Stocks notched new record highs again this week. Through Friday’s close, the Dow was up a slight 0.3%, the S&P 500 gained 0.6%, and the Nasdaq turned in a relatively strong performance of 1.4%. Gold moved lower for a second week, off 0.6%. Oil declined 4.4% to close at $44.26. The international Brent oil lost $4 to close at $45.74.
Source: Google Finance
The week was another one for the record books as both the Dow and S&P 500 hit new highs. The Dow even notched nine-straight days of gains, something that hasn’t happened since 2013 and 1996 before that.
However, the market seems to be stalling as the recent gains have been much smaller than when the rally began. The volume of trades has fallen off, too, as this week saw the lightest trading volume since December.
A pause in the market here wasn’t all that surprising after stocks rapidly gained more than 8% since the Brexit bottom,
The week was fairly uneventful for news. We saw many headlines early in the week surrounding Turkey’s failed coup and subsequent government retaliation. It had little impact on our markets, though it did affect the emerging market sector.
Events like this can be a wake-up call to investors seeking higher returns thru riskier investments. These risky investments can turn on a dime.
Several central banks around the world were in the news this week, mostly because they surprisingly announced no additional stimulus.
The market loves stimulus, so investors were disappointed when the Bank of England announced it was waiting for more data before lowering rates further, the European Central Bank announced no increase in stimulus (though it will do so if they deem necessary), and the Bank of Japan also tapped the brakes on additional stimulus. The BOJ has a policy meeting next week, though, so investors will be watching that closely.
Our Fed will also hold a policy meeting next week. No changes in their stimulative policies are expected, but investors will be watching for any clues about their next meeting in September. Economic data has improved and the market is at record highs, so there’s a chance the Fed could pull back on their stimulus and raise interest rates at that time (Updated odds). This will weigh on the markets.
Finally, close to 30% of companies in the S&P 500 have reported earnings so far. They’ve averaged a decline of 4.2%, which is better than the -5.3% analysts expected at the beginning of earnings season. Of course, it is still another negative quarter, which makes it odd to see stocks at record highs.
Next Week
Next week we’ll see another relatively quiet week for economic data, with reports on housing, durable goods, and a revision to GDP.
Central banks will be a focus with both our Fed and the Bank of Japan holding policy meetings.
The week will also be busy for corporate earnings as about 35% of the companies in the S&P 500 reporting, including some big names like Apple, Caterpillar, McDonalds, and several oil companies.
Investment Strategy
No change here. Stocks are near expensive territory and we would hesitate to put any new money in at this point. We don’t think a significant drop is likely and stocks may even continue higher from here, but we see less upside potential at this point.
The Fed and BOJ meetings next week make things more unpredictable as they could have an impact with any changes to their stimulus programs.
Looking out a little further, we remain very cautious. The stimulus of the last several years masked many problems, causing a misallocation of resources and allowing bubbles to form. It also prevented necessary changes from occurring at both a corporate and political level. If the stimulus is ever forced to end, those flaws become more apparent. We’re now seeing lower corporate earnings, massive debt levels, poor economic growth, and potential for recession. This will weigh on the market at some point, but the question remains as to when.
Bonds were relatively quiet this week. We think prices will remain high and yields low, though, as demand from investors will continue to be strong.
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. 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 as a flight to safety.
Finally, in international stocks, we see weakness around the globe and favor neither the developed or emerging markets.
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.
However, the market seems to be stalling as the recent gains have been much smaller than when the rally began. The volume of trades has fallen off, too, as this week saw the lightest trading volume since December.
A pause in the market here wasn’t all that surprising after stocks rapidly gained more than 8% since the Brexit bottom,
The week was fairly uneventful for news. We saw many headlines early in the week surrounding Turkey’s failed coup and subsequent government retaliation. It had little impact on our markets, though it did affect the emerging market sector.
Events like this can be a wake-up call to investors seeking higher returns thru riskier investments. These risky investments can turn on a dime.
Several central banks around the world were in the news this week, mostly because they surprisingly announced no additional stimulus.
The market loves stimulus, so investors were disappointed when the Bank of England announced it was waiting for more data before lowering rates further, the European Central Bank announced no increase in stimulus (though it will do so if they deem necessary), and the Bank of Japan also tapped the brakes on additional stimulus. The BOJ has a policy meeting next week, though, so investors will be watching that closely.
Our Fed will also hold a policy meeting next week. No changes in their stimulative policies are expected, but investors will be watching for any clues about their next meeting in September. Economic data has improved and the market is at record highs, so there’s a chance the Fed could pull back on their stimulus and raise interest rates at that time (Updated odds). This will weigh on the markets.
Finally, close to 30% of companies in the S&P 500 have reported earnings so far. They’ve averaged a decline of 4.2%, which is better than the -5.3% analysts expected at the beginning of earnings season. Of course, it is still another negative quarter, which makes it odd to see stocks at record highs.
Next Week
Next week we’ll see another relatively quiet week for economic data, with reports on housing, durable goods, and a revision to GDP.
Central banks will be a focus with both our Fed and the Bank of Japan holding policy meetings.
The week will also be busy for corporate earnings as about 35% of the companies in the S&P 500 reporting, including some big names like Apple, Caterpillar, McDonalds, and several oil companies.
Investment Strategy
No change here. Stocks are near expensive territory and we would hesitate to put any new money in at this point. We don’t think a significant drop is likely and stocks may even continue higher from here, but we see less upside potential at this point.
The Fed and BOJ meetings next week make things more unpredictable as they could have an impact with any changes to their stimulus programs.
Looking out a little further, we remain very cautious. The stimulus of the last several years masked many problems, causing a misallocation of resources and allowing bubbles to form. It also prevented necessary changes from occurring at both a corporate and political level. If the stimulus is ever forced to end, those flaws become more apparent. We’re now seeing lower corporate earnings, massive debt levels, poor economic growth, and potential for recession. This will weigh on the market at some point, but the question remains as to when.
Bonds were relatively quiet this week. We think prices will remain high and yields low, though, as demand from investors will continue to be strong.
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. 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 as a flight to safety.
Finally, in international stocks, we see weakness around the globe and favor neither the developed or emerging markets.
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.
