Stocks had a volatile week but a late-week surge put them firmly in the green. Through the Friday close, the Dow rose 0.4%, the S&P gained 0.6%, and the Nasdaq was higher by 1.4%. The story was similar in the bond market where they saw little change on the week. Gold moved lower, off 1.9%. Oil was positive on the week, up 3.1% to close at $63.57 per barrel. The international Brent oil rose to $67.10.
Our market commentary will be a little short this week as I’ve been considerably under the weather for much of the week. That said, though markets saw some big swings, there wasn’t a lot of news to report on anyway.
A major factor behind the market swings has been the Fed and expectations for how much they will pull back on their stimulus. The Fed minutes from their latest meeting were released on Wednesday, giving us some insight on this.
Fed officials seemed to show more confidence that the economy was picking up and that inflation was moving closer to their 2% inflation growth target (though they have a mandate from Congress for stable prices – which means 0% inflation – but we digress).
This sounds like a positive development, but good news is bad news here since it means they could pull back more on their stimulus by raising interest rates faster than expected. In fact, investors originally believed the Fed would raise interest rates three times this year, but the odds of a fourth rate hike is picking up.
A major factor behind the market swings has been the Fed and expectations for how much they will pull back on their stimulus. The Fed minutes from their latest meeting were released on Wednesday, giving us some insight on this.
Fed officials seemed to show more confidence that the economy was picking up and that inflation was moving closer to their 2% inflation growth target (though they have a mandate from Congress for stable prices – which means 0% inflation – but we digress).
This sounds like a positive development, but good news is bad news here since it means they could pull back more on their stimulus by raising interest rates faster than expected. In fact, investors originally believed the Fed would raise interest rates three times this year, but the odds of a fourth rate hike is picking up.
Lastly, corporate earnings have been very solid this quarter, rising 15% according to Factset. However, earnings from Wal-Mart contributed to the large selloff Tuesday.
While their numbers were generally solid, their online sales grew by just over 20%. Though this sounds impressive, investors were expecting growth of around 50%, so the number was seen as a disappointment. Shares of the stock dropped 10%, its biggest one-day loss in 30 years.
Next Week
Next week will be a little busier for economic data. We’ll get info on housing, durable goods, personal income and spending, the revision to GDP, and the strength of the manufacturing sector.
New Fed chief Jerome Powell will be making his first appearance before Congress and investors will be watching closely for any clues on the prospect of future interest rate hikes.
Investment Strategy
No change here. Stocks have come off their attractive-looking levels for new money, but still look to have room to move higher.
Looking out longer, though, is becoming more difficult. While our economy is likely to do well, higher interest rates from the removal of the Fed’s stimulus introduces a new wrinkle and will add to the volatility. It’s anyone’s guess how this will play out.
On to bonds, where prices have trended lower (and yields higher) the last few months and are now around their lowest level in four years. Buyers have yet to step in here, signaling this may be a shift in the bond market where yields continue to rise. This is good for investors needing more income, but the overall price of the bonds are lower.
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 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 prefer developed markets to emerging ones at this time.
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.
While their numbers were generally solid, their online sales grew by just over 20%. Though this sounds impressive, investors were expecting growth of around 50%, so the number was seen as a disappointment. Shares of the stock dropped 10%, its biggest one-day loss in 30 years.
Next Week
Next week will be a little busier for economic data. We’ll get info on housing, durable goods, personal income and spending, the revision to GDP, and the strength of the manufacturing sector.
New Fed chief Jerome Powell will be making his first appearance before Congress and investors will be watching closely for any clues on the prospect of future interest rate hikes.
Investment Strategy
No change here. Stocks have come off their attractive-looking levels for new money, but still look to have room to move higher.
Looking out longer, though, is becoming more difficult. While our economy is likely to do well, higher interest rates from the removal of the Fed’s stimulus introduces a new wrinkle and will add to the volatility. It’s anyone’s guess how this will play out.
On to bonds, where prices have trended lower (and yields higher) the last few months and are now around their lowest level in four years. Buyers have yet to step in here, signaling this may be a shift in the bond market where yields continue to rise. This is good for investors needing more income, but the overall price of the bonds are lower.
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 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 prefer developed markets to emerging ones at this time.
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.
