The markets turned in another solid week, making this their fourth-straight week higher. Through the Friday close, the Dow gained 2.5%, the S&P climbed 2.1%, and the Nasdaq popped higher by 3.0%. Gold didn’t fare as well, off 1.1%. Oil moved lower as gas prices hit their lowest level in six years, falling 5.4% on the week to close at $44.73 per barrel. The international Brent oil closed lower to $48.10 per barrel.
Source: Google Finance
The week started out on a fairly calm note, with corporate earnings the only news to move the market. However, an increased likelihood for more stimulus in Europe and an announced increase in stimulus from China gave stocks a boost to close out the week.
We’ll start with earnings, as this was the busiest week for earnings this quarter. The results remain lackluster. A few big tech companies – Amazon, Microsoft, and Google (which is now called Alphabet, perhaps the least creative name ever) – made headlines with very good earnings. For the most part, though, companies are seeing a decline in sales and earnings.
Economic growth around the globe was a focus this week. Growth remains slow, despite the massive amounts of stimulus from every major economy to boost growth. Europe is currently in the middle of a stimulus program involving massive money printing and negative interest rates to encourage borrowing. Growth is still lagging in the country, causing the head of the European Central Bank (ECB) to announce further stimulus is likely.
This sent stocks sharply higher, as you can see starting on Thursday in the chart above.
Stocks were further helped on Friday when China announced an increase in their stimulus measures. Earlier in the week, the country reported their weakest GDP figure since the start of the economic crisis. This spurred a response from the government as they lowered interest rates even further in an attempt to spur borrowing.
We discuss this often – we find the actions of these central banks to be highly irresponsible. If economic growth is not returning with the massive amounts of stimulus pumped into economies, wouldn’t you conclude this was not the right approach? The stock market may love the stimulus, but we worry about the longer term consequences they are creating. The massive amounts of debt and market bubbles could be very damaging in the long run.
Next Week
Next week will be a very busy one, both for corporate earnings and economic data. With the economic data, we’ll get info on the strength of the economy with the third quarter GDP figure, along with durable goods, personal income and spending, and housing.
The Fed will again be in the news as they hold another policy meeting. They are widely expected to announce nothing new at this meeting, so it is unlikely to have much impact on the market.
Investment Strategy
Still no change here. Stocks remain on the expensive side in the very short term. Looking out a little longer, we do still think the market will trend higher in the coming weeks and months, supported by central banks either keeping stimulus programs in place or increasing them.
Longer term, we have worries. Being that much of this rally has been on the back of the Fed’s stimulus, fundamentals like the strength of the corporate sector have been ignored. Once the stimulus is pulled back, we fear markets will sell-off when the deterioration in fundamentals becomes apparent. Corporate earnings are lackluster and revenue has been in a declining trend. A lack of reinvestment into their business signals trouble as money has instead flowed into stock buybacks and dividends. This indicates lower corporate growth down the road.
Bonds prices remain high (so yields are low) as they hover at the top of the range they’ve been in the last couple months. We are likely to see relatively low yields and high prices in stocks for some time, though, so we aren’t forecasting any major changes for bonds in the near future.
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.
We’ll start with earnings, as this was the busiest week for earnings this quarter. The results remain lackluster. A few big tech companies – Amazon, Microsoft, and Google (which is now called Alphabet, perhaps the least creative name ever) – made headlines with very good earnings. For the most part, though, companies are seeing a decline in sales and earnings.
Economic growth around the globe was a focus this week. Growth remains slow, despite the massive amounts of stimulus from every major economy to boost growth. Europe is currently in the middle of a stimulus program involving massive money printing and negative interest rates to encourage borrowing. Growth is still lagging in the country, causing the head of the European Central Bank (ECB) to announce further stimulus is likely.
This sent stocks sharply higher, as you can see starting on Thursday in the chart above.
Stocks were further helped on Friday when China announced an increase in their stimulus measures. Earlier in the week, the country reported their weakest GDP figure since the start of the economic crisis. This spurred a response from the government as they lowered interest rates even further in an attempt to spur borrowing.
We discuss this often – we find the actions of these central banks to be highly irresponsible. If economic growth is not returning with the massive amounts of stimulus pumped into economies, wouldn’t you conclude this was not the right approach? The stock market may love the stimulus, but we worry about the longer term consequences they are creating. The massive amounts of debt and market bubbles could be very damaging in the long run.
Next Week
Next week will be a very busy one, both for corporate earnings and economic data. With the economic data, we’ll get info on the strength of the economy with the third quarter GDP figure, along with durable goods, personal income and spending, and housing.
The Fed will again be in the news as they hold another policy meeting. They are widely expected to announce nothing new at this meeting, so it is unlikely to have much impact on the market.
Investment Strategy
Still no change here. Stocks remain on the expensive side in the very short term. Looking out a little longer, we do still think the market will trend higher in the coming weeks and months, supported by central banks either keeping stimulus programs in place or increasing them.
Longer term, we have worries. Being that much of this rally has been on the back of the Fed’s stimulus, fundamentals like the strength of the corporate sector have been ignored. Once the stimulus is pulled back, we fear markets will sell-off when the deterioration in fundamentals becomes apparent. Corporate earnings are lackluster and revenue has been in a declining trend. A lack of reinvestment into their business signals trouble as money has instead flowed into stock buybacks and dividends. This indicates lower corporate growth down the road.
Bonds prices remain high (so yields are low) as they hover at the top of the range they’ve been in the last couple months. We are likely to see relatively low yields and high prices in stocks for some time, though, so we aren’t forecasting any major changes for bonds in the near future.
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.
