It was yet another volatile week in the markets. Through Friday’s close, the Dow fell 3.1%, the S&P lost 2.0%, and the Nasdaq was down 1.1%. Bond prices took a turn higher for the first time in months as yields fell. Gold had a negative week, off 0.5%. Oil was also lower, down 3.3% to close at $61.45 per barrel. The international Brent oil fell to 1.1%.
Volatility doesn’t seem to want to go away, with the markets seeing moves of more than 1% every day this week. We also had four-straight down days for the Dow, something which hasn’t happened since 2015. Markets are now trading back at levels we saw late last year.
Two big stories contributed to the market action this week: tariffs and the Fed.
We’ll start with tariffs, which caused the market selloff on Thursday and Friday. In response to what President Trump perceives as unfair trade practices by other countries, tariffs were announced on steel and aluminum imports.
This is a difficult subject because on one hand you want to do something about unfair trade, but on the other hand you are raising prices on everything that uses these metals. It also risks provoking a trade war as other countries retaliate by adding a tariff on products we export to them. This is why stocks sold off on the announcement.
The Fed was also in the headlines as new Fed chairman Jerome Powell made his first appearance before Congress.
He provided his take on the current economic environment, indicating the economy was improving and inflation looked to be picking up. Investors were concerned that this brighter economic picture may force the Fed to pull back on its stimulus faster than expected, so stocks dropped on the news.
We’ll start with tariffs, which caused the market selloff on Thursday and Friday. In response to what President Trump perceives as unfair trade practices by other countries, tariffs were announced on steel and aluminum imports.
This is a difficult subject because on one hand you want to do something about unfair trade, but on the other hand you are raising prices on everything that uses these metals. It also risks provoking a trade war as other countries retaliate by adding a tariff on products we export to them. This is why stocks sold off on the announcement.
The Fed was also in the headlines as new Fed chairman Jerome Powell made his first appearance before Congress.
He provided his take on the current economic environment, indicating the economy was improving and inflation looked to be picking up. Investors were concerned that this brighter economic picture may force the Fed to pull back on its stimulus faster than expected, so stocks dropped on the news.
There was a variety of economic reports released this week, though they had very little impact on the market. On one hand, there were some record positive economic reports but we also had a handful of negative surprises.
For the positive reports, consumer confidence came in at its best level since 2000.
For the positive reports, consumer confidence came in at its best level since 2000.
Also, the strength of the manufacturing sector stood at its highest level since 2004.
On the negative side, home sales for both new and existing homes fell last month, though prices rose. Sales of durable goods fell while GDP for the fourth quarter was revised a tick lower than initially expected.
Lastly, this week we closed out a rough February, but we are entering historically one of the best months of the year for stocks. Also, the March-April combination is the best two-month stretch of the year. This gives us something to look forward to.
Next Week
Next week will be another busy one. For economic data, we’ll get info on the strength of the service sector, factory orders, trade, and the always-important monthly employment report. Trade and tariffs will also be in focus and likely contribute to the volatility.
Investment Strategy
Still no change here. Stocks are moving back towards oversold (cheap) territory, but we are not looking to do any buying amid the volatility and would like to see a larger pullback before making any large commitments.
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 anyone’s guess how this will play out.
As for bonds, their recent losses are making them look a little more attractive, too. We’d like to see prices come down further before making any significant purchases, though.
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.
Next week will be another busy one. For economic data, we’ll get info on the strength of the service sector, factory orders, trade, and the always-important monthly employment report. Trade and tariffs will also be in focus and likely contribute to the volatility.
Investment Strategy
Still no change here. Stocks are moving back towards oversold (cheap) territory, but we are not looking to do any buying amid the volatility and would like to see a larger pullback before making any large commitments.
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 anyone’s guess how this will play out.
As for bonds, their recent losses are making them look a little more attractive, too. We’d like to see prices come down further before making any significant purchases, though.
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.
