Please note: there will be no market commentary next week. Thank you.
It was a very active week for the markets. Through the Friday close, the Dow rose 2.7%, the S&P gained 1.4%, while the Nasdaq was lower by 0.6%. A large decline in bond prices Friday (and rise in yields) put them to a relatively unchanged level on the week. Gold was down slightly, off 0.6%. Oil prices turned lower, down 1.1% to $58.29 per barrel. The international Brent oil moved lower to close at $63.70.
It was a very active week for the markets. Through the Friday close, the Dow rose 2.7%, the S&P gained 1.4%, while the Nasdaq was lower by 0.6%. A large decline in bond prices Friday (and rise in yields) put them to a relatively unchanged level on the week. Gold was down slightly, off 0.6%. Oil prices turned lower, down 1.1% to $58.29 per barrel. The international Brent oil moved lower to close at $63.70.
Stocks had a lot of action this week, with events unfolding in Washington having a major impact.
The focus for most of the week was the tax bill working its way through the Senate. A frenzy of negotiations and tweaks to the bill had the market rising when progress was made and falling on the setbacks. The sausage-making process isn’t pretty and unfortunately the longer this process goes on, the worse the bill looks.
Markets rose sharply Tuesday as more Senators got on board:
The focus for most of the week was the tax bill working its way through the Senate. A frenzy of negotiations and tweaks to the bill had the market rising when progress was made and falling on the setbacks. The sausage-making process isn’t pretty and unfortunately the longer this process goes on, the worse the bill looks.
Markets rose sharply Tuesday as more Senators got on board:
And news of John McCain’s support of the tax bill sent markets sharply higher Thursday, giving the Dow its best day of the year.
Companies with high tax rates (like banks and smaller companies) did very well this week, too, as the odds of a tax cut increased.
At the end of the week, it appeared the Senate had the votes to pass their version of the bill. This is promising, but it’s too early to get excited. From here the bill goes to conference where the differences between the House and Senate bills are worked out to produce one final bill. That version must then be passed by both the House and Senate.
Also impacting the market was Friday’s news of ex-national security advisor Mike Flynn pleading guilty to lying to the FBI. There are many unknowns with this story and over the weekend it turned out much of it was false, but the damage was done markets moved sharply lower since it could impact the pro-business policies of this administration.
We’ve heard some investors and television pundits saying that Washington has had no impact on the market, but this week undoubtedly proves that the market is being moved by the policies of this administration.
Switching gears, the week was also helped by a strong start to the Christmas shopping season. Black Friday and Cyber Monday were both the strongest days ever for online sales, according to Adobe. It’s too early to tell how much impact that had on in-store sales, but early reports look positive.
Also impacting the market was Friday’s news of ex-national security advisor Mike Flynn pleading guilty to lying to the FBI. There are many unknowns with this story and over the weekend it turned out much of it was false, but the damage was done markets moved sharply lower since it could impact the pro-business policies of this administration.
We’ve heard some investors and television pundits saying that Washington has had no impact on the market, but this week undoubtedly proves that the market is being moved by the policies of this administration.
Switching gears, the week was also helped by a strong start to the Christmas shopping season. Black Friday and Cyber Monday were both the strongest days ever for online sales, according to Adobe. It’s too early to tell how much impact that had on in-store sales, but early reports look positive.
Economic data this week was mostly positive, too. The biggest news was the GDP report for the third quarter, which was revised to show 3.3% growth instead of 3.0% initially estimated. This comes after a 3.1% growth in the second quarter, so economic growth has been solid.
Housing reports also came in solid, with home prices continuing to climb (and they are far outpacing the growth in wages).
Consumer confidence continues to look strong, hitting its highest level in 17 years.
Lastly, a big story this week was Bitcoin. There has been a lot of excitement as its price has skyrocketed recently and is up almost 1,000% this year.
We won’t get into the pros and cons of the cyber currency, but stories like this usually happen at market tops:
Next Week
Washington and the tax reform will likely stay in the headlines next week and could add to market volatility.
We’ll see some important economic reports, including factory orders, the strength of the service sector, and culminating with the big monthly employment report on Friday.
Investment Strategy
Stock prices remain on the high side at this time and we are hesitant to add new money here. We are still positive on the market and as we saw this week, markets could start a new leg higher if tax reform is implemented – but could just as easily move lower if it does not.
The market does have seasonal factors working in its favor, though. December is historically the best month for stocks and has been higher about 75% of the time.
Washington and the tax reform will likely stay in the headlines next week and could add to market volatility.
We’ll see some important economic reports, including factory orders, the strength of the service sector, and culminating with the big monthly employment report on Friday.
Investment Strategy
Stock prices remain on the high side at this time and we are hesitant to add new money here. We are still positive on the market and as we saw this week, markets could start a new leg higher if tax reform is implemented – but could just as easily move lower if it does not.
The market does have seasonal factors working in its favor, though. December is historically the best month for stocks and has been higher about 75% of the time.
Our longer term outlook remains positive, but less rosy than it was a few months ago. We like seeing pro-business reforms come out of Washington, but they tend to get watered down as they move through Congress.
Bond yields may move a bit higher from here and prices lower in the short run, but we don’t see a lot of movement here.
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.
Bond yields may move a bit higher from here and prices lower in the short run, but we don’t see a lot of movement here.
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.
