Commentary for the week ending 7-28-17

Please note: there will be no market commentary next week.  Thank you.
 
Another week of new record highs for stocks, but some volatility crept into trading.  For the week, the Dow turned in a nice 1.2% gain while the S&P had the slightest of losses at -0.02% and the Nasdaq was off 0.2%.  Bond prices turned lower as yields moved higher.  Gold had a solid week, rising 1.2%.  Oil moved sharply higher for its biggest weekly gain of the year, up 8.8% to $49.79 per barrel.  The international Brent oil moved up to $52.63.

Source: Google Finance

Stock markets were strong for most the week, but it looks like investors are getting a little jittery.  Selling notably picked up in the tech stocks, which have seen very large gains so far this year.  The dips were quickly bought and markets pushed higher, but it does show there is a growing unease amongst investors.  

Earnings season had a strong effect on stocks this week.  Companies that turned in results better than estimates saw their stocks pop higher.  On the other hand, companies that only met or failed to meet estimates quickly moved lower.  An example of this can be seen in the nearby chart.  

Earnings season has been fairly good overall.  About half the companies in the S&P 500 have reported results and earnings are on pace to grow almost 9%.  This is well above the 6.2% originally estimated.  

The Fed was in the news this week, too, with another one of their policy meetings.  No changes to their economic policy were announced, which is what investors expected.  They’re unlikely to pull back on their stimulus in the next few months by raising interest rates (which makes it more costly to borrow money), especially if inflation is running below their expectations. 

There were several important economic reports this week, too.  The big news came on Friday with the GDP report from the second quarter.  GDP rose 2.6% over the past quarter, which was slightly lower than estimates but not bad.  It is an improvement over the last two quarters. 

An inflation measurement in the GDP report came in well below estimates.  Remember – the Fed keeps a close eye on inflation as a guide for their stimulus policy.  Low inflation makes them less likely to pull back on stimulus. 

Durable goods sales were much better than expected, though this number was a little skewed by unusually large aircraft orders.  Durable goods fell slightly if we were to take them out of the equation. 

Several housing reports showed the amount of homes being sold are slowing, but prices are rising since the supply of homes for sale is smaller.  Home price gains continue to outpace wages, which suggests overheating in this area.

Lastly consumer confidence rose nicely over the past month, hitting its second-highest reading since 2000. 

Next Week

We’re past the peak for corporate earnings, but next week will still be another busy one with about a fifth of companies in the S&P reporting results.  There will also be several important economic reports, including data on the manufacturing and service sectors, personal income and spending, and the monthly employment report. 


Investment Strategy

No change here.  We’re still cautious on the market in the short term as nearly everything is on the expensive side.  The market has the wind at its back right now, so we wouldn’t be surprised to see it move higher.  We just think the odds of a pullback have increased and it is not attractive to put new money in at this time. 

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 have moved off their highs (so yields are rising), but don’t look attractive for new money. 

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.

Commentary for the week ending 7-21-17

Markets hit record highs this week before late-week selling cut into gains.  For the week, the Dow lost 0.3%, the S&P was higher by 0.5%, and the Nasdaq rose 1.2%.  Bond prices were again mostly higher as yields fell modestly.  Gold rose steadily all week to close up 2.2%.  Oil fell, off 2.0% to $46.73 per barrel.  The international Brent oil closed down to $47.93.

Source: Google Finance

There was not a lot of news moving the market this week.  We had some headlines from central banks in Europe and Japan as they announced they will not be pulling back on stimulus any time soon due to low inflation.  These comments were similar to what our Fed chief said the previous week. 

This helped the markets, who were starting to worry that the stimulus which had helped stocks rise was starting to be removed.  

Corporate earnings for the second quarter really started coming in this week, too.  With only about 20% of companies reporting, it’s too early to tell how earnings season will play out.  However, earnings right now look to be coming in at expectations. 

Investors are continuing to position their portfolios without any fear of a downturn.  This week, the VIX Index (or volatility index, which also acts like a “fear gauge”) hit levels not seen since 1994. 

Tech stocks continue to be the hot investment as new money pours into this sector.  The chart below shows how the “Fang” technology stocks are outperforming the broader S&P 500 index. 

Who is doing all this buying?  An interesting chart came from a ZeroHedge article this week which shows corporations themselves have been the main buyer of stocks as they buy back their own shares.  Individual investors have actually been net sellers!  This is not a good dynamic for the market.  

Another interesting chart this week came from LPL Research, which showed the market so far this year has performed nearly right in line with the average.  It’s also noteworthy that the market has historically moved lower from this point until later in the year. 

Volatility also tends to pick up later in the year.

While investors don’t seem to fear a downturn in the market, historical factors show there may be something to worry about.  


Next Week

Next week will be one of the busiest ones for corporate earnings as nearly a third of companies in the S&P 500 report results.  For economic reports, we’ll get info on housing, durable goods, and GDP for the second quarter.  There will also be a Fed meeting, but no change to their policy is expected. 


Investment Strategy

No change here.  We’re still cautious on the market in the short term as nearly everything is on the expensive side.  The market has the wind at its back right now, so we wouldn’t be surprised to see it move higher.  We just think the odds of a pullback have increased and it is not attractive to put new money in at this time. 

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 are on the high side (so yields are low) and are near to looking unattractive.

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.

Commentary for the week ending 7-14-17

Volatility subsided this week as stocks rose to new record highs.  For the week, the Dow gained 1.1%, the S&P rose 1.4%, and the Nasdaq had a nice 2.6% return.  Bond prices were mostly higher as yields fell modestly.  Gold had a nice week, rising 1.6%.  Oil was also higher, up 5.6% to $46.68 per barrel.  The international Brent oil, used for much of our gas here on the East Coast, rose to $49.09.

Source: Google Finance

While the last several weeks saw large swings in the markets, much of that volatility subsided this week.  Stock indexes closed the week at or near record highs, with a little bit of everything having an impact on the market this week.

Stocks saw some activity early in the week with yet another round of Trump – Russia news.  Like the previous attempts, this headline likely won’t have any lasting impact.  But every unfavorable bit of news on the Trump administration causes jitters in a market that has risen on the promise of pro-market, pro-economy reforms. 

Data released this week on small businesses illustrates this.  The small business optimism report is a survey of small business owners.  Optimism rose sharply after the election and while it remains well above average, optimism has trended lower as doubts emerge about those pro-business reforms.  

Breaking it down further, taxes and red tape are now the top two concerns for small businesses.  Investment firm Bespoke Investments reports that the monthly increase in concern for red tape was the largest monthly increase of any category, ever.  Politics is clearly on the mind of small business owners. 

The Fed was also in the news this week with chief Yellen’s semi-annual testimony before Congress (which is some of the dullest TV you have ever seen).  She caught the attention of the market when she suggested the Fed may not be as committed to removing the stimulus as we thought. 

The Fed wants to see higher inflation before pulling back on their stimulus.  Yellen noted that they will not pull back on stimulus if inflation moves lower.  Well, inflation has been trending lower in recent months, so many investors saw this as a sign that stimulus may be around for longer than expected.  Stocks rose sharply as a result. 

Inflation reports released this week didn’t show any increases, either.  Inflation at the produced level did tick slightly higher from the previous month, but core inflation (which excludes food and energy and is a preferred metric of the Fed) moved lower.  Inflation at the consumer level was flat from the previous month and core also ticked lower. 

Other economic data this week was mixed.  Retail sales were lower and job openings fell, while industrial production and job hiring’s rose.

Finally, corporate earnings for the second quarter began coming in this week.  The big names were mostly banks that reported late in the week.  Earnings weren’t great but better than expected, though bank stocks still fell. 

Overall, this earnings season is expected to be good.  Factset is predicting 6-7% earnings growth.  This is below the nearly 14% growth of last quarter, which was the best period since 2011.  However, 6-7% growth is still respectable. 

Next Week

Next week will be fairly quiet for economic data, with some reports on housing and import prices.  Earnings will be a big story as earnings season really gets underway. 

Washington will also be a focus as the Senate healthcare bill gets more attention.  It’s likely that a success here will be a positive for the market since it increases the chances of tax reform being done soon. 


Investment Strategy

No change here.  We’re still on the cautious side for investing new money in the broader stock market, and though there are a few individual stocks that appear inexpensive (in the short run), that number is dwindling.  

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 have sold off over the last few weeks (as yields rose), and still look somewhat attractive. 

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.

Commentary for the week ending 7-7-17

Another volatile week saw stocks end with very little change.  Through Friday’s close, the Dow rose 0.3%, the S&P gained a modest 0.1%, and the Nasdaq added 0.2%.  Bond prices fell again as bond yields continued to rise.  Gold moved lower for another week, off 2.4%.  Oil prices fell late in the week to move into negative territory, off 3.7% to $44.33 per barrel.  The international Brent oil, used for much of our gas here on the East Coast, fell to $46.88.

Source: Google Finance

The markets closed the week not far from where they started, but that doesn’t mean there was little going on.  Stocks have seen a lot of volatility over the last few weeks and this week was more of the same.     

One interesting development has been the divergence in volatility of the different market indexes.  The broader stock market measured by the S&P 500 has seen a notable increase in volatility.  However, the Nasdaq, which is more weighted to technology stocks, has seen a much larger increase in volatility.  This can be seen in the chart below.  

The tech sector had been a top performer for much of the first half of the year, but clearly investors are becoming a little more anxious.  This is something to keep an eye on. 

So what is causing all the volatility?  A lot can be blamed on the central banks.  It looks like many are preparing to pull back on the stimulus that has supported the markets for the last several years. 

Last week we heard that the central banks in Europe and Canada were open to pulling back on stimulus.  This week we heard the same from our Fed with the release of the minutes from their latest meeting. 

The minutes suggested the Fed was committed to pulling back on their stimulus.  Much of the discussion was shrinking their balance sheet, which has ballooned in recent years due to all the money they have printed to buy bonds.  This must be unwound at some point, and that point looks to be approaching soon.  

Investors are starting to see the central bank backstop may not be there to support the markets as it has in the past, and that’s a worry that has caused the markets to be more volatile.

Getting into the economic data this week, the big news came on Friday with the release of the employment report.  The results were much better than expected with a growth of 222,000 jobs.  Also, the previous two months were revised higher.

Other data looked good, too.  The trade deficit improved and the strength of both the service and manufacturing sectors took a turn higher.  Below is a chart showing a combination of the strength of the two sectors, which shows they are trending higher.

Next Week

With a big focus on the central banks these days, all eyes will be on Fed chief Janet Yellen next week as she testifies in front of congress. 

There will be several economic reports investors will be watching, too, including info on inflation at the consumer and producer levels, retail sales, and a report on employment. 


Investment Strategy

We’re still on the cautious side for investing new money in the broader stock market, but there does appear to be a number of stocks that are looking attractive.  The Nasdaq, too, appears to be on the oversold side.   

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 have sold off over the last few weeks (as yields rose), and are also beginning to look attractive. 

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.

Commentary for the week ending 6-30-17

A volatile week in the markets saw stocks end lower.  For the week, the Dow fell a modest 0.2%, the S&P lost 0.6%, and the Nasdaq plunged 2.0%.  Bond prices had their worst week since March as bond yields rose sharply.  Gold closed the week lower, off 1.1%.  Oil prices rose every day this week, up 7.7% to $46.33 per barrel.  The international Brent oil, used for much of our gas here on the East Coast, rose to $47.90.

Source: Google Finance

Volatility returned to the stock market in a big way this week.  Strong selling one day reversed to become strong buying the next day as bullish and bearish investors battled it out. 

The culprit for the back-and-forth this week came largely from comments by central bankers around the globe. 

Here in the U.S., our Fed chief Janet Yellen noted that stock prices were on the high side.  This made investors a little jittery. 

Much of the attention this week was on comments from the head of the European Central Bank (ECB) who indicated they may pull back on their stimulus as the economy improves.  These comments seemed innocent enough, but the ECB has been firmly in the “more stimulus” camp for a long time, so it looks to have caught investors off-guard. 

The ECB has printed mountains of money to buy bonds as stimulus, which has pushed bond prices to record highs.  The possibility of no longer having this buyer pushing up bond prices (and pushing down yields) caused the sell-off in the bond market this week.

The ECB wasn’t the only foreign central bank talking about pulling back on their stimulus, but also the Canadian and British banks.  Together, this all had an impact on the market.

This volatile week also capped the end of a very un-volatile first half of the year for the markets.  Stocks actually had their best first half in many years.  However, stocks may be getting a little too euphoric here. 

The business news website “Business Insider” had an interesting take on stock levels (LINK).  They compared the price-to-earnings ratio (or P/E ratio, which compares the stock price to its earnings) to the volatility index (or VIX).  As can be seen in the chart below, the combination of low volatility and high stock valuations results in a level of euphoria not seen in 20 years. 

As for economic data released this week, the results were mixed.  Durable goods – which are items with a longer lifespan – fell 1.1% over the past month.  On the positive side, GDP from the first quarter was revised higher from 1.2% to 1.4% growth. 

Next Week

With next week being the first week of both the new month and quarter, we will receive a lot of economic data.  We’ll get info on the strength of the manufacturing and service sectors, factory orders, and the monthly employment report. 


Investment Strategy

Still no change here.  Though stock prices have declined, they are not at a level we find attractive for putting new money in.  That doesn’t mean stocks can’t rise from here, but just that the odds of a pause or decline are still high.  

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 sold off, but they, too, are not at a level we find attractive for new money. 

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.