Please note: Due to the Thanksgiving holiday next week, there will be no market commentary. Thank you.
The markets turned in a very volatile week. Through Friday’s close, the Dow lost 2.2%, the S&P fell 1.6%, and the Nasdaq was also down 2.2%. Bond prices rose and their yields fell as investors moved into safer investments. Gold was higher, rising 1.3%. Oil prices were lower for another week, declining 5.6% to close at $56.83 per barrel. The international Brent oil, which is used for much of the gas here on the East coast, closed down to $67.10.
The markets turned in a very volatile week. Through Friday’s close, the Dow lost 2.2%, the S&P fell 1.6%, and the Nasdaq was also down 2.2%. Bond prices rose and their yields fell as investors moved into safer investments. Gold was higher, rising 1.3%. Oil prices were lower for another week, declining 5.6% to close at $56.83 per barrel. The international Brent oil, which is used for much of the gas here on the East coast, closed down to $67.10.
The week was a rough one for investors as volatility remained high, with several different stories playing a part in the activity.
The one common thread, though, is a worry about the Fed pulling back on its stimulus. For years, little affected the market because their stimulative policies kept pushing stocks higher. But as the pain killer wears off, headlines like the ones this week had more of an impact than they would have in the past.
One concern weighing on the market this week remains the tech sector. They have been the leaders in the market’s rise over the last few years, but now many companies are warning that they might not do as well in the quarters ahead. Investors sold tech stocks and the selling spread to bring down the broader market.
These earnings warnings are leading to concerns about slowing global growth and some investors are looking to the falling oil prices as evidence of a weaker economy (if the economy is weaker, fewer people need gas and therefore prices fall).
Oil prices have fallen sharply over the last few weeks and through Tuesday, they were down 12 days in a row – the longest stretch of declines ever. The lower oil prices hurt energy stocks this week.
The one common thread, though, is a worry about the Fed pulling back on its stimulus. For years, little affected the market because their stimulative policies kept pushing stocks higher. But as the pain killer wears off, headlines like the ones this week had more of an impact than they would have in the past.
One concern weighing on the market this week remains the tech sector. They have been the leaders in the market’s rise over the last few years, but now many companies are warning that they might not do as well in the quarters ahead. Investors sold tech stocks and the selling spread to bring down the broader market.
These earnings warnings are leading to concerns about slowing global growth and some investors are looking to the falling oil prices as evidence of a weaker economy (if the economy is weaker, fewer people need gas and therefore prices fall).
Oil prices have fallen sharply over the last few weeks and through Tuesday, they were down 12 days in a row – the longest stretch of declines ever. The lower oil prices hurt energy stocks this week.
However, oil prices appear to be falling due to too much supply as more oil is coming on the market, not because of too little demand. While the globe may be starting to see slowing economic growth, the U.S. still appears to be a bright spot.
Another area of concern weighing on the market this week is the banking sector. The likely new head of the House Financial Services committee, Maxine Waters, appears to be taking a very tough stance on the banking sector.
Another area of concern weighing on the market this week is the banking sector. The likely new head of the House Financial Services committee, Maxine Waters, appears to be taking a very tough stance on the banking sector.
The last area of concern this week came from our friends across the pond – the Brits and their Brexit situation.
British PM Theresa May introduced her plan for their split with the EU. The plan received approval of her cabinet but it received backlash as many people believe the British side gave away too much in order to make a deal. The British are still connected to the EU for many years thereafter, so EU bureaucrats would still control things like taxes and trade.
Parliament still has to vote on the deal and there is a lot of disapproval, which may result in Theresa May losing her leadership position. It also complicates the whole Brexit situation – remember, the market doesn’t like uncertainty.
It wasn’t all bad news this week as there were some positive days, too.
One development comes from China as there appears to (again) be movement on a trade deal. News reports indicated the next round of tariffs on Chinese goods has been put on hold as talks continue. Any positive news on this front will be warmly welcomed by the market.
Economic data showed mostly positive signs this week, too. Retails sales came in solid and industrial production (which measures the output of the manufacturing, mining, and utilities sectors) ticked slightly higher.
British PM Theresa May introduced her plan for their split with the EU. The plan received approval of her cabinet but it received backlash as many people believe the British side gave away too much in order to make a deal. The British are still connected to the EU for many years thereafter, so EU bureaucrats would still control things like taxes and trade.
Parliament still has to vote on the deal and there is a lot of disapproval, which may result in Theresa May losing her leadership position. It also complicates the whole Brexit situation – remember, the market doesn’t like uncertainty.
It wasn’t all bad news this week as there were some positive days, too.
One development comes from China as there appears to (again) be movement on a trade deal. News reports indicated the next round of tariffs on Chinese goods has been put on hold as talks continue. Any positive news on this front will be warmly welcomed by the market.
Economic data showed mostly positive signs this week, too. Retails sales came in solid and industrial production (which measures the output of the manufacturing, mining, and utilities sectors) ticked slightly higher.
The amount of people applying from unemployment remains close to a 50-year low.
Small business optimism was lower than last month, but remains close to record highs.
Lastly, inflation still appears to be running hot, causing investors to believe the Fed will keep pulling back on their stimulus. Inflation at the consumer level (what we as shoppers pay) rose by 0.3% from last month and is higher by 2.5% over the past year. Much of this has been driven by higher gas prices and there is the hope that lower gas prices will bring this inflation level down in the months ahead.
Next Week
Next week will be a lot quieter with the Thanksgiving holiday. We’ll get a few economic reports worth watching, including durable goods and some housing reports. Many retail companies will also report their earnings.
Investment Strategy
Last week markets looked a little pricey on a short term basis and quickly fell to a more attractive level this week. We believe the market will close higher into the end of the year though it might be a little rocky along the way, so a little nibbling around this level probably isn’t a bad idea.
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, higher interest rates have historically pulled markets lower. It’s tough to say where we think the market will go in the longer 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 will 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 lot quieter with the Thanksgiving holiday. We’ll get a few economic reports worth watching, including durable goods and some housing reports. Many retail companies will also report their earnings.
Investment Strategy
Last week markets looked a little pricey on a short term basis and quickly fell to a more attractive level this week. We believe the market will close higher into the end of the year though it might be a little rocky along the way, so a little nibbling around this level probably isn’t a bad idea.
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, higher interest rates have historically pulled markets lower. It’s tough to say where we think the market will go in the longer 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 will 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.
