Stocks rose steadily for a nice gain on the week. Through Friday’s close, the Dow rose 1.3%, the S&P gained 1.4%, and the Nasdaq returned a solid 2.1%. Gold was higher again, up 1.0%. Oil prices moved slightly lower, off 0.9% to $49.87 per barrel. The international Brent oil, used for much of our gas here in the East, rose to $52.23.
Source: Google Finance
It looks like last week’s large one-day drop was all but a distant memory this week. Stocks rose every day since then (though the Dow was down by the slimmest of margins on Friday) and again reached new record highs along the way. Headlines which might make stocks move lower, like the terrorist bombing in England, were entirely brushed off by the market.
The technology sector has been a standout in the market’s rise, with five stocks in particular carrying the load – Apple, Facebook, Amazon, Microsoft, and Google. The S&P is up nearly 8% this year, but would be up only 4.6% if we were to take out just these five stocks. It does make us a little cautious when only five stocks can make up almost half of the index’s gains.
The technology sector has been a standout in the market’s rise, with five stocks in particular carrying the load – Apple, Facebook, Amazon, Microsoft, and Google. The S&P is up nearly 8% this year, but would be up only 4.6% if we were to take out just these five stocks. It does make us a little cautious when only five stocks can make up almost half of the index’s gains.
Corporate earnings have also helped the market as their results have been better than expected. Nearly all companies in the S&P 500 have reported results and earnings have grown 13.6% according to Factset. This is better than the 11% analysts were predicting and marks the best quarter since 2011.
We’re told that news from the Fed helped the markets this week, too, though we aren’t exactly sure why.
The minutes from their latest meeting were released and told us little we didn’t already know. The Fed appears to be on pace to raise interest rates at their next meeting in June.
Normally, higher interest rates are bad for stocks so this news would send stocks lower. However, several news articles suggested that this was a positive because it indicates the economy is doing well. Other articles suggested investors took solace that the Fed wouldn’t be raising rates faster than expected. Either way, the minutes from the Fed were cited as a positive for stocks.
We’re told that news from the Fed helped the markets this week, too, though we aren’t exactly sure why.
The minutes from their latest meeting were released and told us little we didn’t already know. The Fed appears to be on pace to raise interest rates at their next meeting in June.
Normally, higher interest rates are bad for stocks so this news would send stocks lower. However, several news articles suggested that this was a positive because it indicates the economy is doing well. Other articles suggested investors took solace that the Fed wouldn’t be raising rates faster than expected. Either way, the minutes from the Fed were cited as a positive for stocks.
Economic data released this week was rather poor. The sale of both new and previously-owned homes declined, while durable goods sales declined and inventories took a turn lower.
On the bright side, the GDP figure for the first quarter was revised higher from 0.7% to 1.2%. Though this is still a low number, it is moving in the right direction.
Finally, in light of Roger Moore’s passing, below is a chart comparing the ratings of the James Bond films to the stock market (yes, someone actually did this. LINK). You can see there is a slight correlation there. However, we would take issue with the ratings since it shows “Skyfall” with the top rating. We think only insomniacs were fond of this movie since they finally found something that would put them to sleep.
On the bright side, the GDP figure for the first quarter was revised higher from 0.7% to 1.2%. Though this is still a low number, it is moving in the right direction.
Finally, in light of Roger Moore’s passing, below is a chart comparing the ratings of the James Bond films to the stock market (yes, someone actually did this. LINK). You can see there is a slight correlation there. However, we would take issue with the ratings since it shows “Skyfall” with the top rating. We think only insomniacs were fond of this movie since they finally found something that would put them to sleep.
Next Week
Next week looks fairly quiet, especially with the holiday on Monday. We’ll get a few economic reports worth watching, including info on the strength of the manufacturing sector, personal income and spending, and the always-important monthly employment report.
Investment Strategy
Stocks have rebounded nicely from the decline we saw last week. The gains since then have made stocks a less-attractive investment in the short run. This doesn’t mean stocks can’t keep going higher, but just that the odds of a pause in the market have increased.
The longer-term outlook is getting a little cloudier. Much of our enthusiasm came from badly needed pro-growth policies being implemented by the Trump administration. We’re seeing a lot of pushback against these policies – and really there is pushback against any and every policy from the Trump administration – so reforms may be more difficult. We are a little less optimistic on the market in the longer run, though believe it still has upside potential.
Bond prices had looked attractive in the short run, but the moves over the last couple weeks have put them on the expensive side.
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 fairly quiet, especially with the holiday on Monday. We’ll get a few economic reports worth watching, including info on the strength of the manufacturing sector, personal income and spending, and the always-important monthly employment report.
Investment Strategy
Stocks have rebounded nicely from the decline we saw last week. The gains since then have made stocks a less-attractive investment in the short run. This doesn’t mean stocks can’t keep going higher, but just that the odds of a pause in the market have increased.
The longer-term outlook is getting a little cloudier. Much of our enthusiasm came from badly needed pro-growth policies being implemented by the Trump administration. We’re seeing a lot of pushback against these policies – and really there is pushback against any and every policy from the Trump administration – so reforms may be more difficult. We are a little less optimistic on the market in the longer run, though believe it still has upside potential.
Bond prices had looked attractive in the short run, but the moves over the last couple weeks have put them on the expensive side.
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.
