The week was mostly a quiet one, with the markets ending with mixed results. Through the Friday close, the Dow was lower by 0.6%, the S&P was down 0.3%, and the Nasdaq was higher by 0.3%. Bond prices rose as their yields moved lower. Gold moved higher, up 0.4%. Oil saw a loss, down 1.0% to $67.75 per barrel. The international Brent oil closed down at $72.96.
We are officially in the dog days of summer, where there wasn’t a lot going on in the markets. Corporate earnings are tapering off and there wasn’t much economic data to move the markets. Geopolitical news did cause some movement late in the week, though.
The week was so quiet, in fact, that Tuesday and Wednesday had the smallest two-day swings in the market so far this year according Dow Jones Market Data. Wednesday and Thursday had the second-smallest swing.
The week was so quiet, in fact, that Tuesday and Wednesday had the smallest two-day swings in the market so far this year according Dow Jones Market Data. Wednesday and Thursday had the second-smallest swing.
The lack of volatility is unusual this time of year. August is typically a volatile month, mostly because there isn’t a lot of trading volume as investors take end-of-summer vacations. Lack of trading volume causes the market to have bigger swings than it normally would, though, which is likely what added to the late-week selloff.
As for the news of the week, we’ll start with corporate earnings for the second quarter. These reports are trailing off as 90% of companies in the S&P 500 have now reported their results. According to Factset, earnings have grown 25% over the past year while sales are up nearly 10%. This is well above expectations and has helped stocks rise recently.
As for economic reports this week, the Jolts employment report showed that for the third-straight month, there are more jobs available then there are unemployed workers.
As for the news of the week, we’ll start with corporate earnings for the second quarter. These reports are trailing off as 90% of companies in the S&P 500 have now reported their results. According to Factset, earnings have grown 25% over the past year while sales are up nearly 10%. This is well above expectations and has helped stocks rise recently.
As for economic reports this week, the Jolts employment report showed that for the third-straight month, there are more jobs available then there are unemployed workers.
Also, inflation continues to move higher. The Fed sees this as a positive, but we think forcing people to pay more for things isn’t the recipe for a healthy economy.
With the week being so quiet, stories that normally wouldn’t get much attention made headlines.
For example, electric car maker Tesla got a lot of attention as its shares shot higher after a tweet from their chief, Elon Musk, stating that he was looking into taking the company private at $420 a share. The stock was trading in the $350 range at that time so it immediately boosted the share price.
For example, electric car maker Tesla got a lot of attention as its shares shot higher after a tweet from their chief, Elon Musk, stating that he was looking into taking the company private at $420 a share. The stock was trading in the $350 range at that time so it immediately boosted the share price.
The question became, though, is this market manipulation? It wasn’t clear that he had any funding secured, so it was possible that the tweet was just intended to boost the stock price. That’s illegal. The SEC is now investigating.
Also, geopolitics affected the market late in the week. First, China announced a retaliation to our latest round of tariffs with a matching tariff on U.S. goods heading to China.
The news added some volatility to our market, but had little impact. The Chinese market continues to be under pressure, though. The trade battle has caused rifts in the Chinese government according to a Reuters article, with many in the Chinese government beginning to question their response.
Also, geopolitics affected the market late in the week. First, China announced a retaliation to our latest round of tariffs with a matching tariff on U.S. goods heading to China.
The news added some volatility to our market, but had little impact. The Chinese market continues to be under pressure, though. The trade battle has caused rifts in the Chinese government according to a Reuters article, with many in the Chinese government beginning to question their response.
Showing that the most unlikely stories can move the markets when there is light trading volume, Turkey was in the news as their economy has come under pressure, too.
The country has faced sanctions due to the U.S. pastor being held as a prisoner there for political reasons. Talks this week failed to secure his release and new sanctions were applied. This has sent their markets and currency plunging. The Turkish Lira lost 14% on Friday alone, and a weaker currency makes everything cost more for the Turkish people.
The country has faced sanctions due to the U.S. pastor being held as a prisoner there for political reasons. Talks this week failed to secure his release and new sanctions were applied. This has sent their markets and currency plunging. The Turkish Lira lost 14% on Friday alone, and a weaker currency makes everything cost more for the Turkish people.
Why do we care about Turkey? Normally a story like this would probably have little impact on our market. But stories like this get more attention when markets are quiet.
Investors are now starting to worry that the problems in Turkey could affect the broader European region. European banks with a lot of exposure to Turkey could be particularly at risk. It is now more difficult for Turkey to pay back their loans, which would put pressure on those European banks, which could then ripple to the broader European economy.
We don’t expect this story to hang around long, but it will likely cause more volatility the longer it stays in the headlines.
Next Week
Next week looks to be a pretty quiet one in terms of earnings and economic data. On the economy, we’ll get info on industrial production and retail sales, plus data on housing and import prices.
Since it will be quiet for earnings and data, geopolitical issues like we saw this week with Turkey and China will probably get more attention. August is normally a volatile month, so a little more action wouldn’t be surprising.
Investment Strategy
Stocks have been on the expensive side from a short-term perspective as you can see by the indicators in the image below.
Investors are now starting to worry that the problems in Turkey could affect the broader European region. European banks with a lot of exposure to Turkey could be particularly at risk. It is now more difficult for Turkey to pay back their loans, which would put pressure on those European banks, which could then ripple to the broader European economy.
We don’t expect this story to hang around long, but it will likely cause more volatility the longer it stays in the headlines.
Next Week
Next week looks to be a pretty quiet one in terms of earnings and economic data. On the economy, we’ll get info on industrial production and retail sales, plus data on housing and import prices.
Since it will be quiet for earnings and data, geopolitical issues like we saw this week with Turkey and China will probably get more attention. August is normally a volatile month, so a little more action wouldn’t be surprising.
Investment Strategy
Stocks have been on the expensive side from a short-term perspective as you can see by the indicators in the image below.
In conditions like this, it isn’t surprising to see investors look for a reason to sell and lock in profits, which is what the story with Turkey provided. We wouldn’t be surprised to see the market stall or move a bit lower from here, but we don’t see the warning signs of a large pullback coming.
There is no change in our longer term forecast, which remains difficult to predict. Fundamentals are still very good with pro-business policies out of Washington providing a solid tailwind. However, rising interest rates have historically pulled markets lower. It’s tough to say where we think the market will go the long run.
Bonds are also volatile at this time. Yields have risen recently (and prices have fallen), but we don’t think prices will fall much further and continue to trade in the range they have been in for the last several months.
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.
There is no change in our longer term forecast, which remains difficult to predict. Fundamentals are still very good with pro-business policies out of Washington providing a solid tailwind. However, rising interest rates have historically pulled markets lower. It’s tough to say where we think the market will go the long run.
Bonds are also volatile at this time. Yields have risen recently (and prices have fallen), but we don’t think prices will fall much further and continue to trade in the range they have been in for the last several months.
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.
