The week saw an increase in volatility in the market, only to see it end with little change. For the week, the Dow gained 0.3%, the S&P rose a slight 0.06%, and the Nasdaq moved lower by 0.3%. Bonds remained in focus this week as the prices hit the lowest levels of the year (and yields at the highest level). Gold gained on the week, up 0.9%. Oil prices also hit the highest level of the year, up 1.4% to just shy of $60 per barrel. The international Brent oil, which is used to make much of our gas here in the east, moved up to $64.69 per barrel.
Source: Barchart.com
Stocks saw some big moves this week, with economic data and news out of Europe again the main driver behind the moves. Normally, the news stories we saw this week wouldn’t have as much impact on the market. However, we are inching closer to the Fed pulling back on their stimulus so with a Fed meeting scheduled for next week, investors are a little more jittery.
Despite the big swings in the stock market this week, stocks are still within the narrow range they’ve been in all year, as seen in the nearby chart. The research firm, Bespoke Financial, cites that this is the longest streak of less than 1% weekly moves since 1993. It’s been a frustrating investing environment as the market hasn’t had any momentum either direction.
Getting into the week, Monday opened on a down note as investors worried the positive employment report we saw the previous Friday would cause the Fed to pull back from its stimulus program sooner rather than later. We’ve discussed this theme with economic data a lot lately – good news is bad for stocks, since it means less stimulus is likely.
We saw more positive economic reports this week, too. An employment report (the JOLTs report) showed job openings stand at the highest level on record. Retail sales saw an increase for the first time in six months, although we must say the increase in sales was due to people spending more at the gas pump, which isn’t necessarily a good thing. More money spent at the pump means less money for everything else.
Along those same lines, inflation at the producer level (the PPI) saw a sharp increase, but this was also due to higher energy prices.
Finally, the soap opera in Greece continued to provide some good entertainment. It was announced that the IMF offered to extend the Greek bailout until March of next year – a full nine months of can-kicking. We can never underestimate their desire to put off the tough decisions.
To get this generous extension, Greece had to agree to a few common-sense reforms like making it easier to hire and fire workers, reforming their pension system, and increasing the sales tax (although we disagree with this last term).
Greece flatly refused to make any reforms, so the deal was off. Greece’s creditors seem to be running out of patience, so it will be interesting to see how this plays out. We’re sure they will find a way to put off making tough decisions somehow and the bailout will continue.
Next Week
All eyes will be on the Fed next week as they hold another policy meeting. Analysts don’t expect any pullback from their stimulus programs at this point, but their assessment on the economy is likely to give clues as to when they will.
Other economic data next week includes industrial production figures, housing data, and inflation at the consumer level.
Investment Strategy
No change here. As mentioned above, stocks remain in a range and it’s tough to find any momentum to either direction. If anything, we are bit more on the cheap side at present, so stocks may move a little higher from here. It all depends on the Fed, which is unpredictable, at best. We aren’t looking to put money into the broader index at this point, but there are many individual stocks the look undervalued.
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, though. Plus, a lack of companies reinvesting in themselves signals less growth down the road.
The volatility in the bond market continued this week, too, but they remain stuck in a range, too. They may be near the top of that range, but we don’t see a breakout from that range occurring, so we don’t see a lot of movement from bond prices or yields coming. 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 and floating-rate bonds will do well if interest rates do rise.
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.
Getting into the week, Monday opened on a down note as investors worried the positive employment report we saw the previous Friday would cause the Fed to pull back from its stimulus program sooner rather than later. We’ve discussed this theme with economic data a lot lately – good news is bad for stocks, since it means less stimulus is likely.
We saw more positive economic reports this week, too. An employment report (the JOLTs report) showed job openings stand at the highest level on record. Retail sales saw an increase for the first time in six months, although we must say the increase in sales was due to people spending more at the gas pump, which isn’t necessarily a good thing. More money spent at the pump means less money for everything else.
Along those same lines, inflation at the producer level (the PPI) saw a sharp increase, but this was also due to higher energy prices.
Finally, the soap opera in Greece continued to provide some good entertainment. It was announced that the IMF offered to extend the Greek bailout until March of next year – a full nine months of can-kicking. We can never underestimate their desire to put off the tough decisions.
To get this generous extension, Greece had to agree to a few common-sense reforms like making it easier to hire and fire workers, reforming their pension system, and increasing the sales tax (although we disagree with this last term).
Greece flatly refused to make any reforms, so the deal was off. Greece’s creditors seem to be running out of patience, so it will be interesting to see how this plays out. We’re sure they will find a way to put off making tough decisions somehow and the bailout will continue.
Next Week
All eyes will be on the Fed next week as they hold another policy meeting. Analysts don’t expect any pullback from their stimulus programs at this point, but their assessment on the economy is likely to give clues as to when they will.
Other economic data next week includes industrial production figures, housing data, and inflation at the consumer level.
Investment Strategy
No change here. As mentioned above, stocks remain in a range and it’s tough to find any momentum to either direction. If anything, we are bit more on the cheap side at present, so stocks may move a little higher from here. It all depends on the Fed, which is unpredictable, at best. We aren’t looking to put money into the broader index at this point, but there are many individual stocks the look undervalued.
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, though. Plus, a lack of companies reinvesting in themselves signals less growth down the road.
The volatility in the bond market continued this week, too, but they remain stuck in a range, too. They may be near the top of that range, but we don’t see a breakout from that range occurring, so we don’t see a lot of movement from bond prices or yields coming. 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 and floating-rate bonds will do well if interest rates do rise.
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.
