It was a nice week for investors as stocks turned in their best results in more than a month. Through Fridays close, the Dow rose 1.8%, the S&P gained 2.0%, and the Nasdaq returned a solid 2.8%. Bonds prices fell for another week as their yields rose. Gold moved higher again, up 0.9%. Oil moved sharply higher on Mideast concerns, rising 8.5% to close at $67.39 per barrel. The international Brent oil, which is used for much of our gas here in the East, rose to $72.62.
While stocks still saw some large swings this week, the concerns weighing on the market over the last few weeks faded from the headlines. However, investors seem to be sitting on the sidelines as this week saw the lightest trading volume of the year.
Investors are also continuing to pull money out of the stock market. While the rise in the market this week was encouraging, we need to see investors coming back in before we get too optimistic.
Investors are also continuing to pull money out of the stock market. While the rise in the market this week was encouraging, we need to see investors coming back in before we get too optimistic.
As mentioned above, the worries of the last few weeks seemed to subside this week. Trade worries, in particular, cooled off. Over the weekend, President Trump softened his tone on trade and expressed his hope that a trade deal could be worked out before any tariffs are enacted.
The Chinese President also made comments that the country is working to open their economy to make trade fairer – though we’ve heard this for years.
New worries out of Washington were raised, however, when missile strikes in Syria were discussed. That alone wouldn’t be too problematic, but it could potentially trigger a Russian response that would increase tensions.
Also, stocks moved lower when President Trump’s personal lawyer had his office raided by the FBI. The drama never ends.
While news out of Washington had the biggest impact on the markets, it was Facebook that dominated headlines.
Facebook’s CEO and founder Mark Zuckerberg testified in front of Congress about the handling of user data and privacy. Nearly two entire days of airtime on the financial news channels were devoted to this testimony while most people had little, if any, interest in the hearings.
The Chinese President also made comments that the country is working to open their economy to make trade fairer – though we’ve heard this for years.
New worries out of Washington were raised, however, when missile strikes in Syria were discussed. That alone wouldn’t be too problematic, but it could potentially trigger a Russian response that would increase tensions.
Also, stocks moved lower when President Trump’s personal lawyer had his office raided by the FBI. The drama never ends.
While news out of Washington had the biggest impact on the markets, it was Facebook that dominated headlines.
Facebook’s CEO and founder Mark Zuckerberg testified in front of Congress about the handling of user data and privacy. Nearly two entire days of airtime on the financial news channels were devoted to this testimony while most people had little, if any, interest in the hearings.
In the end, the only thing we learned is how incompetent many members of Congress are. This is something we often see during financial hearings – Congressional members can have a very limited understanding of the subjects they are responsible for. It’s a little alarming when you realize these are the people who are governing the country.
Switching gears, the Fed was also in the news this week as the minutes from their last meeting were released. The Fed members showed more confidence in the strength of the economy and that inflation was rising to their 2% target (though they are mandated with keeping prices stable, which is 0% inflation).
The minutes were seen as “hawkish,” which meant investors see the Fed as more likely to keep pulling back on the stimulus by raising interest rates.
Switching gears, the Fed was also in the news this week as the minutes from their last meeting were released. The Fed members showed more confidence in the strength of the economy and that inflation was rising to their 2% target (though they are mandated with keeping prices stable, which is 0% inflation).
The minutes were seen as “hawkish,” which meant investors see the Fed as more likely to keep pulling back on the stimulus by raising interest rates.
On the subject of inflation, reports released this week shows inflation continues to rise.
We also saw small business optimism tick down over the past month, though it still remains at a high level.
Lastly, corporate earnings for the first quarter started rolling in this week. Banks are typically first to report and the companies that released their data all came in better than expected. Analysts see the earnings this quarter as coming in the best since 2011, so the bar is set very high here.
Next Week
Corporate earnings really start coming in next week, so the focus will (hopefully) shift from Washington to fundamentals like individual companies. As for economic data, we’ll get info on the strength of the economy from the Fed’s Beige Book report, retail sales, housing, and industrial production.
Investment Strategy
Stocks have come off their “very oversold” level with the gains this week, though they still look to be on the fairly cheap side. Markets are likely to remain volatile and it’s anyone’s guess where the market will go in the short run, but some buying might not hurt with a longer term perspective. Remember, buy when others are fearful.
The longer term is a little difficult to predict, too, though. Fundamentals remain very good – pro-business policies out of Washington provide a solid tailwind. However, rising interest rates (which are like Kryptonite to stocks) could tug markets lower. It’s tough to predict where the market will go from here.
Bonds are also volatile, but their prices have remained in an uptrend for the last several months. Yields may break out and move higher (so prices move lower), but we think they don’t have much room to run 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 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.
Corporate earnings really start coming in next week, so the focus will (hopefully) shift from Washington to fundamentals like individual companies. As for economic data, we’ll get info on the strength of the economy from the Fed’s Beige Book report, retail sales, housing, and industrial production.
Investment Strategy
Stocks have come off their “very oversold” level with the gains this week, though they still look to be on the fairly cheap side. Markets are likely to remain volatile and it’s anyone’s guess where the market will go in the short run, but some buying might not hurt with a longer term perspective. Remember, buy when others are fearful.
The longer term is a little difficult to predict, too, though. Fundamentals remain very good – pro-business policies out of Washington provide a solid tailwind. However, rising interest rates (which are like Kryptonite to stocks) could tug markets lower. It’s tough to predict where the market will go from here.
Bonds are also volatile, but their prices have remained in an uptrend for the last several months. Yields may break out and move higher (so prices move lower), but we think they don’t have much room to run 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 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.
