Please note: There will be no market commentary next week due to the 4th of July holiday. Thank you.
Stocks fared poorly on a rather uneventful week. By the Friday close, the Dow and S&P 500 both lost 0.4% and the Nasdaq was lower by 0.7%. Bonds were a big story this week as they hit their lowest prices in nine months (so yields are higher). Gold also had a poor week, down 2.4%. Oil prices bounced around, but closed the week with a drop of x% to $59.63 per barrel. The international Brent oil, which is used to make much of our gas here in the east, added just 15 cents to close at $63.77 per barrel.
Stocks fared poorly on a rather uneventful week. By the Friday close, the Dow and S&P 500 both lost 0.4% and the Nasdaq was lower by 0.7%. Bonds were a big story this week as they hit their lowest prices in nine months (so yields are higher). Gold also had a poor week, down 2.4%. Oil prices bounced around, but closed the week with a drop of x% to $59.63 per barrel. The international Brent oil, which is used to make much of our gas here in the east, added just 15 cents to close at $63.77 per barrel.
Source: Barchart.com
There was very little in the way of corporate news or market-moving economic reports week, causing events in Greece to be the focus for the markets.
We opened the week on the positive side as weekend negotiations in Greece left investors optimistic a deal will be reached. Greek leaders introduced proposals that promised concessions, which seemed like a step in the right direction.
Unfortunately, its creditors didn’t think it was a step in the right direction. Greece proposed a tax increase on the rich and businesses (sounds a lot like here, huh?) to raise funds to repay their debts. However, their creditors want to see structural reforms made, too.
Most importantly, Greece must lower their spending. Plus they need to make other reforms like raising the retirement age. Many Greeks are able to retire in their 50’s, while people in other European countries must retire in their 60’s. Since it’s the people of these other European countries whose are paying for the Greek bailout, these terms seem perfectly reasonable.
That didn’t sit well with the Greeks and we find ourselves at yet another impasse. Talks are set to continue this weekend, but the outcome remains uncertain. Greece has a debt payment due next week and without any assistance, they will be unable to make this payment.
We’ve seen this same story many times over the past few years and they’ve all ended the same way: Greece will avoid paying in exchange for some promise to pay further down the road. We see no reason why this won’t be the result yet again. No one wants to make any tough decisions and we’ll be right back here again in a few months.
Switching gears, our Fed had an impact on the market this week, too. A Fed governor sent markets lower when he said a September interest rate hike was likely (the low interest rates have helped send stocks higher). Further, a December rate hike was also possible. This spooked investors, who didn’t seem to think a September rate hike was in the cards, much less two this year.
Finally, last week we discussed China and their stock market. Their market had soared until a recent pullback and now stands nearly 20% off the high set three weeks ago. This week continued the downtrend as it fell more than 7% on Friday alone. Investors had hoped the Chinese government would step in with more stimulus to prop the market up, but the government seems reluctant to do so. The Chinese market could have a ways to fall.
We opened the week on the positive side as weekend negotiations in Greece left investors optimistic a deal will be reached. Greek leaders introduced proposals that promised concessions, which seemed like a step in the right direction.
Unfortunately, its creditors didn’t think it was a step in the right direction. Greece proposed a tax increase on the rich and businesses (sounds a lot like here, huh?) to raise funds to repay their debts. However, their creditors want to see structural reforms made, too.
Most importantly, Greece must lower their spending. Plus they need to make other reforms like raising the retirement age. Many Greeks are able to retire in their 50’s, while people in other European countries must retire in their 60’s. Since it’s the people of these other European countries whose are paying for the Greek bailout, these terms seem perfectly reasonable.
That didn’t sit well with the Greeks and we find ourselves at yet another impasse. Talks are set to continue this weekend, but the outcome remains uncertain. Greece has a debt payment due next week and without any assistance, they will be unable to make this payment.
We’ve seen this same story many times over the past few years and they’ve all ended the same way: Greece will avoid paying in exchange for some promise to pay further down the road. We see no reason why this won’t be the result yet again. No one wants to make any tough decisions and we’ll be right back here again in a few months.
Switching gears, our Fed had an impact on the market this week, too. A Fed governor sent markets lower when he said a September interest rate hike was likely (the low interest rates have helped send stocks higher). Further, a December rate hike was also possible. This spooked investors, who didn’t seem to think a September rate hike was in the cards, much less two this year.
Finally, last week we discussed China and their stock market. Their market had soared until a recent pullback and now stands nearly 20% off the high set three weeks ago. This week continued the downtrend as it fell more than 7% on Friday alone. Investors had hoped the Chinese government would step in with more stimulus to prop the market up, but the government seems reluctant to do so. The Chinese market could have a ways to fall.
Next Week
Next week is a short week, but there will some important events crammed in. The main story is again likely to be Greece. With a deadline Tuesday, we’ll see if they are able to make their payment or if the can will somehow be kicked further down the road.
With the month ending next week, we’ll get a few important economic reports on the month of June. All eyes will be on the employment report in Thursday, plus we’ll get info on the manufacturing sector on Wednesday. There will also be data on housing, consumer confidence, and construction spending.
Investment Strategy
No change here. With the market stuck in this range over past several months, there has been little to change our investment strategy. We just haven’t seen momentum in either direction. If anything, the market may be a bit more on the cheap side in the short-term, so stocks may move a little higher from here. This isn’t the most attractive entry point for new money into the broader market, though, but there are many individual stocks the look undervalued.
Our longer term view remains unchanged, too. The market is on the expensive side from a longer-term perspective. Also, 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. Further, companies have shown little interest in reinvesting in themselves, which signals less growth down the road.
The volatility in the bond market continued this week, with yields on the high side and prices on the low side. Bonds, like stocks, have traded in a range over the last several months, though yields are currently on the high end of the range. We think foreign issues will keep our bonds attractive to foreign investors, so this will keep yields low and prices high, so we see little change in bonds at this time.
Bonds to protect against inflation, or TIPs, remain a good long term hedge for inflation. Floating-rate bonds will do well if interest rates eventually 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 on geopolitical issues and when more stimulus looks likely and falling on the opposite.
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.
Next week is a short week, but there will some important events crammed in. The main story is again likely to be Greece. With a deadline Tuesday, we’ll see if they are able to make their payment or if the can will somehow be kicked further down the road.
With the month ending next week, we’ll get a few important economic reports on the month of June. All eyes will be on the employment report in Thursday, plus we’ll get info on the manufacturing sector on Wednesday. There will also be data on housing, consumer confidence, and construction spending.
Investment Strategy
No change here. With the market stuck in this range over past several months, there has been little to change our investment strategy. We just haven’t seen momentum in either direction. If anything, the market may be a bit more on the cheap side in the short-term, so stocks may move a little higher from here. This isn’t the most attractive entry point for new money into the broader market, though, but there are many individual stocks the look undervalued.
Our longer term view remains unchanged, too. The market is on the expensive side from a longer-term perspective. Also, 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. Further, companies have shown little interest in reinvesting in themselves, which signals less growth down the road.
The volatility in the bond market continued this week, with yields on the high side and prices on the low side. Bonds, like stocks, have traded in a range over the last several months, though yields are currently on the high end of the range. We think foreign issues will keep our bonds attractive to foreign investors, so this will keep yields low and prices high, so we see little change in bonds at this time.
Bonds to protect against inflation, or TIPs, remain a good long term hedge for inflation. Floating-rate bonds will do well if interest rates eventually 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 on geopolitical issues and when more stimulus looks likely and falling on the opposite.
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.
