Stocks turned in a solid week. Through the Friday close, the Dow rose 3.3%, the S&P gained 3.5%, and the Nasdaq hit a new record high with a 4.2% gain. Bonds were relatively unchanged on the week. Gold also turned in a relatively unchanged week, up just 0.1%. Oil was higher, rising 1.5% to close at $62.12 per barrel. The international Brent oil rose to 65.49.
This week was another one with big swings in the market. While there have been big moves the last few weeks, stocks are still trading in the upward range they have been over the last two years.
As for the news of the week, Washington had investors attention and news from DC was responsible for most of the moves in the market.
Last week the possibility of tariffs rattled the markets as investors worried the protectionist tenor coming from Washington would result in a trade war with other countries. No one wins in a trade war, which put pressure on stocks.
Those trade concerns spilled into this week as the rhetoric from both sides picked up. However, markets rose when investors learned the tariffs would be watered down to give concessions to Canada and Mexico.
A trade war appears unlikely, but if one were to materialize, small and mid-cap stocks would fare the best. They have little exposure to overseas markets and would not experience the penalties that a global company would face. These sectors held up well throughout these tariff talks for this reason.
The other news out of Washington driving the markets was the departure of Gary Cohn, the top economic advisor to President Trump. He has “Street cred” in the eyes of investors – a former president of Goldman Sachs who is knowledgeable in finance and the markets and is seen as a voice of reason.
News of his departure sent stocks down immediately. The announcement was made after market hours, so overnight trading showed the Dow down as much as 450 points.
Last week the possibility of tariffs rattled the markets as investors worried the protectionist tenor coming from Washington would result in a trade war with other countries. No one wins in a trade war, which put pressure on stocks.
Those trade concerns spilled into this week as the rhetoric from both sides picked up. However, markets rose when investors learned the tariffs would be watered down to give concessions to Canada and Mexico.
A trade war appears unlikely, but if one were to materialize, small and mid-cap stocks would fare the best. They have little exposure to overseas markets and would not experience the penalties that a global company would face. These sectors held up well throughout these tariff talks for this reason.
The other news out of Washington driving the markets was the departure of Gary Cohn, the top economic advisor to President Trump. He has “Street cred” in the eyes of investors – a former president of Goldman Sachs who is knowledgeable in finance and the markets and is seen as a voice of reason.
News of his departure sent stocks down immediately. The announcement was made after market hours, so overnight trading showed the Dow down as much as 450 points.
However, markets came back the next day to close with only modest losses. This is a good sign for the markets and shows there are buyers stepping in on the declines to help push markets higher.
Switching gears, there were several economic reports released this week, but only one had an impact on the market – which was nice to take the focus off of Washington.
The monthly jobs report was released on Friday, coming in much better than expected. Economists were looking for about 200,000 jobs to be added last month, but the actual number came in at 313,000. Additionally, the previous two months were revised higher, making the numbers look even better.
Switching gears, there were several economic reports released this week, but only one had an impact on the market – which was nice to take the focus off of Washington.
The monthly jobs report was released on Friday, coming in much better than expected. Economists were looking for about 200,000 jobs to be added last month, but the actual number came in at 313,000. Additionally, the previous two months were revised higher, making the numbers look even better.
This number was solid, but what really gave fuel to the market was the data on wages, which was lower than expected. Wages rose 2.6% over the past year, below the 2.8% expected. Bad news is good news for the market here since it indicates a slack in the labor force and, therefore, less chance for the Fed to pull back further on their stimulus.
As for other economic data, factory orders declined and our trade deficit hit its worst level since 2008. On the positive side, the Beige Book continued to show modest-to-moderate growth, though there were signs of rising inflation and wages in this anecdotal report. This is something to keep an eye on. Also, the strength of the service sector remains strong and both the manufacturing and service sectors continue to grow.
Next Week
Odds are next week will be another volatile one. Washington will remain in focus, but it will also be another busy one for economic data. We’ll get info on inflation, retail sales, housing, and industrial production.
Investment Strategy
Still no change here. Stocks have resumed their climb and probably have room to run higher. However, volatility remains 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 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.
Odds are next week will be another volatile one. Washington will remain in focus, but it will also be another busy one for economic data. We’ll get info on inflation, retail sales, housing, and industrial production.
Investment Strategy
Still no change here. Stocks have resumed their climb and probably have room to run higher. However, volatility remains 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 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.
