Markets turned a corner and moved solidly higher this week. Through the Friday close, the Dow rose 5.2%, the S&P gained 4.8%, and the Nasdaq was higher by 5.6%. Bond prices rose slightly and their yields fell. Gold was lower, off a slight 0.1%. Oil prices moved slightly higher, up 0.6% to close at $50.72 per barrel. The international Brent oil, which is used for much of the gas here on the East coast, rose to $58.68.
After the market rise this week, let’s take a look at where the market stands from a longer term perspective:
The market was impacted by a little bit of everything this week. We had news from the Fed, the trade dispute with China, and some economic data.
Coming off the Thanksgiving holiday, investors also got a glimpse of how strong the Christmas shopping season was looking. According to reports from the National Retail Federation, the black Friday and cyber Monday shopping days saw slightly slower traffic in the stores, but strong sales online more than made up for this.
Overall, they cite this year as being nearly 5% better than last year, which is great news for retail companies.
Coming off the Thanksgiving holiday, investors also got a glimpse of how strong the Christmas shopping season was looking. According to reports from the National Retail Federation, the black Friday and cyber Monday shopping days saw slightly slower traffic in the stores, but strong sales online more than made up for this.
Overall, they cite this year as being nearly 5% better than last year, which is great news for retail companies.
The Fed was also in the news this week. We’ve long talked about how much impact their policies have had on the markets over the years. Their stimulus was probably the biggest factor in pushing markets higher and the market has stuttered as it’s been pulled back.
This recent volatility in the market started in early October (which can be seen in the chart above) after Fed chair Powell made comments that they were a “long way” to their rate hike target – meaning they had a long path of pulling back on stimulus until they were comfortable.
This week, however, the chairman said they were “just below” that target, suggesting they won’t be pulling back on stimulus much further. Stocks turned in their best day since March on the news, showing that Fed policies remain the number one factor in the direction of the markets.
The Fed also put out a “financial stability” report this week which shows the vulnerabilities facing the U.S. financial system. Their top concern was the high debt levels that have accrued over the years. This is interesting, since it was their very policies that encouraged taking on more debt to stimulate the economy. It appears that taking on more debt after a debt crisis might be a bad idea – who’d have guessed?
Switching gears, the trade fight with China got a lot of attention this week as the G-20 summit takes place in Argentina this weekend.
Reports and comments from government officials suggested a possible trade breakthrough. It’s rumored that the U.S. could hold off on January tariff increases as talks progress.
We’ve heard similar comments before and even President Trump tapped the brakes on this, but investors are eager for something positive here and the markets rose as a result.
Lastly, economic data this week was mixed. Most of the bad news came from housing, where the gains in home prices are slowing. The pace of new and existing home sales is also slowing as higher mortgage rates scare away buyers.
Also on the negative side, consumer confidence ticked lower over the past month, but still remains near all-time highs.
This recent volatility in the market started in early October (which can be seen in the chart above) after Fed chair Powell made comments that they were a “long way” to their rate hike target – meaning they had a long path of pulling back on stimulus until they were comfortable.
This week, however, the chairman said they were “just below” that target, suggesting they won’t be pulling back on stimulus much further. Stocks turned in their best day since March on the news, showing that Fed policies remain the number one factor in the direction of the markets.
The Fed also put out a “financial stability” report this week which shows the vulnerabilities facing the U.S. financial system. Their top concern was the high debt levels that have accrued over the years. This is interesting, since it was their very policies that encouraged taking on more debt to stimulate the economy. It appears that taking on more debt after a debt crisis might be a bad idea – who’d have guessed?
Switching gears, the trade fight with China got a lot of attention this week as the G-20 summit takes place in Argentina this weekend.
Reports and comments from government officials suggested a possible trade breakthrough. It’s rumored that the U.S. could hold off on January tariff increases as talks progress.
We’ve heard similar comments before and even President Trump tapped the brakes on this, but investors are eager for something positive here and the markets rose as a result.
Lastly, economic data this week was mixed. Most of the bad news came from housing, where the gains in home prices are slowing. The pace of new and existing home sales is also slowing as higher mortgage rates scare away buyers.
Also on the negative side, consumer confidence ticked lower over the past month, but still remains near all-time highs.
On the positive side, consumer income and spending both saw solid gains from last month. The revision to third quarter GDP came in at 3.5%, unchanged from the first look.
Lastly, an inflation report (the PCE report) showed inflation ticking slightly lower over the last month, largely due to lower gas prices.
Next Week
Next week looks to be a busy one. Trade will be a major focus due to the G-20 meeting this weekend. The Fed will also be in the news as Fed chief Powell makes an appearance before Congress.
We’ll get a few important economic reports, including the strength of the manufacturing and service sectors, data on trade, and the monthly employment report. The Fed’s Beige Book report, which is an anecdotal look at the strength of the economy, will also be released.
Investment Strategy
After turning the corner this week, stocks don’t look very attractive for new money here. We’ll see if they can hold this level as the end of the year is typically a good period for stocks.
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 on the 10-year have dropped back down near 3%, which may be on the low side in the short term. We think they’ll remain stuck in the range they’ve seen over the last few months, but we wouldn’t be surprised to see yields rise and prices fall a bit from here.
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 looks to be a busy one. Trade will be a major focus due to the G-20 meeting this weekend. The Fed will also be in the news as Fed chief Powell makes an appearance before Congress.
We’ll get a few important economic reports, including the strength of the manufacturing and service sectors, data on trade, and the monthly employment report. The Fed’s Beige Book report, which is an anecdotal look at the strength of the economy, will also be released.
Investment Strategy
After turning the corner this week, stocks don’t look very attractive for new money here. We’ll see if they can hold this level as the end of the year is typically a good period for stocks.
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 on the 10-year have dropped back down near 3%, which may be on the low side in the short term. We think they’ll remain stuck in the range they’ve seen over the last few months, but we wouldn’t be surprised to see yields rise and prices fall a bit from here.
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.
