It was a nice week for the markets. Through the Friday close, the Dow rose 1.4%, the S&P gained 1.8%, and the Nasdaq returned a solid 3.3%. Gold took a turn lower after several stagnant weeks, off 2.3%. Oil again reached new highs for the year, up 0.3% on the week to close at $57.15 per barrel. The international Brent oil, which is used to make much of our gas here in the east, moved higher to close at $65.37 per barrel.
Source: Google Finance
This week was one of the more uneventful ones as of late. We had the Nasdaq hitting new highs and the busiest week yet for corporate earnings, but there was very little news to grab headlines.
The Nasdaq did hit a new record high this week, surpassing the previous record set back in the year 2000. It was a milestone many thought was unreachable due to the exuberance surrounding the markets in 2000.
The Nasdaq did hit a new record high this week, surpassing the previous record set back in the year 2000. It was a milestone many thought was unreachable due to the exuberance surrounding the markets in 2000.
Source: Zerohedge.com
Of course, the composition of the Nasdaq today is vastly different from that time, so it isn’t exactly an apples-to-apples comparison. The index is now just over 40% technology companies, whereas it was 65% previously. Plus, there are nearly half as many companies in the index.
The fundamentals of the index are not nearly as lofty as 2000, too, as it trades at a more reasonable – though still high – multiple.
While it’s not as speculative as in 2000, we have to worry what role the central banks are playing in its rise. Their stimulus programs have clearly inflated stock prices and we suspect a large part of the Nasdaq’s rise is a result. We worry this will not end well, but in the meantime, stocks continue to rise.
This week was also the busiest yet for corporate earnings. Many analysts we see on TV are excited over how well earnings have been so far. 73% of companies have beaten expectations, well above average.
However, it is very important to remember earnings were expected to come in at the weakest level in six years. Analysts were expecting a -4.9% earnings growth coming in to earnings season and with about 40% of the S&P 500 reporting, earnings so far have averaged -2.8%, per Factset. Revenue (what a company earned in sales. Earnings are what remain after costs are subtracted) has come in much worse than expected and less than half are meeting estimates. These are still poor numbers and nothing to be excited about.
The week was very light for economic data and the results were mixed. New home sales fell while existing home sales rose and durable goods showed a nice 4% rise. However, stripping out large orders of aircrafts shows durable good sales actually declined last month. This shows the economy remains on fragile footing.
Next Week
Next week looks to be much busier than this week. A Fed meeting this week will grab headlines, though we doubt we will hear anything new. The first quarter GDP number will also be released and the bar is set very low here.
Also, a third of the companies in the S&P 500 will report earnings next week, so it will be the busiest week yet for corporate data.
Investment Strategy
There is no change in our outlook. Stocks overall aren’t at attractive buying levels and they aren’t at a level where we would consider selling. Instead, we would look for individual stocks to put new money into at this time.
Our longer term view remains unchanged, too. We continue to have concerns for the long run as 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 slightly this week (so yields rose) and we continue to bounce around this current range. We think bonds will likely to stay around this level for some time. 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 seen an uptick in interest, so TIPs have performed well recently.
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.
The fundamentals of the index are not nearly as lofty as 2000, too, as it trades at a more reasonable – though still high – multiple.
While it’s not as speculative as in 2000, we have to worry what role the central banks are playing in its rise. Their stimulus programs have clearly inflated stock prices and we suspect a large part of the Nasdaq’s rise is a result. We worry this will not end well, but in the meantime, stocks continue to rise.
This week was also the busiest yet for corporate earnings. Many analysts we see on TV are excited over how well earnings have been so far. 73% of companies have beaten expectations, well above average.
However, it is very important to remember earnings were expected to come in at the weakest level in six years. Analysts were expecting a -4.9% earnings growth coming in to earnings season and with about 40% of the S&P 500 reporting, earnings so far have averaged -2.8%, per Factset. Revenue (what a company earned in sales. Earnings are what remain after costs are subtracted) has come in much worse than expected and less than half are meeting estimates. These are still poor numbers and nothing to be excited about.
The week was very light for economic data and the results were mixed. New home sales fell while existing home sales rose and durable goods showed a nice 4% rise. However, stripping out large orders of aircrafts shows durable good sales actually declined last month. This shows the economy remains on fragile footing.
Next Week
Next week looks to be much busier than this week. A Fed meeting this week will grab headlines, though we doubt we will hear anything new. The first quarter GDP number will also be released and the bar is set very low here.
Also, a third of the companies in the S&P 500 will report earnings next week, so it will be the busiest week yet for corporate data.
Investment Strategy
There is no change in our outlook. Stocks overall aren’t at attractive buying levels and they aren’t at a level where we would consider selling. Instead, we would look for individual stocks to put new money into at this time.
Our longer term view remains unchanged, too. We continue to have concerns for the long run as 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 slightly this week (so yields rose) and we continue to bounce around this current range. We think bonds will likely to stay around this level for some time. 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 seen an uptick in interest, so TIPs have performed well recently.
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.
