Please note: there will be no market commentary for the next two weeks. Don’t worry – we’ll be back with our commentary for the week ending 12/9/16. Thank you.
The rally in stocks moderated a bit this week, but stocks still remain at or near all-time highs. For the week, the Dow rose a modest 0.1%, the S&P added 0.8%, and the Nasdaq fared the best with a 1.6% gain. Bonds prices hit the lowest level in a year as yields continue to rise. Gold continued to move lower as the dollar hit its highest level in 13 years, off 1.6% this week. Oil rose on talks of limiting supply, gaining 5.7% to close at $45.58 per barrel. The international Brent oil rose to $46.89.
The rally in stocks moderated a bit this week, but stocks still remain at or near all-time highs. For the week, the Dow rose a modest 0.1%, the S&P added 0.8%, and the Nasdaq fared the best with a 1.6% gain. Bonds prices hit the lowest level in a year as yields continue to rise. Gold continued to move lower as the dollar hit its highest level in 13 years, off 1.6% this week. Oil rose on talks of limiting supply, gaining 5.7% to close at $45.58 per barrel. The international Brent oil rose to $46.89.
Source: Google Finance
The “Trump Rally” continued this week, though the initial euphoria has worn off. However, it looks like the market continues to believe his policies will be good for the economy and has been encouraged by the personnel appointments he has made so far.
This has new money pouring into stocks and coming out of bonds. For the one-week period ending November 16th (that’s how they measure these things), U.S. stock funds saw a record amount of money flowing into them. Specific sectors like financials, healthcare, biotech, and industrials also saw record inflows.
It hasn’t been great for everything, though, as money is flowing out of sectors like utilities, emerging markets, and gold. Plus, money is leaving bonds, too.
While the market mostly moved on Trump news the week, there was some other news in the market, too.
Many Fed speakers were making the rounds and the consensus seems to be that the Fed will raise interest rates in December (this is important because the record low rates have helped push stocks higher). Even chair Yellen said they were likely to raise rates relatively soon as she made an appearance in front of Congress.
We heard something interesting in her congressional appearance, too. She noted that the level of U.S. government debt was a concern and she would be wary of increasing government spending.
This has new money pouring into stocks and coming out of bonds. For the one-week period ending November 16th (that’s how they measure these things), U.S. stock funds saw a record amount of money flowing into them. Specific sectors like financials, healthcare, biotech, and industrials also saw record inflows.
It hasn’t been great for everything, though, as money is flowing out of sectors like utilities, emerging markets, and gold. Plus, money is leaving bonds, too.
While the market mostly moved on Trump news the week, there was some other news in the market, too.
Many Fed speakers were making the rounds and the consensus seems to be that the Fed will raise interest rates in December (this is important because the record low rates have helped push stocks higher). Even chair Yellen said they were likely to raise rates relatively soon as she made an appearance in front of Congress.
We heard something interesting in her congressional appearance, too. She noted that the level of U.S. government debt was a concern and she would be wary of increasing government spending.
We have to wonder if these comments were made as a result of the Trump election since he has discussed new government spending projects. Just a few months ago, Yellen was advocating for more government spending to boost the economy (LINK). The comments certainly appear political.
Also raising some eyebrows for political reasons was economic data released this week. Several economic reports were unusually good. The level of people applying for unemployment plunged to its lowest level since 1973. Plus, the construction of new homes saw its biggest monthly gain since 1982.
Cynical investors saw these extremely unusual reports as a way to end the current President’s tenure on a solid note. With politics the way it is today, it wouldn’t be surprising.
Next Week
Next week will be fairly quiet due to the Thanksgiving holiday. Technically the market is only closed Thursday, but Friday is usually a very quiet day, too.
As for the economic data we’ll receive, we’ll get info on housing and durable goods. The minutes from the latest Fed meeting will also be released, but since nothing new came from the meeting, it is doubtful we’ll learn anything new from the minutes of the meeting.
Investment Strategy
No change here. We think the economic policies coming from a Trump administration will be positive in the long run.
That said, we are a bit cautious on the market in the short run. A lot of asset classes have moved to extremely oversold or overbought levels. Stocks look expensive, bonds look cheap. The dollar looks to be at an overly-high level, gold, the opposite. Reversals often occur at these extreme levels.
Turning to the longer term, we think much of the rise in the market over the past few years has been due to the central banks and their stimulus. After all, it’s unusual to see record highs in the market while corporate earnings are in a recession. That would normally make us worry about stocks as the Fed pulls back from its stimulus.
However, we could see the pro-business policies balance out or negate the pullback in stimulus. We are unsure how this will eventually play out.
As for the rest of the portfolio, 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.
Also raising some eyebrows for political reasons was economic data released this week. Several economic reports were unusually good. The level of people applying for unemployment plunged to its lowest level since 1973. Plus, the construction of new homes saw its biggest monthly gain since 1982.
Cynical investors saw these extremely unusual reports as a way to end the current President’s tenure on a solid note. With politics the way it is today, it wouldn’t be surprising.
Next Week
Next week will be fairly quiet due to the Thanksgiving holiday. Technically the market is only closed Thursday, but Friday is usually a very quiet day, too.
As for the economic data we’ll receive, we’ll get info on housing and durable goods. The minutes from the latest Fed meeting will also be released, but since nothing new came from the meeting, it is doubtful we’ll learn anything new from the minutes of the meeting.
Investment Strategy
No change here. We think the economic policies coming from a Trump administration will be positive in the long run.
That said, we are a bit cautious on the market in the short run. A lot of asset classes have moved to extremely oversold or overbought levels. Stocks look expensive, bonds look cheap. The dollar looks to be at an overly-high level, gold, the opposite. Reversals often occur at these extreme levels.
Turning to the longer term, we think much of the rise in the market over the past few years has been due to the central banks and their stimulus. After all, it’s unusual to see record highs in the market while corporate earnings are in a recession. That would normally make us worry about stocks as the Fed pulls back from its stimulus.
However, we could see the pro-business policies balance out or negate the pullback in stimulus. We are unsure how this will eventually play out.
As for the rest of the portfolio, 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.
