Please note: there will be no market commentary next week due to the Easter holiday. Thank you.
Stocks saw solid declines this week. Through the close Friday, the Dow fell 2.3%, the S&P lost 2.2%, and the Nasdaq dropped 2.7%. Gold notched its second-straight positive week, gaining 1.3%. Oil also continued higher as tensions rose in the Mideast, climbing 4.9% to $48.87 per barrel. The international Brent oil, which is used to make much of our gas here in the east, saw a slight increase to close at $56.12 per barrel.
Stocks saw solid declines this week. Through the close Friday, the Dow fell 2.3%, the S&P lost 2.2%, and the Nasdaq dropped 2.7%. Gold notched its second-straight positive week, gaining 1.3%. Oil also continued higher as tensions rose in the Mideast, climbing 4.9% to $48.87 per barrel. The international Brent oil, which is used to make much of our gas here in the east, saw a slight increase to close at $56.12 per barrel.
Source: Barchart.com
The market started the week on a down note and kept moving lower from there. This was surprising after last week’s gains coming on the belief that stimulus from the Fed would continue for longer. We thought bad news would be good news for the market, but that wasn’t the case this week.
There wasn’t one item we could point to as the culprit for the decline this week, just a few small stories that all contributed to the malaise. We had some poor economic data, lower expectations for future growth, and trouble brewing in the Middle East.
The upcoming end of the quarter looks to have played a part, too, as investors exited profitable positions to lock in gains before the quarter ended.
The economic data this week leaned to the negative side. Housing reports showed nice gains, but durable goods sales fell for yet another month and inflation ticked higher.
Our overall economic growth looks to be slowing as well. Revisions to fourth quarter GDP showed only a disappointing 2.2% growth, which is much lower than previous quarters.
One troubling aspect of the report was the segment for corporate profits showed a surprising drop. This has been a concern recently as corporations have been increasingly warning over the strength of the dollar as hurting sales.
The stronger dollar does make our goods sold overseas more expensive for those foreign buyers. However, we wonder how many companies are using this simply as an excuse.
Research has shown that overseas sales are more dependent on the strength of those economies, not how strong or weak our currency is against theirs. So while the currency may play a part, it is likely not as big a factor as they would like you to believe.
Regardless, these worries have analysts expecting a sharp drop in corporate profits for the first quarter. As of now, Factset is estimating a 5% drop in profits while back in December they were seeing a 4% gain. That is quite a large shift in only a couple months.
Expectations for first quarter GDP are also dropping. While last quarter was disappointing at 2.2% growth, analysts are now forecasting a 0% growth. After several years of the largest stimulus program in the history of the world, you’d think we’d be seeing a better outcome.
Next Week
With the end of the month and quarter, next week will be fairly busy for economic data. It will be an odd week, too, with the markets closed on Friday, but economic reports will still be released.
We will get info on inflation, personal income and spending, housing, manufacturing, and employment. The employment report will be released on Friday, which will be difficult because it is such a closely watched number.
Investment Strategy
It’s hard to tell if the activity of the market this week was more due to the end of the quarter or if it is the start of something bigger. We think if the market were to see a significant downturn, the Fed would continue or increase its accommodative stance to boost the markets. It may do little to help the actual economy, but it has proven to be a benefit for the market.
In the longer-run, though, we worry the longer these stimulus programs remain in place, the greater the distortions in the market become. This makes the correction even more painful when it does correct. The “when” is anyone’s guess, however.
Bond prices fell this week (so yields rose) and we think they will likely to stay around this level or rise further. We think stimulus from global central bankers will keep our bonds attractive to investors and therefore keep yields low (and prices high).
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, too. We like buying individual, insured names for these bonds, avoiding muni index bonds if possible. They have not done well recently as a record supply has kept prices low. Therefore, we keep a longer term focus with these investments.
Gold is another good hedge for the portfolio. It is only a hedge at this point – rising when more stimulus looks likely and falling on the opposite. But it does protect against negative effects from policymakers.
Finally, in international stocks, we see weakness around the globe and favor neither the developed or emerging markets. However, the stimulus programs in Europe and Japan do make for interesting investments, as long as the currency effects are hedged.
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.
There wasn’t one item we could point to as the culprit for the decline this week, just a few small stories that all contributed to the malaise. We had some poor economic data, lower expectations for future growth, and trouble brewing in the Middle East.
The upcoming end of the quarter looks to have played a part, too, as investors exited profitable positions to lock in gains before the quarter ended.
The economic data this week leaned to the negative side. Housing reports showed nice gains, but durable goods sales fell for yet another month and inflation ticked higher.
Our overall economic growth looks to be slowing as well. Revisions to fourth quarter GDP showed only a disappointing 2.2% growth, which is much lower than previous quarters.
One troubling aspect of the report was the segment for corporate profits showed a surprising drop. This has been a concern recently as corporations have been increasingly warning over the strength of the dollar as hurting sales.
The stronger dollar does make our goods sold overseas more expensive for those foreign buyers. However, we wonder how many companies are using this simply as an excuse.
Research has shown that overseas sales are more dependent on the strength of those economies, not how strong or weak our currency is against theirs. So while the currency may play a part, it is likely not as big a factor as they would like you to believe.
Regardless, these worries have analysts expecting a sharp drop in corporate profits for the first quarter. As of now, Factset is estimating a 5% drop in profits while back in December they were seeing a 4% gain. That is quite a large shift in only a couple months.
Expectations for first quarter GDP are also dropping. While last quarter was disappointing at 2.2% growth, analysts are now forecasting a 0% growth. After several years of the largest stimulus program in the history of the world, you’d think we’d be seeing a better outcome.
Next Week
With the end of the month and quarter, next week will be fairly busy for economic data. It will be an odd week, too, with the markets closed on Friday, but economic reports will still be released.
We will get info on inflation, personal income and spending, housing, manufacturing, and employment. The employment report will be released on Friday, which will be difficult because it is such a closely watched number.
Investment Strategy
It’s hard to tell if the activity of the market this week was more due to the end of the quarter or if it is the start of something bigger. We think if the market were to see a significant downturn, the Fed would continue or increase its accommodative stance to boost the markets. It may do little to help the actual economy, but it has proven to be a benefit for the market.
In the longer-run, though, we worry the longer these stimulus programs remain in place, the greater the distortions in the market become. This makes the correction even more painful when it does correct. The “when” is anyone’s guess, however.
Bond prices fell this week (so yields rose) and we think they will likely to stay around this level or rise further. We think stimulus from global central bankers will keep our bonds attractive to investors and therefore keep yields low (and prices high).
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, too. We like buying individual, insured names for these bonds, avoiding muni index bonds if possible. They have not done well recently as a record supply has kept prices low. Therefore, we keep a longer term focus with these investments.
Gold is another good hedge for the portfolio. It is only a hedge at this point – rising when more stimulus looks likely and falling on the opposite. But it does protect against negative effects from policymakers.
Finally, in international stocks, we see weakness around the globe and favor neither the developed or emerging markets. However, the stimulus programs in Europe and Japan do make for interesting investments, as long as the currency effects are hedged.
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.
