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.
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.
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.
