All three major indexes hit record highs this week. Through the close Friday, the Dow the Dow had its best week of the year, rising 2.2%, the S&P gained 1.6%, and the Nasdaq added 1.4%. Bond prices came off their recent highs and yields rose. Gold fell, losing 1.9%. Oil prices rose on low supply and high demand, up 6.5% to $49.83 per barrel. The international Brent oil added slightly more than two dollars to close at $55.48.
Source: Barchart.com
Stocks moved higher this week – helped not by good news, but more from a lack of bad news. Investors moved out of safe havens like bonds and gold and into stocks.
First we had expectations of another missile launch from North Korea over the weekend that failed to materialize. They did end up launching one Thursday evening, but it looks like the markets are starting to ignore these launches as it had little impact on stocks.
Also helping the market was relief that Hurricane Irma was not as bad as forecasted. Projections of costs in excess of $100 billion to insurance companies were lowered to $20-40 billion. It’ll still be a significant loss to the insurance industry, but a relief it was not worse.
Last week we showed charts of insurance companies plunging on the hurricane fears, but they rebounded nicely this week. First, the ETF of insurance companies:
First we had expectations of another missile launch from North Korea over the weekend that failed to materialize. They did end up launching one Thursday evening, but it looks like the markets are starting to ignore these launches as it had little impact on stocks.
Also helping the market was relief that Hurricane Irma was not as bad as forecasted. Projections of costs in excess of $100 billion to insurance companies were lowered to $20-40 billion. It’ll still be a significant loss to the insurance industry, but a relief it was not worse.
Last week we showed charts of insurance companies plunging on the hurricane fears, but they rebounded nicely this week. First, the ETF of insurance companies:
And the group of reinsurance companies we highlighted last week, who lost as much as 30% in a matter of days:
Economic data released this week leaned more to the negative side. Both retail sales and industrial production took a turn lower. On the positive side, we had good data on employment while small business optimism moved a notch higher.
A couple reports on inflation were released this week, too, and both showed inflation ticking higher. Inflation at the producer level (PPI) rose 0.2% on the month to stand at 2.4% on an annual basis.
Inflation at the consumer level (or CPI) had its biggest jump since January, rising 0.4% on the month and 1.9% over the past year. Some of the increase can be blamed on rising gas prices after the hurricane, but many other costs are rising, too.
Inflation at the consumer level (or CPI) had its biggest jump since January, rising 0.4% on the month and 1.9% over the past year. Some of the increase can be blamed on rising gas prices after the hurricane, but many other costs are rising, too.
These inflation reports are important because they were the last reading before the Fed policy meeting next week. The Fed wants to see inflation at 2% before they pull back further on their stimulus program, and this week’s report puts inflation awfully close to that level. That raised the odds of a pullback in stimulus where the Fed would increase interest rates which raises borrowing costs.
Finally, one last note of a political nature. This week congressional Democrats introduced a single-payer healthcare bill. It was amazing to see such a large amount of the Democrat party openly supporting socialist ideas. That road would be a very dangerous one for the country.
Next Week
Moves in the market were muted late this week as investors were hesitant to place any large bets before the Fed meeting next week. Investors don’t expect a hike in rates at this meeting, but will be listening for clues whether there will be one this year. We do expect to hear something about the Fed’s balance sheet and they may begin to let it shrink.
Economic data will be fairly quiet, where we’ll get some info on housing and leading economic indicators.
Investment Strategy
The market is on the expensive side in the short run and not at a level we find attractive for new money. There may still be a little room to run higher, but we are cautious as we enter 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 came off their highs this week (so yields rose), but we don’t expect to see a large move lower in bond prices and think prices will remain around these high levels.
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.
Moves in the market were muted late this week as investors were hesitant to place any large bets before the Fed meeting next week. Investors don’t expect a hike in rates at this meeting, but will be listening for clues whether there will be one this year. We do expect to hear something about the Fed’s balance sheet and they may begin to let it shrink.
Economic data will be fairly quiet, where we’ll get some info on housing and leading economic indicators.
Investment Strategy
The market is on the expensive side in the short run and not at a level we find attractive for new money. There may still be a little room to run higher, but we are cautious as we enter 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 came off their highs this week (so yields rose), but we don’t expect to see a large move lower in bond prices and think prices will remain around these high levels.
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.
