Stocks managed to inch out a gain on the week. Through the close Friday, the Dow rose a slight 0.05%%, the S&P gained 0.2%, and the Nasdaq added a nice 1.8%. Bond prices remained around their highs for the year. Gold saw some volatility, but ended the week with a slim 0.1% gain. Oil was lower yet again, down 3.6% to $43.17 per barrel. The international Brent oil, used for much of our gas here on the East Coast, fell to $45.61.
Source: Google Finance
It was a very uneventful week for the market without a lot of news impacting stocks.
Investors had to talk about something, though, and oil prices were a major topic of conversation. Oil prices have now declined more than 20% from highs last reached in February, officially putting it in bear market territory (a “bear market” comes after a 20% decline while the term “bearish” generally means “negative” or “pessimistic”).
The decline in oil is largely due to an increase in production (more supply equals lower prices). Some of this is from an increase in production here in the U.S., but also from OPEC. The organization announced production cuts last year, but data shows the cuts aren’t materializing. This has put pressure on oil prices.
Low oil prices are nice because it now costs less to fill up our gas tanks, but they also had a negative impact on the stock market. The stock prices of energy companies have moved lower as oil moves lower, since low oil prices cut into their profits. This sector turned in its worst week of the year and is down 15% so far this year while the broader S&P is up nearly 9%. Clearly it has been a drag on the index.
However, there may be signs that oil prices are starting to bottom, as can be seen in the chart below. If oil prices do turn higher, it could bring the broader stock market higher, too.
Investors had to talk about something, though, and oil prices were a major topic of conversation. Oil prices have now declined more than 20% from highs last reached in February, officially putting it in bear market territory (a “bear market” comes after a 20% decline while the term “bearish” generally means “negative” or “pessimistic”).
The decline in oil is largely due to an increase in production (more supply equals lower prices). Some of this is from an increase in production here in the U.S., but also from OPEC. The organization announced production cuts last year, but data shows the cuts aren’t materializing. This has put pressure on oil prices.
Low oil prices are nice because it now costs less to fill up our gas tanks, but they also had a negative impact on the stock market. The stock prices of energy companies have moved lower as oil moves lower, since low oil prices cut into their profits. This sector turned in its worst week of the year and is down 15% so far this year while the broader S&P is up nearly 9%. Clearly it has been a drag on the index.
However, there may be signs that oil prices are starting to bottom, as can be seen in the chart below. If oil prices do turn higher, it could bring the broader stock market higher, too.
There wasn’t a lot of economic data this week. We saw some information on housing, which showed home prices continue to rise. This is good news for anyone who owns a home, but the wider the gap between earnings and home prices, the higher the likelihood for a correction.
The Fed was also in the news as many regional Fed presidents either made speeches or gave interviews. The Fed’s decision to raise interest rates last week gave a reason for investors to pay attention, since they could gain some insight on the Fed’s current take on the economy and the possibility of further rate hikes.
In the end, we really learned nothing new from all the Fed speakers. Some Fed members thought rates should rise sooner, others later. However, all indicated they would take a gradual approach before making further changes to their economic policy.
Next Week
Next week looks to be a little busier. There will be several economic reports to keep an eye on, including durable goods, consumer confidence, personal income and spending, and more housing data.
With oil prices being a focus this week, it’s likely investors will be closely watching it again next week.
Investment Strategy
Still no change here. We remain cautious on the market at this time as stocks are on the expensive side from a short term perspective. That doesn’t mean stocks can’t keep rising from here, but just that the odds of a pause or decline have risen.
Our longer-term outlook remains a little cloudy. Much of our enthusiasm came from badly needed pro-growth policies being implemented by the Trump administration. There is a lot of pushback against these policies, 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 also look expensive on a short-term basis.
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.
In the end, we really learned nothing new from all the Fed speakers. Some Fed members thought rates should rise sooner, others later. However, all indicated they would take a gradual approach before making further changes to their economic policy.
Next Week
Next week looks to be a little busier. There will be several economic reports to keep an eye on, including durable goods, consumer confidence, personal income and spending, and more housing data.
With oil prices being a focus this week, it’s likely investors will be closely watching it again next week.
Investment Strategy
Still no change here. We remain cautious on the market at this time as stocks are on the expensive side from a short term perspective. That doesn’t mean stocks can’t keep rising from here, but just that the odds of a pause or decline have risen.
Our longer-term outlook remains a little cloudy. Much of our enthusiasm came from badly needed pro-growth policies being implemented by the Trump administration. There is a lot of pushback against these policies, 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 also look expensive on a short-term basis.
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.
