Excitement for stocks wore off this week as rally stalled. Through the Friday close, the Dow was off 0.8%, the S&P 500 fell a slight 0.08%, but the Nasdaq was positive with a gain of 1.2%. Gold turned higher to close with a 2.4% return. Oil hit its lowest level in 3 months with a 6.5% loss to close at $41.38. The international Brent oil closed down to $42.49.
Source: Google Finance
We saw very little volatility this week as stocks traded in a narrow range on light volume. Corporate earnings were in focus, with some news from the central banks and a few poor economic data reports, as well.
Starting with earnings, this week was the busiest one of corporate earnings season. More than half of the companies in the S&P 500 have now reported results and while still negative, they have been better than expected. Better-than-expected doesn’t mean they are good, however.
Economic data released this week was mostly poor. Sales of durable goods, which are items with a longer life like a phone or refrigerator, fell by the most in two years.
Starting with earnings, this week was the busiest one of corporate earnings season. More than half of the companies in the S&P 500 have now reported results and while still negative, they have been better than expected. Better-than-expected doesn’t mean they are good, however.
Economic data released this week was mostly poor. Sales of durable goods, which are items with a longer life like a phone or refrigerator, fell by the most in two years.
GDP for the second quarter was surprisingly poor, too. Expectations were for well over 2% growth, only to see the number come in at 1.2%. Adding insult to injury, the first quarter was revised down to 0.8%.
This has been one of the weakest first-halves in years and the weakest economy recovery since WWII. It’s quite a contrast to the positive picture we heard at the political convention this week.
The poor economic data has reduced the chance the Fed pulls back on its stimulus any time soon. They held a policy meeting this week where they saw an improving economy but showed little interest in raising interest rates. It’s very unlikely they raise rates any time this year.
The Japanese Central Bank was also out this week with an announcement on their stimulus program. Expectations were high that new stimulus would be announced. While they announced they will be printing twice as much money to buy stocks through ETF’s, it disappointed investors who were expecting more (although printing money to buy stocks and bonds is still madness).
We’re seeing so much stimulus around the globe but so little economic growth. We wonder if they will ever conclude they are applying the wrong prescription.
Next Week
Next week will be a busy one. We’ll get another load of corporate earnings, plus noteworthy economic reports like the strength of the manufacturing and service sectors and employment for July.
Investment Strategy
Still 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.
Looking out a little further, we see headwinds for stocks but the response from central banks will have the most influence on the direction of the market. Additional support, whether it is stimulus from printing money or lowering interest rates, will reassure the markets and likely see them head higher – or at least stem the decline.
Looking out a little further, we remain very cautious. All this stimulus has masked many problems, causing a misallocation of resources and allowing bubbles to form. It prevented necessary changes from occurring at both a corporate and political level – changes that would actually help the economy. Just how far out this day of reckoning is remains anyone’s guess, however.
Bonds were relatively quiet this week as yields fell slightly (so prices rose slightly). 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.
This has been one of the weakest first-halves in years and the weakest economy recovery since WWII. It’s quite a contrast to the positive picture we heard at the political convention this week.
The poor economic data has reduced the chance the Fed pulls back on its stimulus any time soon. They held a policy meeting this week where they saw an improving economy but showed little interest in raising interest rates. It’s very unlikely they raise rates any time this year.
The Japanese Central Bank was also out this week with an announcement on their stimulus program. Expectations were high that new stimulus would be announced. While they announced they will be printing twice as much money to buy stocks through ETF’s, it disappointed investors who were expecting more (although printing money to buy stocks and bonds is still madness).
We’re seeing so much stimulus around the globe but so little economic growth. We wonder if they will ever conclude they are applying the wrong prescription.
Next Week
Next week will be a busy one. We’ll get another load of corporate earnings, plus noteworthy economic reports like the strength of the manufacturing and service sectors and employment for July.
Investment Strategy
Still 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.
Looking out a little further, we see headwinds for stocks but the response from central banks will have the most influence on the direction of the market. Additional support, whether it is stimulus from printing money or lowering interest rates, will reassure the markets and likely see them head higher – or at least stem the decline.
Looking out a little further, we remain very cautious. All this stimulus has masked many problems, causing a misallocation of resources and allowing bubbles to form. It prevented necessary changes from occurring at both a corporate and political level – changes that would actually help the economy. Just how far out this day of reckoning is remains anyone’s guess, however.
Bonds were relatively quiet this week as yields fell slightly (so prices rose slightly). 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.
