Commentary for the week ending 9-28-18

The markets were pretty active this week, closing with mixed results.  Through Friday’s close, the Dow fell 1.1%, the S&P was down 0.5%, while the Nasdaq was higher by 0.7%.  Bond prices rose slightly this week but remain on the lowest side of the range we have seen since February.  Gold turned lower, off 0.6%.  Oil was up again, rising 3.9% to $73.56 per barrel.  The international Brent oil, which is used for much of the gas here on the east coast, hit its highest price in four years to close at $82.69.

Friday also marked the end of a solid month and quarter in what is typically a rough period for the markets.  Here’s a longer term look at the S&P 500:

Washington again got much of the focus of investors this week.  Trade issues remain top of the list as China pulled out of trade talks and Canada and the U.S. traded barbs.  No resolution is in sight for either of these trade deals. 

The Fed was also in the news as they held one of their policy meetings.

Citing a healthy economy, the Fed took another step back from their stimulative economic policy by announcing an increase in interest rates.  By increasing rates, they make it a little more expensive to borrow money and keep the economy from overheating. 

They also signaled they were likely to raise rates once more this year (at their December meeting) and three more times next year.  The news was nothing surprising, but markets fell sharply on the news and we weren’t exactly sure why.  That’s how investing goes sometimes. 

There is a worry out there that the Fed may raise rates too fast and choke off economic growth.  An indicator we like to look at is a comparison between the level the Fed sets for its rate (now 2.25%) and the yield on a 2-year treasury bond (which is now 2.81%).  If the Fed’s rate is above the 2-year yield, it signals the Fed is too tight and a recession is possible.  Right now we are way below that level so there is no need to worry about the Fed being too tight. 

The higher interest rates set by the Fed are already having an impact on certain parts of the economy.  Since it costs more to borrow money, things like mortgages are becoming more expensive and causing home sales to slow down. 

Just this week, we learned that the amount of sales pending hit its lowest level since the beginning of the year.  Also, the rise in prices is beginning to slow – though they are still higher.

In other economic news, retail sales appeared to jump sharply over the last month, though this was due to a surge in aircraft sales.  Excluding these, the gain was more modest. 

In a very positive report, consumer confidence hit its highest level since the year 2000. 

Next Week

Next week will be a little busier for as economic data from last month and quarter will start rolling in next week.  We’ll get info on the strength of the manufacturing and service sectors, plus factory orders and the always-important monthly employment report. 


Investment Strategy

No change here.  Markets are slightly off their highs, but not at levels we would look to do any buying.  The signs of a large decline are very slightly starting to form, so we’re a little more cautious.  Individual stocks look like a better play for new money here. 

There is no change in our longer term forecast, either, 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 are on the high side (and prices on the low side), 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.

Commentary for the week ending 9-14-18

Please note: there will be no market commentary next week.  Thank you.

Stocks turned in a solid week.  Through the Friday close, the Dow rose 0.9%, the S&P was up 1.2%, and the Nasdaq returned 1.4%.  Bond prices fell as yields rose.  Gold was higher again, up 0.4%.  Oil was up, too, climbing 1.9% to $68.98 per barrel.  The international Brent oil, which is used for much of the gas here on the east coast, added $1 to close at $78.10.

There weren’t a lot of market-moving headlines this week.  Economic data was the main focus as a handful of economic reports were released. 

News on trade also impacted the market – but to the upside for a change.  The rhetoric seemed to soften as it was reported that the U.S. reached out to China for more talks to resolve the trade dispute.  There is the hope that something can be worked out before a new round of tariffs on $200 billion of Chinese imports are implemented. 

However, a late-week comment from President Trump indicated he still was looking to implement that $200 billion tariff, which caused stocks to fall. 

As for economic data, the results were mostly positive, though there is a lot of data to sift through.

We’ll start with a report on employment, call the Jolts report (which stands for job openings and labor turnover).  The jolts report continues to show the amount of job openings are above the amount of people unemployed.  This is a very positive sign. 

In another positive report, small business optimism hit its highest level – ever. 

These small businesses are reporting better sales, hiring, and investment and attributing it to the tax cuts and deregulation coming from Washington. 

In other reports, census figures out this week showed incomes rising and the poverty level hit its lowest level since 2006.  Industrial production last month looked solid, too.

On the negative side, the Fed’s Beige Book report – which gives an anecdotal look at the strength of the economy – continued to show positive growth, but the tariff and trade fights are starting to take their toll.  Also, retail sales grew only slightly last month, at its lowest level in six months. 

In the last bit of economic data, we’ll take a look at inflation.  It took a turn lower last month but as you can see in the chart below, it is still on the high side.  

The lower inflation print has some investors thinking the Fed will not pull back on their stimulus program as much as originally expected.  However, the overall economic picture remains solid and the odds of them raising interest rates further continues to climb.

Another sign that the economy is on healthy footing is the record high level in the Dow Transportation Index (often referred to as the ‘transports’).  This is an index of 20 large transportation-related companies like CSX or UPS that are involved in commerce in the country.  The index tends to rise when commerce is strong and fall on the opposite. 

As you can see by the record high in the chart below, commerce still looks strong.

Next Week

Next week will be pretty quiet.  There will be a few economic reports on housing and little else.  With the lack of data, attention is likely to shift to trade and is likely to add to the volatility. 


Investment Strategy

No change here.  Markets took a nice turn higher this week, but from a short term perspective, we don’t think they are at a level to be sold.  Nor would we be actively buying the broader market at this point.  Individual stocks look like a better play for new money here. 

There is no change in our longer term forecast, either, 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.

Commentary for the week ending 9-7-18

Markets came off their record highs this week.  For the week, the Dow was down a slight 0.2%, the S&P was lower by 1.0%, and the Nasdaq fell 2.6%.  Bond prices were down slightly as yields rose.  Gold had another small gain, up 0.1%.  Oil turned lower, down 2.8% to $67.86 per barrel.  The international Brent oil closed down slightly to $77.10.

September is historically the worst month for stocks and this this first week of the month helped confirm that reputation. 

Trade worries again weighed on stocks this week.

Last week, a trade agreement was made with Mexico and there were hopes that Canada would join, too.  That didn’t happen, but it looked like progress was being made.

Over the long weekend, President Trump took a tough stance on that trade deal:

This tougher stance worried investors, since they thought an agreement was possible any day.  The talks continued this week, but we didn’t hear any progress being made.  It looks like this may be with us a while.

There were also concerns that $200 billion in new tariffs would be placed on Chinese imports this week.  Right now there is a tariff on $50 billion in imports, so an additional $200 billion would really be escalating the trade war and add to market volatility. 

Those new tariffs weren’t implemented this week, but on Friday President Trump ratcheted up the rhetoric when he told reporters that once the $200 billion tariff is implemented, he was ready with another $267 billion.  Stocks fell sharply on the news. 

Rounding up the bad news, tech stocks had a particularly rough week, their worst since March. 

Social media companies were in focus as their executives were in Washington and received a grilling by lawmakers on both sides of the aisle.  There are concerns that more regulations are possible and though remote, it gave investors a reason to sell some stocks and lock in gains.

Continuing with the tech theme, Amazon was in the news as it became the second company to reach a trillion dollar valuation (the market value of a company is found by multiplying the share price by the amount of shares outstanding).  It reached this level very quickly as the stock has risen more than 70% this year alone. 

Apple was the first company to reach this valuation just a month ago and it still remains the largest company.  However, at the pace Amazon is growing, it won’t be long before Amazon becomes the largest company out there. 

Lastly, economic news this week was solid.  Worker productivity increased at its best pace in three years, the strength of the manufacturing sector hit its highest level in 14 years while the strength of the service sector also remains strong.

The always important employment report also came on Friday, showing the economy added 201,000 jobs over the last month.  Wage growth came in at its highest level in nine years.  Things are good right now – CNBC even called this the best job market in a generation!

Next Week

Next week will again be a little busier.  Trade is bound to remain in a big topic.  Plus we’ll get economic data on inflation, retail sales, industrial production, and another look at employment. 

The Fed will also be in the news as many regional presidents will be making speeches and they will also release their Beige Book report, which takes an anecdotal look at the strength of the economy. 


Investment Strategy

No change here.  Stocks have come off their recent highs and may have a bit of room to move lower.  We don’t see the signs of a large pullback coming so we aren’t selling here, but we’d wait before putting any new money into the broader market.  There are a handful of 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.

Commentary for the week ending 8-31-18

Stocks saw another week of record highs.  Through the close Friday, the Dow gained 0.7%, the S&P rose 0.9%, and the Nasdaq had a solid 2.1% gain.  Bond prices were down slightly as money moved out of bonds and into stocks.  Gold saw a slight gain of 0.1%.  Oil was higher again, rising 1.7% to $69.88 per barrel.  The international Brent oil closed up to $77.45.

Friday was also the last day of August, which is usually a pretty rough month for stocks.  However, this August was the best one since 2014 for the Dow and S&P and the best for the Nasdaq (which has a large amount of tech stocks) since 2000. 

Here’s a longer look at the rise in the S&P:

There weren’t a lot of economic-related stories moving stocks this week.  The big moves came on news from the trade front.

Monday saw big gains in the market when an agreement on trade with Mexico was announced.  This was important because it showed that despite all the negative press, the trade process is moving in the right direction.

Despite Mexico being on board, investors wanted to see if Canada would be part of the trade deal, too.  By the end of the week, it looked like a deal including Canada would not happen before their self-imposed Friday deadline.  However, it appeared progress was being made and the markets welcomed that development. 

While stocks moved higher on positive trade news with Mexico, stocks fell on Thursday after President Trump indicated that $200 billion in tariffs on Chinese imports into the country could come as soon as next week.  Right now we have tariffs on $50 billion in goods, so $200 is quite an escalation.  This Chinese trade story looks like it could take a while to play out and may get uglier from here. 

Besides news on trade, the only other news of the week was several positive economic reports. 

First, GDP for the second quarter was revised higher to 4.2% from an already-high 4.1% first estimate.

Consumer confidence hit its highest level since 2000:

In an interesting report, the percent of workers satisfied with their jobs hit its highest level since 2006:

Also, a government report on corporate profits showed they had their largest gains in six years:

Lastly, personal income and spending numbers both rose while an inflation report (the PCE, which is the Fed’s preferred inflation gauge) hit its highest level since 2012. 


Next Week

Next week looks to be a little busier as we get data from the month just ended.  We’ll get info on the strength of the manufacturing and service sectors, trade, and the monthly employment report. 


Investment Strategy

No change here.  The broader market appears to be on the expensive side in the short term.  We aren’t actively buying the market here, but aren’t selling either.  There are a handful of individual stocks that appear to be on the cheap side, though. 

Next week also starts September, which is historically the worst month of the year for stocks.  The average return in September is -1% and it has been lower 50 of the last 91 years according to Dow Jones Market Data.  We wouldn’t be surprised to see it get a little more volatile from here.

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.