A volatile week on Wall Street saw stocks end in negative territory. Through the Friday close, the Dow was lower by a slight 0.04%, the S&P fell 1.0%, and the Nasdaq lost 3.2%. Bonds were a big story this week as their yields (on the 10-year bond) hit their highest level since 2011 as their prices fell. Gold had a nice week, up 1.3%. Oil prices hit a four-year high, gaining 1.4% to close at $74.29 per barrel. The international Brent oil, which is used for much of the gas here on the east coast, also hit four-year highs to close at $84.11.
There was a lot going on this week impacting the markets. The news was all good – but the market reaction was often negative.
Some cracks have been forming recently that probably contributed to those large daily declines we saw this week. The markets are reaching record highs, but the amount of individual stocks hitting new highs is falling and the number of stocks hitting new lows is rising sharply.
Some cracks have been forming recently that probably contributed to those large daily declines we saw this week. The markets are reaching record highs, but the amount of individual stocks hitting new highs is falling and the number of stocks hitting new lows is rising sharply.
Think of this like building a house – you want a solid foundation. A record high in the market with more stocks hitting new lows is like building a house on sand, making it very susceptible to collapse.
Another indicator we look at is the market of small cap stocks. They’re often a leading indicator for the broader market. As you can see in chart below, this market has fallen throughout September. Some of this may be due to the improving trade picture, since investors moved into this sector because these smaller companies are not as impacted by the tariffs. It’s still something to keep an eye on.
Another indicator we look at is the market of small cap stocks. They’re often a leading indicator for the broader market. As you can see in chart below, this market has fallen throughout September. Some of this may be due to the improving trade picture, since investors moved into this sector because these smaller companies are not as impacted by the tariffs. It’s still something to keep an eye on.
We also got a glimpse of how jittery investors are after stocks sold off immediately on the Presidential text alert everyone received on Wednesday. Although it was just a test, it looks like some computer-programmed trading systems saw this as a reason to sell the market.
As for the events of the week, stocks opened sharply higher Monday after news the Canada would be on board the “new Nafta” agreement with the U.S. and Mexico.
Economic data this week was also solid. The strength of the service sector hit its best level in 10 years and while the strength of the manufacturing sector weakened over the last month, it remains at a high level. Combined, these two are at their best level ever.
Economic data this week was also solid. The strength of the service sector hit its best level in 10 years and while the strength of the manufacturing sector weakened over the last month, it remains at a high level. Combined, these two are at their best level ever.
The monthly jobs report came out on Friday and at a print of 134,000 jobs added, it was well below the 180,000 expected. There is a possibility the hurricane in the Carolinas earlier this month had some impact on this number. The previous two months were revised higher by 87,000 jobs, so the overall result was positive.
Also, the unemployment rate fell to 3.7%, which is the best number since 1969.
All this good news has investors wondering if it will force the Fed to pull back on its stimulus even further. Chairman Powell even said this week that they might raise interest rates by more than what the market expects, though it could be several years from now.
This played a large part in the pullback in stocks this week. The market has depended on the easy money from the Fed to prop up stocks for more than a decade now, so the removal of the stimulus may make the markets a little more volatile – even if economic data is positive.
Next Week
Corporate earnings will be back in the headlines as results for the third quarter begin rolling in next week. The week will also be a little quieter for economic data. We’ll get info on inflation, import prices (which also gives us a look at inflation), and the optimism in small businesses.
Investment Strategy
No change here. As we talked about above, we’re keeping an eye on some indicators that can signal the direction of the broader market. We’d like to see them improve before committing any new money. We don’t think a sharp decline is on the horizon, but remain on the cautious side. 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.
This played a large part in the pullback in stocks this week. The market has depended on the easy money from the Fed to prop up stocks for more than a decade now, so the removal of the stimulus may make the markets a little more volatile – even if economic data is positive.
Next Week
Corporate earnings will be back in the headlines as results for the third quarter begin rolling in next week. The week will also be a little quieter for economic data. We’ll get info on inflation, import prices (which also gives us a look at inflation), and the optimism in small businesses.
Investment Strategy
No change here. As we talked about above, we’re keeping an eye on some indicators that can signal the direction of the broader market. We’d like to see them improve before committing any new money. We don’t think a sharp decline is on the horizon, but remain on the cautious side. 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.
