It was a negative week for the stock market. For the week, the Dow fell 1.5%, the S&P lost 1.2%, and the Nasdaq was down by 1.0%. Bonds prices rose slightly as their yields were lower. Old took a turn lower, off 0.7%. Oil was up 0.3% to close at $62.25 per barrel. The international Brent oil rose just 50 cents to $65.99.
The market was interesting this week in that stocks started every morning higher but closed in the red at the end of the day (except Friday). In fact, the S&P 500 was down four-straight days for the first time this year.
A lot of the movement in the market was again driven by news out of Washington – and it was a wide variety of news this week. The news wasn’t necessarily negative, but created uncertainties and the market hates uncertainties.
First, concerns remain over the steel and aluminum tariffs. The broad nature of the tariffs is the primary concern here. A response to unfair trade policies by other countries is understandable, but broad protectionism through tariffs risks provoking a trade war. Comments from German chancellor Merkel this week about trade retaliation confirmed the reason for concern.
Additional worries of protectionism were also raised this week when President Trump blocked the merger attempt between technology companies Broadcom and Qualcomm.
Broadcom is based in Singapore and is attempting to take over/merge with U.S.-based Qualcomm. However, there are worries that technology secrets could find their way into China’s hands. Citing national security reasons, President Trump ordered a halt to this deal. While it may or may not have been the right decision, it is the first time a President has put the brakes on a deal like this.
Then we had a handful of White House staffing and advisor changes in significant positions.
Finally, there was the announcement that the special investigation under Mueller would be looking into President Trump’s business dealings.
Altogether, these stories added to the uncertainty on the direction of policy coming out of Washington and as we said earlier – the market hates uncertainties.
Getting into economic data for the week, where all eyes were on the inflation reports that were due to be released. These reports would be the last look at inflation before the Fed holds a policy meeting next week and inflation is one of their core factors in determining economic policy.
The results showed inflation at the consumer level was in line with expectations with a slight tick higher while inflation at the producer level (the business level) was a bit higher. However, the reports didn’t show significant inflation so the market saw it as a positive.
A lot of the movement in the market was again driven by news out of Washington – and it was a wide variety of news this week. The news wasn’t necessarily negative, but created uncertainties and the market hates uncertainties.
First, concerns remain over the steel and aluminum tariffs. The broad nature of the tariffs is the primary concern here. A response to unfair trade policies by other countries is understandable, but broad protectionism through tariffs risks provoking a trade war. Comments from German chancellor Merkel this week about trade retaliation confirmed the reason for concern.
Additional worries of protectionism were also raised this week when President Trump blocked the merger attempt between technology companies Broadcom and Qualcomm.
Broadcom is based in Singapore and is attempting to take over/merge with U.S.-based Qualcomm. However, there are worries that technology secrets could find their way into China’s hands. Citing national security reasons, President Trump ordered a halt to this deal. While it may or may not have been the right decision, it is the first time a President has put the brakes on a deal like this.
Then we had a handful of White House staffing and advisor changes in significant positions.
Finally, there was the announcement that the special investigation under Mueller would be looking into President Trump’s business dealings.
Altogether, these stories added to the uncertainty on the direction of policy coming out of Washington and as we said earlier – the market hates uncertainties.
Getting into economic data for the week, where all eyes were on the inflation reports that were due to be released. These reports would be the last look at inflation before the Fed holds a policy meeting next week and inflation is one of their core factors in determining economic policy.
The results showed inflation at the consumer level was in line with expectations with a slight tick higher while inflation at the producer level (the business level) was a bit higher. However, the reports didn’t show significant inflation so the market saw it as a positive.
Also on the positive side, industrial production improved significantly last month, notching its second-biggest gain in eight years.
On the negative side, housing data came in sharply lower while retail sales declined slightly. This decline in retail sales marked the third-straight month of declines, something that hasn’t happened in three years.
On the negative side, housing data came in sharply lower while retail sales declined slightly. This decline in retail sales marked the third-straight month of declines, something that hasn’t happened in three years.
These negative reports have economists lowering their expectations for economic growth this quarter. Economists at the Atlanta Fed – who are usually fairly accurate – have lowered their estimate to below 2%. Remember, the Trump administration is aiming for 3% growth, so this would be a major disappointment.
Lastly, small business optimism now stands at the best level since the 1980’s.
A major reason for the improvement is that business owners are no longer as worried about taxes and government regulations, which is a significant positive for the economy.
Next Week
All eyes will be on the Fed next week as they hold another policy meeting. They are widely expected to announce a pullback in their stimulus by raising interest rates. More importantly, investors will be watching for clues on future rate hikes. An indication of more rate hikes is likely to weigh on the market.
Economic data will be quieter next week, where we’ll get info on housing and durable goods.
Investment Strategy
Still no change here. Stocks moved a bit lower this week, but still look to have room to run higher. However, the markets remain volatile and it’s anyone’s guess where the market will go in the short run. We’d be careful putting new money into the market here.
Looking out longer is more difficult, too. While we think our economy is poised 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 tough to predict where the market will go from here.
As for bonds, their recent losses are making them look a little more attractive, too. Yields may be starting to move lower so bond prices will rise as a result.
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.
All eyes will be on the Fed next week as they hold another policy meeting. They are widely expected to announce a pullback in their stimulus by raising interest rates. More importantly, investors will be watching for clues on future rate hikes. An indication of more rate hikes is likely to weigh on the market.
Economic data will be quieter next week, where we’ll get info on housing and durable goods.
Investment Strategy
Still no change here. Stocks moved a bit lower this week, but still look to have room to run higher. However, the markets remain volatile and it’s anyone’s guess where the market will go in the short run. We’d be careful putting new money into the market here.
Looking out longer is more difficult, too. While we think our economy is poised 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 tough to predict where the market will go from here.
As for bonds, their recent losses are making them look a little more attractive, too. Yields may be starting to move lower so bond prices will rise as a result.
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.
