The markets closed the week with mixed results. Through Friday’s close, the Dow fell 0.7%, the S&P was down 0.3%, and Nasdaq was higher by 0.6%. Bonds prices sold off as yields rose. Gold closed the week up 1.2%. Oil rose 1.6% to close at $52.33 per barrel. The international Brent oil, which is used for much of our gas here on the east coast, closed down to $55.49.
Source: Google Finance
A gain in the markets Friday halted a five-day decline that put stocks in negative territory for the first time this year.
Friday’s gain was actually rare – rare in that stocks were higher on inauguration day. Of the last nine Presidential inaugurations, stocks have only risen twice. Per the Wall Street Journal, Friday’s rise of 0.48% made this the second-best inauguration day performance behind Eisenhower’s 0.50% gain. By contrast, President Obama’s first inauguration was the worst in history with a 5.2% drop on just that day.
The performance of the market since the election has been historic, too. Stocks rose sharply right after the vote, making it the best short-term performance in history. The gains stalled out in mid-December, though, and we are now up 6% since the election. Despite this, it still ranks as the fifth-best election-to-inauguration performance of all Presidents.
Friday’s gain was actually rare – rare in that stocks were higher on inauguration day. Of the last nine Presidential inaugurations, stocks have only risen twice. Per the Wall Street Journal, Friday’s rise of 0.48% made this the second-best inauguration day performance behind Eisenhower’s 0.50% gain. By contrast, President Obama’s first inauguration was the worst in history with a 5.2% drop on just that day.
The performance of the market since the election has been historic, too. Stocks rose sharply right after the vote, making it the best short-term performance in history. The gains stalled out in mid-December, though, and we are now up 6% since the election. Despite this, it still ranks as the fifth-best election-to-inauguration performance of all Presidents.
Source: MarketWatch, Dow Jones.
By contrast, here are the 10 worst performances by President:
Source: MarketWatch.
Investors have been buying up stocks, encouraged by the pro-business policies likely to come from a Trump administration. However, comments from Fed chief Janet Yellen this week suggested the Fed doesn’t believe the policies will help the economy much.
They indicated they do not see a need for new stimulus programs, but will be cautious in pulling back these stimulative policies. This gave the markets some relief that interest rates would not be rising faster than expected (remember, stocks like low interest rates).
The focus was on Washington this week, but we did get a few economic reports. Inflation is coming in at a strong level as prices continue to rise. Industrial production was positive and is now positive on a year-over-year basis. This is an important point to note since industrial production rarely goes negative outside of a recession.
Next Week
Next week will be another fairly quiet one for economic data, but there will be a couple important reports, including GDP for the fourth quarter and durable goods. Also, corporate earnings reports will come in at a steady pace.
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.
They indicated they do not see a need for new stimulus programs, but will be cautious in pulling back these stimulative policies. This gave the markets some relief that interest rates would not be rising faster than expected (remember, stocks like low interest rates).
The focus was on Washington this week, but we did get a few economic reports. Inflation is coming in at a strong level as prices continue to rise. Industrial production was positive and is now positive on a year-over-year basis. This is an important point to note since industrial production rarely goes negative outside of a recession.
Next Week
Next week will be another fairly quiet one for economic data, but there will be a couple important reports, including GDP for the fourth quarter and durable goods. Also, corporate earnings reports will come in at a steady pace.
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.
