It was another decent week for the markets. Through Friday’s close, the Dow gained 0.8%, the S&P rose 1.4%, and the Nasdaq had its best week of the year with a solid 2.7% rise. Bond prices hit their highest level of the year as yields continued to move lower. Gold also had a good week – its best in a year – climbing 2.5%. Oil moved lower, down 1.1% to $47.35 per barrel. The international Brent oil ended the week up slightly to $52.69.
Source: Google Finance
Stocks showed resilience in the face of some difficult headlines this week, which is a positive sign for the health of the market.
A North Korean missile launch rattled the markets, causing them to open Tuesday with the Dow lower by more than 100 points. Investors flocked to safe havens like gold and bonds, pushing their prices to the highest levels of the year. However, stocks reversed course during the day and managed to close well into positive territory.
The hurricane in Texas also worried investors and had a particular impact on the energy sector. An interesting dynamic occurred, actually, where oil prices moved lower while gas prices soared to their highest level in two years.
A North Korean missile launch rattled the markets, causing them to open Tuesday with the Dow lower by more than 100 points. Investors flocked to safe havens like gold and bonds, pushing their prices to the highest levels of the year. However, stocks reversed course during the day and managed to close well into positive territory.
The hurricane in Texas also worried investors and had a particular impact on the energy sector. An interesting dynamic occurred, actually, where oil prices moved lower while gas prices soared to their highest level in two years.
The difference could be attributed simply to supply and demand. The storm caused a shutdown in over 20% of our country’s oil refining capabilities. Gas is made from refined oil. The shutdown in refiners resulted in a lower supply of gas and therefore, higher prices. On the other hand, oil moved lower because the closed refiners would not need any oil, which means they have a higher supply and prices fell.
Switching gears, economic data this week was mostly positive, but the big monthly jobs report came in well below estimates. Only 156,000 jobs were added last month, below the 180,000 estimate, while the previous two months were also revised lower.
Switching gears, economic data this week was mostly positive, but the big monthly jobs report came in well below estimates. Only 156,000 jobs were added last month, below the 180,000 estimate, while the previous two months were also revised lower.
On the positive side, GDP for the second quarter was revised higher to 3%, which is its highest level in two years.
Consumer confidence also rose, notching its second-highest reading since 2000.
Also, manufacturing data hit its best level since 2011 while personal income and spending both moved slightly higher.
Inflation data released this week showed inflation moving lower. Inflation is import to watch because it is one of the primary indicators the Fed uses to gauge their economic policy. The Fed wants to see inflation rising above 2% before pulling back on their stimulative policy, so data this week showing inflation at 1.4% suggests the Fed will keep its stimulus in place. The market likes stimulus and rose as a result.
Inflation data released this week showed inflation moving lower. Inflation is import to watch because it is one of the primary indicators the Fed uses to gauge their economic policy. The Fed wants to see inflation rising above 2% before pulling back on their stimulative policy, so data this week showing inflation at 1.4% suggests the Fed will keep its stimulus in place. The market likes stimulus and rose as a result.
Finally, we have now entered September, which is historically the weakest month of the year. According to the Stock Trader’s Almanac, September has an average return of -0.5%.
We’ll add a new wrinkle for this year – historically years ending with a “7” (2017) have had an especially rough autumn. These seasonal dynamics can seem comical, but they do have their basis in reality!
We’ll add a new wrinkle for this year – historically years ending with a “7” (2017) have had an especially rough autumn. These seasonal dynamics can seem comical, but they do have their basis in reality!
Next Week
Next week will be a short week with the Monday holiday. We’ll get a few economic reports worth watching, including the strength of the service sector, productivity, and factory orders.
Investment Strategy
The rise in the market the last two weeks makes stocks look a little less attractive on a short-term basis for new money, but there may still be a little more room to run higher. We are cautious, though, since we are entering a historically volatile part of the year for stocks.
As for our longer term view, our outlook is a little less rosy but still positive. We were hoping to see some pro-business reforms being implemented in Washington – lower taxes, regulations, etc. – but the likelihood of any significant reforms has diminished. The overall business climate is still favorable, which we think will still help the market.
Bond prices are around the high end of the range they have been trading in (so yields are on the low end). We believe yields will stay low and prices high for the foreseeable future, but don’t see a lot of upside potential in their prices at this time.
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.
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 will be a short week with the Monday holiday. We’ll get a few economic reports worth watching, including the strength of the service sector, productivity, and factory orders.
Investment Strategy
The rise in the market the last two weeks makes stocks look a little less attractive on a short-term basis for new money, but there may still be a little more room to run higher. We are cautious, though, since we are entering a historically volatile part of the year for stocks.
As for our longer term view, our outlook is a little less rosy but still positive. We were hoping to see some pro-business reforms being implemented in Washington – lower taxes, regulations, etc. – but the likelihood of any significant reforms has diminished. The overall business climate is still favorable, which we think will still help the market.
Bond prices are around the high end of the range they have been trading in (so yields are on the low end). We believe yields will stay low and prices high for the foreseeable future, but don’t see a lot of upside potential in their prices at this time.
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.
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.
