.41 per barrel.
Source: Google Finance
Stocks turned in another nice week, though it was fairly quiet in terms of market-moving news. Some news out of Europe had a little impact, but otherwise it was fairly uneventful.
It’s probably easiest to then start with Europe, where the soap opera with Greece continues.
The problems with Greece are coming to a head because their bailout concludes at the end of this month. The new anti-bailout, anti-Euro government only adds to the problem. The country needs to ask for an extension or they run out of money and possibly risk leaving the Euro. However, the new government has resisted doing so unless their repayment terms are relaxed.
Greece and their creditors (which are financed largely by German taxpayers) met this week to try to work out a deal. Markets rose when the talks seemed productive and fell on the opposite. In the end, no deal was reached, though they hope to have something worked out by next week.
We don’t see how likely a deal will be, especially as Greece went and poked a finger in the eye of their creditors. They requested Germany pay the country WWII reparations for the actions of the Nazis. This may not end well, but it sure is entertaining.
The other news out of Europe helping the stock market was better-than-expected GDP numbers. Their economy as a whole increased 1.4% over the past year, with a strong German economy helping pull this number up. It’s not a great number, but the market was relieved it wasn’t negative.
These GDP numbers should be taken with a grain of salt, though. Several European countries recently added a few dubious items to make their GDP calculations “more accurate,” including illegal drug use and prostitution (seriously).
The U.S. has made “adjustments” to its GDP calculation too, though not to the same extent as Europe. For example, we now include items like research and development, which is now double counted since it was already factored in the sales price of an item. Plus we now include pension promises – not what pensioners currently receive, but what future pensioners will (might) receive down the road. That seems like a stretch.
While we see these GDP numbers as far less accurate, especially when compared to past calculations, we can’t stand on the sidelines screaming “the emperor has no clothes” and miss out on a rise in stocks.
Getting back to some of the fundamentals this week, a little more than three-quarters of stocks in the S&P 500 have reported their earnings and they are better than expected. Of course, that bar was lowered before earnings season to make it easier to beat, but this goes back to the “emperor has no clothes” we talked about earlier.
Finally economic data this week was largely negative. Retail sales fell more than expected, making it two months in a row of declining sales. Plus consumer confidence fell strongly and the weekly jobless claims showed an increase in job losses from the previous week.
Next Week
Next week looks to be another quieter one. The only notable report comes on Wednesday with a look at inflation at the producer level. We’ll also have more corporate earnings, though their pace is starting to slow. While it may be pretty quiet here, there is likely to be a few headlines coming out of Greece, so that will be something to keep an eye on.
Investment Strategy
It feels like we are in more of a stock pickers market. It doesn’t seem like before, when the Fed makes some sort of announcement and all stocks rise or fall in unison. Instead, we’re seeing fundaments impact stocks and some rise while others fall.
Energy sector stocks are a great example, falling sharply on the drop in oil prices. On the other hand, you have record earnings for a stock like Apple, which lead to record highs in the stock price. In fact, the company is the largest in the history of the world and nearly double the size of the second-largest company, Exxon.
That said, we aren’t changing our investment outlook, the above was merely an observation. The market is not at a point where we would add new money to the broader index and we are not doing any selling. There are fewer undervalued individual names, too, as stocks are becoming more expensive.
We still have concerns for the longer term of the market. We worry about the distortions created by the central banks and money printing (just look at the recent plunge in oil prices). Stimulus continues to send stocks higher, but we worry the longer it continues, the more painful the correction will be.
As for the bond market, bond prices fell (so yields rose) this week when investors pulled money out of bonds and put it into stocks. This tends to reverse when stocks go down. It’s anyone’s guess what bonds may do in the near-term, but the longer term may see bond prices continue to rise (so yields fall) as the stimulus programs push up bond prices around the globe.
Bonds to protect against inflation, or TIPs, remain a good long term hedge for inflation. They have not fared well recently as the likelihood of inflation has waned with the lower energy prices, but we are keeping a longer term focus with them. Some municipal bonds look attractive for the right client, but not as good as they did several months ago. We like buying individual, insured names for these bonds, avoiding muni index bonds if possible. We keep a longer term focus with these investments, too.
Gold is another good hedge for the portfolio. It is only a hedge at this point – rising on geopolitical worries and falling once they are out of the headlines. It has done well lately, but with the volatility we’ve seen in it over the years, it is better to think of it as a hedge for the portfolio.
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.
It’s probably easiest to then start with Europe, where the soap opera with Greece continues.
The problems with Greece are coming to a head because their bailout concludes at the end of this month. The new anti-bailout, anti-Euro government only adds to the problem. The country needs to ask for an extension or they run out of money and possibly risk leaving the Euro. However, the new government has resisted doing so unless their repayment terms are relaxed.
Greece and their creditors (which are financed largely by German taxpayers) met this week to try to work out a deal. Markets rose when the talks seemed productive and fell on the opposite. In the end, no deal was reached, though they hope to have something worked out by next week.
We don’t see how likely a deal will be, especially as Greece went and poked a finger in the eye of their creditors. They requested Germany pay the country WWII reparations for the actions of the Nazis. This may not end well, but it sure is entertaining.
The other news out of Europe helping the stock market was better-than-expected GDP numbers. Their economy as a whole increased 1.4% over the past year, with a strong German economy helping pull this number up. It’s not a great number, but the market was relieved it wasn’t negative.
These GDP numbers should be taken with a grain of salt, though. Several European countries recently added a few dubious items to make their GDP calculations “more accurate,” including illegal drug use and prostitution (seriously).
The U.S. has made “adjustments” to its GDP calculation too, though not to the same extent as Europe. For example, we now include items like research and development, which is now double counted since it was already factored in the sales price of an item. Plus we now include pension promises – not what pensioners currently receive, but what future pensioners will (might) receive down the road. That seems like a stretch.
While we see these GDP numbers as far less accurate, especially when compared to past calculations, we can’t stand on the sidelines screaming “the emperor has no clothes” and miss out on a rise in stocks.
Getting back to some of the fundamentals this week, a little more than three-quarters of stocks in the S&P 500 have reported their earnings and they are better than expected. Of course, that bar was lowered before earnings season to make it easier to beat, but this goes back to the “emperor has no clothes” we talked about earlier.
Finally economic data this week was largely negative. Retail sales fell more than expected, making it two months in a row of declining sales. Plus consumer confidence fell strongly and the weekly jobless claims showed an increase in job losses from the previous week.
Next Week
Next week looks to be another quieter one. The only notable report comes on Wednesday with a look at inflation at the producer level. We’ll also have more corporate earnings, though their pace is starting to slow. While it may be pretty quiet here, there is likely to be a few headlines coming out of Greece, so that will be something to keep an eye on.
Investment Strategy
It feels like we are in more of a stock pickers market. It doesn’t seem like before, when the Fed makes some sort of announcement and all stocks rise or fall in unison. Instead, we’re seeing fundaments impact stocks and some rise while others fall.
Energy sector stocks are a great example, falling sharply on the drop in oil prices. On the other hand, you have record earnings for a stock like Apple, which lead to record highs in the stock price. In fact, the company is the largest in the history of the world and nearly double the size of the second-largest company, Exxon.
That said, we aren’t changing our investment outlook, the above was merely an observation. The market is not at a point where we would add new money to the broader index and we are not doing any selling. There are fewer undervalued individual names, too, as stocks are becoming more expensive.
We still have concerns for the longer term of the market. We worry about the distortions created by the central banks and money printing (just look at the recent plunge in oil prices). Stimulus continues to send stocks higher, but we worry the longer it continues, the more painful the correction will be.
As for the bond market, bond prices fell (so yields rose) this week when investors pulled money out of bonds and put it into stocks. This tends to reverse when stocks go down. It’s anyone’s guess what bonds may do in the near-term, but the longer term may see bond prices continue to rise (so yields fall) as the stimulus programs push up bond prices around the globe.
Bonds to protect against inflation, or TIPs, remain a good long term hedge for inflation. They have not fared well recently as the likelihood of inflation has waned with the lower energy prices, but we are keeping a longer term focus with them. Some municipal bonds look attractive for the right client, but not as good as they did several months ago. We like buying individual, insured names for these bonds, avoiding muni index bonds if possible. We keep a longer term focus with these investments, too.
Gold is another good hedge for the portfolio. It is only a hedge at this point – rising on geopolitical worries and falling once they are out of the headlines. It has done well lately, but with the volatility we’ve seen in it over the years, it is better to think of it as a hedge for the portfolio.
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.
