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 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.
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.
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.
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.
