Stocks closed out the week relatively unchanged. Through the Friday close, the Dow was lower by 0.4%, the S&P was down a slight 0.1%, and Nasdaq did well with a 0.9% gain. Bond prices again moved higher as yields fell this week. Gold had another nice week, up 2.1%. Oil took a tumble, falling 2.6% to close at $52.52 per barrel. The international Brent oil closed down to $55.59.
Source: Google Finance
The week was a fairly uneventful one. The markets haven’t been able to find any momentum either direction and remain stalled around a level first reached in mid-December. The Dow came frustratingly close to the 20,000 level last week but remains unable to punch through it.
Much of the focus remains on Washington. Investors are still encouraged by the pro-business policies coming from the new Trump administration, but we learned few new policy details this week. While we know we’ll see pro-business policies, we aren’t sure when we will see them or how big they will be.
Much of the focus remains on Washington. Investors are still encouraged by the pro-business policies coming from the new Trump administration, but we learned few new policy details this week. While we know we’ll see pro-business policies, we aren’t sure when we will see them or how big they will be.
One of the interesting reports to come out this week was small business optimism. It saw a massive surge after the election as more small business owners turn optimistic on the future. Optimism now stands at the highest level since 2004. This is a very positive sign for the economy. Chart courtesy Zerohedge.com
Trump’s policies may be good for business, but he also has the power to take them lower. He has shown a willingness to call out individual companies or sectors whose actions he disagrees with. Last week it was car companies operating in Mexico. This week it was healthcare and pharmaceutical companies.
Trump’s policies may be good for business, but he also has the power to take them lower. He has shown a willingness to call out individual companies or sectors whose actions he disagrees with. Last week it was car companies operating in Mexico. This week it was healthcare and pharmaceutical companies.
Healthcare-related stocks saw nice gains after the election, relived to see a Trump victory since they were often demonized by the left. However, Donald Trump called them out in a press conference this week, saying they had “gotten away with murder” since the federal government does not bid on drug prices for government programs. The possibility of lower revenue from the government sent the sector sharply lower. (Chart courtesy Wall Street Journal)
Ideally we’d like to see these company-specific matters resolved more diplomatically, but as it stands now, it looks like this unpredictability could be a factor for investing going forward.
Finally, corporate earnings for the fourth quarter started coming in this week. Banks were a big focus as several big names reported results. They were mostly “okay,” with Bank of America and JP Morgan posting decent numbers. However, Wells Fargo did very poorly, perhaps since this was the quarter of the bad press about fake bank accounts.
It’s too early to get an idea of the broader earnings picture. Analysts are predicting growth of 3.2% and though modest, it shows a continued improvement in growth over the last few years.
Next Week
Next week will be fairly quiet for economic data. We’ll get info on inflation at the consumer level, industrial production, and housing. Corporate earnings will come more into focus as earnings releases really start to pick up next week.
Investment Strategy
Still no change here. We continue to think stocks are on the expensive side in the short-term. We would wait for a pullback before putting any new money into the market.
While we are cautious in the short term, we are more optimistic in the longer run. We had been cautious on the long term – and still are to some degree – because much of the rise in the market over the past few years has been due to the central banks and their stimulus. It may have caused markets to rise, but has also distorted markets and created bubbles, which usually ends badly.
Our optimism comes from the new pro-business policies that may balance out or negate the distortions caused by the stimulus. We are unsure how this will eventually play out, but pro-growth policies will be a net positive for the economy.
Bond prices no longer look cheap, either, and we would hesitate to add to short-term fixed income positions at this time.
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, though they are looking cheap.
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.
Ideally we’d like to see these company-specific matters resolved more diplomatically, but as it stands now, it looks like this unpredictability could be a factor for investing going forward.
Finally, corporate earnings for the fourth quarter started coming in this week. Banks were a big focus as several big names reported results. They were mostly “okay,” with Bank of America and JP Morgan posting decent numbers. However, Wells Fargo did very poorly, perhaps since this was the quarter of the bad press about fake bank accounts.
It’s too early to get an idea of the broader earnings picture. Analysts are predicting growth of 3.2% and though modest, it shows a continued improvement in growth over the last few years.
Next Week
Next week will be fairly quiet for economic data. We’ll get info on inflation at the consumer level, industrial production, and housing. Corporate earnings will come more into focus as earnings releases really start to pick up next week.
Investment Strategy
Still no change here. We continue to think stocks are on the expensive side in the short-term. We would wait for a pullback before putting any new money into the market.
While we are cautious in the short term, we are more optimistic in the longer run. We had been cautious on the long term – and still are to some degree – because much of the rise in the market over the past few years has been due to the central banks and their stimulus. It may have caused markets to rise, but has also distorted markets and created bubbles, which usually ends badly.
Our optimism comes from the new pro-business policies that may balance out or negate the distortions caused by the stimulus. We are unsure how this will eventually play out, but pro-growth policies will be a net positive for the economy.
Bond prices no longer look cheap, either, and we would hesitate to add to short-term fixed income positions at this time.
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, though they are looking cheap.
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.
