Please note: there will be no market commentary next week due to the Easter holiday. Thank you.
Stocks were slightly lower on the week. Through the close Friday, the Dow was down just 0.03%, the S&P was lower by 0.3%, and the Nasdaq fell 0.6%. Bond prices rose as yields fell, with prices hitting the highest level in more than a month. Gold moved higher, rising 0.4%. Oil also moved higher, up 3.4% this week to $52.29 per barrel. The international Brent rose to $55.26.
Stocks were slightly lower on the week. Through the close Friday, the Dow was down just 0.03%, the S&P was lower by 0.3%, and the Nasdaq fell 0.6%. Bond prices rose as yields fell, with prices hitting the highest level in more than a month. Gold moved higher, rising 0.4%. Oil also moved higher, up 3.4% this week to $52.29 per barrel. The international Brent rose to $55.26.
Source: Google Finance
There was a lot going on this week to affect the market, making it unusual to see them end the week with slight little change.
One of the big topics was economic data. With the month and quarter ending last week, several important reports started rolling in this week. The main takeaway we saw with the data was that economic growth looks to be slowing.
Two important reports on the strength of the service and manufacturing sectors of the economy showed a slight decrease from the previous month. They are still at a high level relative to recent months, but it was a slowdown, nonetheless. Also, a report showing a slowdown in auto sales was interpreted as weakness in the economy, too.
One of the big topics was economic data. With the month and quarter ending last week, several important reports started rolling in this week. The main takeaway we saw with the data was that economic growth looks to be slowing.
Two important reports on the strength of the service and manufacturing sectors of the economy showed a slight decrease from the previous month. They are still at a high level relative to recent months, but it was a slowdown, nonetheless. Also, a report showing a slowdown in auto sales was interpreted as weakness in the economy, too.
The big monthly report on employment was released on Friday and came in much lower than expected. Economists expected to see 175,000 jobs added over the past month, only to be surprised when the number came in at just 98,000. The two previous months saw significant reductions, too. These numbers were very disappointing and stocks immediately moved lower on the news.
The Fed was also in the news this week with the release of the minutes from their latest meeting.
One focus of the minutes was on the path of future interest rate hikes, which still looks to be two or three for the year. The other focus was on how to shrink the size of their balance sheet, which was something they hadn’t talked much about until now.
The “balance sheet” is the bonds the Fed owns, which they printed money to buy in order to bring borrowing rates down and boost the economy. They printed $3.5 trillion over the last eight years in order to do this. Without getting into the details, the policy helped boost the market, but a shrinking of the balance sheet would be a headwind for the market to compete with.
We don’t think much about how big these numbers actually are, but if you were to count one second for every dollar they printed, it would take you 111,000 years. These are massive numbers and a reminder of how extreme our stimulus polices have been.
Finally, with this being Masters week, it’s time for some interesting Masters info. According to Golf Magazine, there is a natural spring that runs through the 13th and 14th holes of Augusta National that spurts gold dust when it rains. Looks like golf may not be the only way to make some money there!
Next Week
Next week looks to be another busy one. We’ll get several important economic reports, including data on inflation, retail sales, and employment.
Earnings for the first quarter will begin coming in next week, too. Analysts see 9.1% growth in first quarter, which would be the highest in six years. Revenue (what a company earned through sales) looks solid, too, expected to rise 7.1%. It would be good to see revenue growth picking up, since so much of the earnings increases we have seen came from cutting costs, not higher sales.
Investment Strategy
With the lack of change in the market this week, there is no change to our investment strategy. The window in which the broad market looked like an attractive buy (in the short term) came and went, and stocks no longer look attractive. However, we think the momentum is still to the upside.
We remain optimistic on the longer term, too. 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 are on the high side and don’t look attractive in the short run.
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 looks to be another busy one. We’ll get several important economic reports, including data on inflation, retail sales, and employment.
Earnings for the first quarter will begin coming in next week, too. Analysts see 9.1% growth in first quarter, which would be the highest in six years. Revenue (what a company earned through sales) looks solid, too, expected to rise 7.1%. It would be good to see revenue growth picking up, since so much of the earnings increases we have seen came from cutting costs, not higher sales.
Investment Strategy
With the lack of change in the market this week, there is no change to our investment strategy. The window in which the broad market looked like an attractive buy (in the short term) came and went, and stocks no longer look attractive. However, we think the momentum is still to the upside.
We remain optimistic on the longer term, too. 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 are on the high side and don’t look attractive in the short run.
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.
