It was another up week for the markets. Through the close Friday, the Dow gained 0.6%, the S&P rose 1.0%, and the Nasdaq added 1.5%. Bond prices rose as their yields fell. Gold saw another positive week, rising 0.8%. Oil prices took a turn lower, down 4.6% to $47.74 per barrel. The international Brent oil, used for much of our gas here on the East Coast, fell to $49.95.
Source: Google Finance
This week also marked the end of May, which is historically a period when markets start to see some weakness over the next several months. That’s the reason for the old Wall Street saying, “sell in May and go away.” However, stocks did fairly well this May. The Dow saw a 0.3% rise, the S&P 500 gained 1.2%, and the Nasdaq did particularly well with a 2.5% return.
Most of the news in the market this week came from economic data releases, which were largely on the disappointing side.
Most of the news in the market this week came from economic data releases, which were largely on the disappointing side.
The big news came on Friday with the release of the monthly employment report. The results were far lower than expected, with the economy only adding 138,000 jobs last month. The previous two months were revised lower, too.
The other disappointing reports included a tick lower in consumer confidence and the Beige Book report (which is the Fed’s anecdotal report on the strength of the economy) noted a slowing growth and less optimism.
On the positive side, personal income and spending were higher, with spending coming in at the best level of the year. Also, manufacturing in the U.S. showed a slight increase, which is notable because every monthly release this year has been higher than any month over the last two years.
We’ve talked recently about “soft” and “hard” economic data, where “soft” economic reports are ones that measure things like optimism, outlook, and expectations while “hard” economic reports are the reports with actual quantifiable data.
A few months ago there was a large gap between these two types of economic reports. However, this gap has narrowed in recent months as the “soft” economic reports like consumer confidence have declined and there has not been an improvement in “hard’ economic reports.
There’s nothing wrong with the gap narrowing, but you’d want to see the “hard” reports improve to meet the “soft” data – not the other way around.
The other disappointing reports included a tick lower in consumer confidence and the Beige Book report (which is the Fed’s anecdotal report on the strength of the economy) noted a slowing growth and less optimism.
On the positive side, personal income and spending were higher, with spending coming in at the best level of the year. Also, manufacturing in the U.S. showed a slight increase, which is notable because every monthly release this year has been higher than any month over the last two years.
We’ve talked recently about “soft” and “hard” economic data, where “soft” economic reports are ones that measure things like optimism, outlook, and expectations while “hard” economic reports are the reports with actual quantifiable data.
A few months ago there was a large gap between these two types of economic reports. However, this gap has narrowed in recent months as the “soft” economic reports like consumer confidence have declined and there has not been an improvement in “hard’ economic reports.
There’s nothing wrong with the gap narrowing, but you’d want to see the “hard” reports improve to meet the “soft” data – not the other way around.
Switching gears to the central banks, the head of the European Central Bank (ECB) announced this week that they would continue with their stimulus program due to concerns over the economy.
That means they will continue printing money to buy bonds and make it easier for people to borrow money. They have printed so much money that they just surpassed the amount our Fed has printed and now have the largest balance sheet of any central bank. Japan is nipping at their heels, who are printing money to buy bonds AND stocks as stimulus.
This is a dangerous development. The trillions of dollars printed as stimulus distort the markets and create bubbles – which always end badly.
That means they will continue printing money to buy bonds and make it easier for people to borrow money. They have printed so much money that they just surpassed the amount our Fed has printed and now have the largest balance sheet of any central bank. Japan is nipping at their heels, who are printing money to buy bonds AND stocks as stimulus.
This is a dangerous development. The trillions of dollars printed as stimulus distort the markets and create bubbles – which always end badly.
Next Week
It doesn’t look like there’s a lot on tap to move the markets next week. We’ll get a few economic reports, including info on the strength of the service sector, factory data, and more info on employment. There’s always the potential for news out of Washington, so we’ll have to keep an eye out for that, too.
Investment Strategy
No change here. Stocks have rebounded nicely from their mid-May decline and continue to rise. The wind is at the back of the market here, but it is not at a level we find attractive to put new money into the broader indexes.
Our longer-term outlook has gotten 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 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.
It doesn’t look like there’s a lot on tap to move the markets next week. We’ll get a few economic reports, including info on the strength of the service sector, factory data, and more info on employment. There’s always the potential for news out of Washington, so we’ll have to keep an eye out for that, too.
Investment Strategy
No change here. Stocks have rebounded nicely from their mid-May decline and continue to rise. The wind is at the back of the market here, but it is not at a level we find attractive to put new money into the broader indexes.
Our longer-term outlook has gotten 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 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.
