Trading was a little more volatile this week as the markets closed with mixed results. For the week, the Dow rose 1.4%, the S&P gained 0.3%, and the Nasdaq was lower by 0.3%. Bonds were relatively unchanged. Gold moved lower on the week, down 1.6%. Oil was down, too, off 2.5% to $65.92 per barrel. The international Brent oil closed down to $71.86.
There wasn’t a lot of info on economic or corporate data this week to distract investors from geopolitical issues, but the data that we did receive was strong and boosted the market.
First we’ll start with Turkey as the concerns from last week spilled into this week and pressured the markets.
As we mentioned last week, the country faces sanctions over the U.S. pastor held as a prisoner for political reasons. Their economy was already on shaky ground and these sanctions are pushing them to the brink. This week their currency fell to a record low.
Turkey is a small player on the global stage, but investors are worried that these problems will spread throughout the region as defaults rise.
While these issues did worry the market, the declines were relatively modest and volatility is still on the low side as measured by the VIX index (or volatility index, which rises as volatility increases).
There is one metric that shows investors do have concerns, though – the Skew index.
Basically, the Skew index measures how much it costs to insure against a large downturn in the stock market. It costs more to insure when there are clouds on the horizon and the cost falls when concerns recede. It typically measures the moves of bigger, institutional investors.
That Skew index – the cost of insuring against a large downturn – hit its highest level ever this week. This shows there are some worried investors out there.
First we’ll start with Turkey as the concerns from last week spilled into this week and pressured the markets.
As we mentioned last week, the country faces sanctions over the U.S. pastor held as a prisoner for political reasons. Their economy was already on shaky ground and these sanctions are pushing them to the brink. This week their currency fell to a record low.
Turkey is a small player on the global stage, but investors are worried that these problems will spread throughout the region as defaults rise.
While these issues did worry the market, the declines were relatively modest and volatility is still on the low side as measured by the VIX index (or volatility index, which rises as volatility increases).
There is one metric that shows investors do have concerns, though – the Skew index.
Basically, the Skew index measures how much it costs to insure against a large downturn in the stock market. It costs more to insure when there are clouds on the horizon and the cost falls when concerns recede. It typically measures the moves of bigger, institutional investors.
That Skew index – the cost of insuring against a large downturn – hit its highest level ever this week. This shows there are some worried investors out there.
As for the positive news this week, a thaw in the trade war with China sent stocks soaring on Thursday. Lower level talks will officially take place later this month, which would be the first public talks since they broke down in May.
The U.S. appears to be in a position of strength here. The Chinese stock market hit two-year lows this week and discontent has been brewing within the Chinese government. This could be a turning point in the negotiations.
The U.S. appears to be in a position of strength here. The Chinese stock market hit two-year lows this week and discontent has been brewing within the Chinese government. This could be a turning point in the negotiations.
Corporate earnings were light this week, but reports from several retail companies showed solid growth.
Wal-Mart made headlines with their results, which showed sales rose at their fastest level in over a decade. They also had positive things to say about the economy:
Wal-Mart made headlines with their results, which showed sales rose at their fastest level in over a decade. They also had positive things to say about the economy:
Lastly, economic data this week was light, too, but there were some very positive reports.
First, retail sales showed solid growth and a continuation of the uptrend we’ve seen the last few years.
First, retail sales showed solid growth and a continuation of the uptrend we’ve seen the last few years.
Second, optimism with small businesses climbed to the second-highest level in the 45-year history of this metric.
The economy looks to be doing very well at this time.
Next Week
Next week looks pretty similar to this one – corporate earnings are dwindling and there won’t be a lot of economic data. For that economic data, we’ll get info on housing and sales of durable goods (which are items with a longer life).
We’ll also hear from the Fed, where we’ll get the minutes from their latest meeting which gives us more insight on the path of their stimulus program. They will also hold their annual symposium in Jackson Hole, which always has the ability to impact the market as we hear more about their economic policies.
Investment Strategy
The broader market appears neither cheap nor expensive in the short term at this level. We aren’t actively buying the market here, but aren’t selling either. There are many individual stocks that appear to be on the cheap side, though.
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.
Next Week
Next week looks pretty similar to this one – corporate earnings are dwindling and there won’t be a lot of economic data. For that economic data, we’ll get info on housing and sales of durable goods (which are items with a longer life).
We’ll also hear from the Fed, where we’ll get the minutes from their latest meeting which gives us more insight on the path of their stimulus program. They will also hold their annual symposium in Jackson Hole, which always has the ability to impact the market as we hear more about their economic policies.
Investment Strategy
The broader market appears neither cheap nor expensive in the short term at this level. We aren’t actively buying the market here, but aren’t selling either. There are many individual stocks that appear to be on the cheap side, though.
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.
