It was another very volatile week with the markets closing modestly lower. Through the Friday close, the Dow fell 1.2%, the S&P lost 1.3%, and the Nasdaq returned -0.8%. Bond prices fell slightly as their yields moved higher. Commodities were down, too, as gold lost 0.8%. Oil prices fell 2.6% to close at $51.23 per barrel. The international Brent oil, which is used for much of the gas here on the East coast, moved down to $60.25.
Let’s take a longer-term look at the market, where you can see we’ve been in a volatile range since October:
The markets were remarkably active this week, with the Dow seeing several-hundred point swings every day. A lot of the movement came from news on trade and China, which we’ll get to shortly.
Amid all this volatility, it looks like investors are pulling money out of the market at a near-record pace. According to Bank of America and Lipper Funds data, this past week (Wednesday through Wednesday) saw the second-largest ever outflows from stock funds. Bond funds saw outflows, too. This money is moving to cash and some foreign markets.
Amid all this volatility, it looks like investors are pulling money out of the market at a near-record pace. According to Bank of America and Lipper Funds data, this past week (Wednesday through Wednesday) saw the second-largest ever outflows from stock funds. Bond funds saw outflows, too. This money is moving to cash and some foreign markets.
It’s worth noting that the largest weekly outflow came in February of this year. As you can see in the chart earlier in this commentary, markets rebounded from that low, so this large amount of selling could be a positive sign.
In fact, stock valuations (as measured by the price-to-earnings ratio) are at their lowest level in three years. Investors who have been looking for deals can find them out there now.
In fact, stock valuations (as measured by the price-to-earnings ratio) are at their lowest level in three years. Investors who have been looking for deals can find them out there now.
As for the events of the week, it was the trade fight with China that received the most attention.
We opened Monday with the market under pressure as U.S. Trade Representative Lighthizer made comments over the weekend that the tariffs would be applied after the 90-day truce if no deal is reached in that time. A Chinese ban on Apple selling older iPhone models due to patent infringements added to the selling.
On to Tuesday, where markets moved higher on a tweet from President Trump that “productive conversations” were being made on trade.
A vow by the Chinese on Wednesday for more openness and access to their economy, as well as eliminating tariffs on cars, saw markets go higher. But reports that they detained two Canadians caused investors to pause.
Lastly, economic data from the country on Friday showed their economy taking a downturn also caused our markets to fall. From a U.S. perspective, though, this could be seen as giving us the upper hand in the negotiations.
While China had the most impact on our markets this week, news out of Washington also played a role. President Trump had a few negative stories impacting his administration, causing markets to react lower.
Economic data this week was mostly positive. The Jolts employment report showed the amount of jobs available still outnumbers the amount of people out of work. Retail sales were higher and industrial production came in well above estimates.
We opened Monday with the market under pressure as U.S. Trade Representative Lighthizer made comments over the weekend that the tariffs would be applied after the 90-day truce if no deal is reached in that time. A Chinese ban on Apple selling older iPhone models due to patent infringements added to the selling.
On to Tuesday, where markets moved higher on a tweet from President Trump that “productive conversations” were being made on trade.
A vow by the Chinese on Wednesday for more openness and access to their economy, as well as eliminating tariffs on cars, saw markets go higher. But reports that they detained two Canadians caused investors to pause.
Lastly, economic data from the country on Friday showed their economy taking a downturn also caused our markets to fall. From a U.S. perspective, though, this could be seen as giving us the upper hand in the negotiations.
While China had the most impact on our markets this week, news out of Washington also played a role. President Trump had a few negative stories impacting his administration, causing markets to react lower.
Economic data this week was mostly positive. The Jolts employment report showed the amount of jobs available still outnumbers the amount of people out of work. Retail sales were higher and industrial production came in well above estimates.
On the downside, small businesses are becoming less confident on the economy after seeing record highs earlier this year.
Also, inflation looks to be moderating. PPI and CPI were relatively flat from last month and the year-over-year numbers are declining. Import prices released this week also showed a decline. This is good news for the market since lower inflation makes it less likely the Fed will pull back on its stimulus.
Next Week
China will probably be a factor again in the markets next week, but the main focus is likely to be on the Fed as they hold their last policy meeting of the year. The odds are for a rate increase at this meeting, but those odds have slipped recently. Investors will also be watching for clues on the pace of rate hikes next year. This has the potential to move the market.
Economic data will be quieter. We’ll get info on housing and personal income and spending, but nothing that will have much impact on the market.
Investment Strategy
Stocks are definitely on the oversold (cheap) side in the short term. They’ve been oversold several times in the last few months, too, only to quickly rebound then collapse even further. Will this time be any different? No one knows, but maybe a little nibbling on stability would be a good 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. Bond prices are extremely high and yields low on a short term basis and we don’t think they have much room to run from here. We think they’ll remain stuck in the range they’ve seen over the last few months, with higher yields and lower prices, and we wouldn’t be surprised to see the volatility continue.
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.
China will probably be a factor again in the markets next week, but the main focus is likely to be on the Fed as they hold their last policy meeting of the year. The odds are for a rate increase at this meeting, but those odds have slipped recently. Investors will also be watching for clues on the pace of rate hikes next year. This has the potential to move the market.
Economic data will be quieter. We’ll get info on housing and personal income and spending, but nothing that will have much impact on the market.
Investment Strategy
Stocks are definitely on the oversold (cheap) side in the short term. They’ve been oversold several times in the last few months, too, only to quickly rebound then collapse even further. Will this time be any different? No one knows, but maybe a little nibbling on stability would be a good 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. Bond prices are extremely high and yields low on a short term basis and we don’t think they have much room to run from here. We think they’ll remain stuck in the range they’ve seen over the last few months, with higher yields and lower prices, and we wouldn’t be surprised to see the volatility continue.
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.
