Stocks climbed to new record highs this week. Through the close Friday, the Dow rose 1.3%, the S&P added 1.0%, and Nasdaq was higher by 1.9%. Bonds prices fell as their yields moved higher. Gold closed the week down 1.2%. Oil rose 1.5% to close at $53.20 per barrel. The international Brent oil, which is used for much of our gas here on the east coast, closed down just three cents to $55.46.
Source: Google Finance
Dow 20,000! You likely heard the news that the Dow index rose above the 20,000 level this week. It doesn’t mean much since it is just 30 stocks that don’t always represent the overall economy accurately. But it’s still a nice occasion to note, especially when the S&P 500 and Nasdaq are also reaching new highs.
The focus this week continued to be on Washington. Stocks moved lower early in the week on concerns over protectionism as President Trump discussed a border tax on companies moving operations outside the U.S. Additional talks of a 20% tax on imports from countries with which we run a trade deficit could also be a big headwind for us to contend with.
However, stocks got a boost higher when Pres. Trump revived the pipeline projects that had been scuttled by the previous administration. Perhaps more importantly was the promise to roll back regulations on these infrastructure projects that can add massive costs and drag out the permitting process for years. Decades, even.
Investors see these actions as a focus on growth and infrastructure, with Donald Trump quickly moving forward with a pro-business agenda. This is good for the economy.
Also helping the markets this week was corporate earnings. This was the busiest week of earnings data this earnings season. Results have been decent – a few misses here and there but overall the data looks fine.
The GDP report for the fourth quarter was also released this week. Economists were expecting a 2.2% growth rate, only to be disappointed with a 1.9% result. It shows a deceleration from the previous quarter and makes this the weakest year for the economy since 2011. Hopefully economic policies from the new administration can break the malaise.
The focus this week continued to be on Washington. Stocks moved lower early in the week on concerns over protectionism as President Trump discussed a border tax on companies moving operations outside the U.S. Additional talks of a 20% tax on imports from countries with which we run a trade deficit could also be a big headwind for us to contend with.
However, stocks got a boost higher when Pres. Trump revived the pipeline projects that had been scuttled by the previous administration. Perhaps more importantly was the promise to roll back regulations on these infrastructure projects that can add massive costs and drag out the permitting process for years. Decades, even.
Investors see these actions as a focus on growth and infrastructure, with Donald Trump quickly moving forward with a pro-business agenda. This is good for the economy.
Also helping the markets this week was corporate earnings. This was the busiest week of earnings data this earnings season. Results have been decent – a few misses here and there but overall the data looks fine.
The GDP report for the fourth quarter was also released this week. Economists were expecting a 2.2% growth rate, only to be disappointed with a 1.9% result. It shows a deceleration from the previous quarter and makes this the weakest year for the economy since 2011. Hopefully economic policies from the new administration can break the malaise.
Next Week
Next week will be a busy one for both economic data and corporate earnings, where many big-name companies will report. For economic data, we’ll get info on income and spending, the strength of the manufacturing and service sectors, and employment for January.
It will also be a busy week for central banks as our Fed, the Bank of Japan, and the Bank of England all hold policy meetings. We don’t expect any new policy changes, but it will be interesting to get their take on global economic affairs.
Investment Strategy
No change here. Stocks are not at a level we find attractive to buy, but we aren’t concerned with a significant sell-off at this time. We will say that the market is long overdue for a correction. Stocks are at all-time highs while fear of a correction is low, which is often a recipe for trouble.
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.
Next week will be a busy one for both economic data and corporate earnings, where many big-name companies will report. For economic data, we’ll get info on income and spending, the strength of the manufacturing and service sectors, and employment for January.
It will also be a busy week for central banks as our Fed, the Bank of Japan, and the Bank of England all hold policy meetings. We don’t expect any new policy changes, but it will be interesting to get their take on global economic affairs.
Investment Strategy
No change here. Stocks are not at a level we find attractive to buy, but we aren’t concerned with a significant sell-off at this time. We will say that the market is long overdue for a correction. Stocks are at all-time highs while fear of a correction is low, which is often a recipe for trouble.
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.
