It was another week with the markets ending in the red. Through the Friday close, the Dow was lower by 1.5%, the S&P fell 1.9%, and the Nasdaq fared the worst with a 2.8% drop. Gold did nicely with a 2.3% gain. Oil fell to its lowest level in six weeks with a 9.3% decline to close at $44.13 per barrel. The international Brent oil lost $4 to close down to $45.60.
Source: Google Finance
The week was very similar to last week – stocks moved steadily lower as cautious investors refused to make any big bets on the market before the election.
This decline in the market has been historic, too. The loss on Friday marked a nine-day losing streak for the S&P 500. The last time the S&P was lower for nine straight days was in 1980. Of course, the magnitude of this decline has been nowhere near the losses of 1980. This decline has seen a modest loss of 2.9% compared to a large drop in 1980, so a little perspective is important.
As for the events of the week, we had many economic reports and still a lot of corporate earnings coming in.
Starting with earnings, Factset reports roughly 400 companies in the S&P 500 have reported results, with earnings on pace to rise 2.6%. This is much better than the negative quarter analysts expected and could mark the end to the earnings recession we have seen over the last six quarters.
Economic data was heavy due to the end of the month and results were generally good, but not great. Both the service and manufacturing sectors showed expansion, though were both less than expected. Personal spending was better than expected while personal income was worse than expected. Productivity was a bright spot, rising for the first quarter in a year.
This decline in the market has been historic, too. The loss on Friday marked a nine-day losing streak for the S&P 500. The last time the S&P was lower for nine straight days was in 1980. Of course, the magnitude of this decline has been nowhere near the losses of 1980. This decline has seen a modest loss of 2.9% compared to a large drop in 1980, so a little perspective is important.
As for the events of the week, we had many economic reports and still a lot of corporate earnings coming in.
Starting with earnings, Factset reports roughly 400 companies in the S&P 500 have reported results, with earnings on pace to rise 2.6%. This is much better than the negative quarter analysts expected and could mark the end to the earnings recession we have seen over the last six quarters.
Economic data was heavy due to the end of the month and results were generally good, but not great. Both the service and manufacturing sectors showed expansion, though were both less than expected. Personal spending was better than expected while personal income was worse than expected. Productivity was a bright spot, rising for the first quarter in a year.
The employment report for October was somewhat weak, adding 161,000 jobs. This number is closely watched since it is one of the Fed’s main focuses. The result was not too hot or cold, so it likely had little impact on the Fed’s economic policy.
The Fed did hold a policy meeting this week, too. No changes to their policy were expected and none were announced. However, it is looking more likely that they will change their stimulative policy in December and raise interest rates.
We’ve seen the Fed talk tough about raising rates before, only to find many excuses not to. A lot will transpire between now and December, so there are many possibilities to keep them from raising rates.
Finally, this weekend we have the Blue Angels performing here in Jacksonville. Thursday and Friday were their practice days and they flew right outside out office. Below is a couple pictures – our favorite is the last picture. In it you can see the plane above a tree with two Bald Eagles in the lower part of the picture. You can’t get much more America than that!
The Fed did hold a policy meeting this week, too. No changes to their policy were expected and none were announced. However, it is looking more likely that they will change their stimulative policy in December and raise interest rates.
We’ve seen the Fed talk tough about raising rates before, only to find many excuses not to. A lot will transpire between now and December, so there are many possibilities to keep them from raising rates.
Finally, this weekend we have the Blue Angels performing here in Jacksonville. Thursday and Friday were their practice days and they flew right outside out office. Below is a couple pictures – our favorite is the last picture. In it you can see the plane above a tree with two Bald Eagles in the lower part of the picture. You can’t get much more America than that!
Next Week
Next week looks very quiet for economic data and the pace of corporate earnings will slow. Of course, the election will dominate the news and will have the most impact on the market.
Investment Strategy
Again, no change here. Stocks have sold off recently, but it is difficult to really tell what the market will do until after the election. Stocks look to be on the cheap side in the short term (a week to a few weeks) and could be poised for a rebound, but we’ll have to wait and see.
From a longer term perspective, everything looks expensive. Central bank policies have driven asset classes higher, which leaves few places to hide if the market were to turn. We worry this is an asset bubble that will end badly – but knowing when that day of reckoning is remains anyone’s guess.
Bond yields fell this week (so prices ticked higher), but remain at the top of the range of the uptrend that started in July. We don’t expect a significant change here as we think prices will remain relatively high and yields low as demand from investors will keep prices elevated, even with higher rates from the Fed.
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.
Next week looks very quiet for economic data and the pace of corporate earnings will slow. Of course, the election will dominate the news and will have the most impact on the market.
Investment Strategy
Again, no change here. Stocks have sold off recently, but it is difficult to really tell what the market will do until after the election. Stocks look to be on the cheap side in the short term (a week to a few weeks) and could be poised for a rebound, but we’ll have to wait and see.
From a longer term perspective, everything looks expensive. Central bank policies have driven asset classes higher, which leaves few places to hide if the market were to turn. We worry this is an asset bubble that will end badly – but knowing when that day of reckoning is remains anyone’s guess.
Bond yields fell this week (so prices ticked higher), but remain at the top of the range of the uptrend that started in July. We don’t expect a significant change here as we think prices will remain relatively high and yields low as demand from investors will keep prices elevated, even with higher rates from the Fed.
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.
