Commentary for the week ending 1-13-17

Stocks closed out the week relatively unchanged.  Through the Friday close, the Dow was lower by 0.4%, the S&P was down a slight 0.1%, and Nasdaq did well with a 0.9% gain.  Bond prices again moved higher as yields fell this week.   Gold had another nice week, up 2.1%.  Oil took a tumble, falling 2.6% to close at $52.52 per barrel.  The international Brent oil closed down to $55.59.

Source: Google Finance

The week was a fairly uneventful one.  The markets haven’t been able to find any momentum either direction and remain stalled around a level first reached in mid-December.  The Dow came frustratingly close to the 20,000 level last week but remains unable to punch through it. 

Much of the focus remains on Washington.  Investors are still encouraged by the pro-business policies coming from the new Trump administration, but we learned few new policy details this week.  While we know we’ll see pro-business policies, we aren’t sure when we will see them or how big they will be. 

One of the interesting reports to come out this week was small business optimism. It saw a massive surge after the election as more small business owners turn optimistic on the future.  Optimism now stands at the highest level since 2004.  This is a very positive sign for the economy.  Chart courtesy Zerohedge.com

Trump’s policies may be good for business, but he also has the power to take them lower.  He has shown a willingness to call out individual companies or sectors whose actions he disagrees with.  Last week it was car companies operating in Mexico.  This week it was healthcare and pharmaceutical companies. 

Healthcare-related stocks saw nice gains after the election, relived to see a Trump victory since they were often demonized by the left.  However, Donald Trump called them out in a press conference this week, saying they had “gotten away with murder” since the federal government does not bid on drug prices for government programs.   The possibility of lower revenue from the government sent the sector sharply lower. (Chart courtesy Wall Street Journal)

Ideally we’d like to see these company-specific matters resolved more diplomatically, but as it stands now, it looks like this unpredictability could be a factor for investing going forward.

Finally, corporate earnings for the fourth quarter started coming in this week.  Banks were a big focus as several big names reported results.  They were mostly “okay,” with Bank of America and JP Morgan posting decent numbers.  However, Wells Fargo did very poorly, perhaps since this was the quarter of the bad press about fake bank accounts. 

It’s too early to get an idea of the broader earnings picture.  Analysts are predicting growth of 3.2% and though modest, it shows a continued improvement in growth over the last few years. 


Next Week

Next week will be fairly quiet for economic data.  We’ll get info on inflation at the consumer level, industrial production, and housing.  Corporate earnings will come more into focus as earnings releases really start to pick up next week. 


Investment Strategy

Still no change here.  We continue to think stocks are on the expensive side in the short-term.  We would wait for a pullback before putting any new money into the market. 

While we are cautious in the short term, we are more optimistic in the longer run.  We had been cautious on the long term – and still are to some degree – because much of the rise in the market over the past few years has been due to the central banks and their stimulus.  It may have caused markets to rise, but has also distorted markets and created bubbles, which usually ends badly.

Our optimism comes from the new pro-business policies that may balance out or negate the distortions caused by the stimulus.  We are unsure how this will eventually play out, but pro-growth policies will be a net positive for the economy.  

Bond prices no longer look cheap, either, and we would hesitate to add to short-term fixed income positions at this time.  

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 eventually 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 see weakness around the globe and favor neither the developed or emerging markets, though they are looking cheap.

Please note, these day-to-day and week-to-week fluctuations have little impact on positions we intend to hold for several years or longer.  Our short and medium term investments are the only positions affected by these daily and weekly fluctuations. 


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.

Commentary for the week ending 1-6-17

The markets closed out the first week of 2017 with solid gains.  For the holiday-shortened week, the Dow was higher by 1.0%, the S&P rose 1.7%, and Nasdaq turned in a nice 2.5% gain.  Bond prices took a turn higher as yields fell this week.   Gold had nice week, up 2.0%.  Oil was relatively flat, losing just 2 cents to end at $53.70 per barrel.  The international Brent oil closed at $56.75.

Source: Google Finance

Welcome to a new year – we hope you had a nice holiday season. 

It was a slow start to the year for stocks, but they again reached new highs by the week-end.  Though they are at new highs, stocks have really been stalled around this same level since mid-December.  We’ll see if the new year gives them any momentum either direction. 

The gains in the market this week reminded us to break out the old Stock Trader’s Almanac.  History has shown that if stocks (the S&P 500) are higher in their first five days of trading, there is an 86% chance they close the year higher.  Of course, last year stocks got off to the worst start in history and closed with near double-digit gains, so maybe we shouldn’t put too much faith in these predictors.  

As for the events of the week, we’ll start with the Fed.  Minutes from their latest meeting were released.  This was the meeting where they raised interest rates for the first time in a year, so investors were interested to see what they had to say. 

The biggest takeaway was their uncertainty over the Trump policies.  It’s not just uncertainty over things like what the level of lower tax rates will ultimately be or how much infrastructure spending we’ll see.  The Fed questions if these policies will even be a positive for the economy. 

This is telling since these policies always result in economic growth.   The Fed is mostly comprised of academics that see government control and spending as the way to economic growth.  It tells us a lot about their thinking – and why they’ve been wrong so often. 

For a stock-specific story this week, shares of retail companies were hit hard after poor Christmas-season sales figures were released from Macy’s and Kohl’s on Thursday. 

More and more people are buying online and avoiding stores, resulting in the lower sales at these stores.  The announcements from the two companies brought the entire sector lower, as can be seen in the nearby chart.

As for economic data this week, the results were mixed.  Reports on the strength of the manufacturing and service sectors came in at multi-year highs. 

The final employment report of 2016 was also released this week.  Results were below expectations, with the economy adding 156,000 jobs when estimates were closer to 180,000. 

The year was also a disappointment for employment.  We averaged 180,000 monthly job gains, making this the weakest year for employment since 2011.


Next Week

Corporate earnings for the fourth quarter start rolling in next week.  A modest 3.2% growth expected, but analysts expect this to pick up over the next year to see double-digit returns by the end of the year.

It will be a little quieter for economic data, where we’ll see reports on retail sales and inflation at the producer level.

Many regional Fed presidents will be out making speeches, too, which always has the potential to move the market. 


Investment Strategy

Still no change here.  We continue to think stocks are on the expensive side in the short-term.  We would wait for a pullback before putting any new money into the market. 

While we are cautious in the short term, we are more optimistic in the longer run.  We had been cautious on the long term – and still are to some degree – because much of the rise in the market over the past few years has been due to the central banks and their stimulus.  It may have caused markets to rise, but has also distorted markets and created bubbles, which usually ends badly.

Our optimism comes from the new pro-business policies that may balance out or negate the distortions caused by the stimulus.  We are unsure how this will eventually play out, but pro-growth policies will be a net positive for the economy.  

While stocks look expensive here, bonds prices still look cheap and this could be a good opportunity to add to fixed income positions. 

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 eventually 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 see weakness around the globe and favor neither the developed or emerging markets, though they are looking cheap.

Please note, these day-to-day and week-to-week fluctuations have little impact on positions we intend to hold for several years or longer.  Our short and medium term investments are the only positions affected by these daily and weekly fluctuations. 


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.

Commentary for the week ending 12-16-16

Please note: Since Christmas and New Year’s both fall on the weekend this year, there will be no market commentary for the next two weeks.  We’ll be back in January and would like to wish you all a great holiday season!

Stocks lost some steam this week with the major markets finishing mixed.  For the week, the Dow rose 0.4% while the S&P and Nasdaq were slightly lower by 0.1%.  Bond yields rose again this week, so bond prices have fallen.  Gold hit a 10-month low with a drop of 2.1%.  Oil was slightly higher, up 1.1% to $52.03 per barrel.  The international Brent oil ended the week up $1 to $55.33.

Source: Google Finance

The excitement for pro-business policies from the Trump administration continues to help stocks.  New money is pouring into the market, with Bank of America research indicating the latest week saw the ninth-largest amount of money ever flowing into stocks.

The Wall Street Journal reports that the 8% rise in the Dow since the election is the biggest post-election gain in history.  They find that there has been five other instances where the market was up more than 5% after an election, and in all but one time stocks were higher six months later. 

That doesn’t mean we should throw caution to the wind.  Many comparisons have been made to the Reagan era, which also saw stocks shoot higher over enthusiasm for a pro-business agenda.  However, stocks ended up declining for nearly two years to be down almost 20% before eventually rebounding.  These economic policies will undoubtedly be good for the economy, but that doesn’t mean stocks can’t still go lower. 

The Fed meeting this week showed how vulnerable stocks can be to any upsets.  The Fed announced an increase in interest rates on Wednesday, which was largely expected.  However, they forecasted more rate hikes last year than many investors were expecting and stocks sold off on the potential for tighter policies. 

This reminds us a lot of last year.  The Fed hiked rates in December and rattled the markets, especially overseas.  Stocks fell sharply at the beginning of the year as a result. Pro-business policies from the new administration may help stem the tide, but we see this as another reason for caution. 

As for economic data this week, the results were largely negative.  Industrial production declined and remains in negative territory on a year-over-year basis.  Never has industrial production been negative for so long and the economy not be in a recession.  Also, retail sales were disappointing, inflation reports shows prices are rising faster than expectations, and housing data released this week was very poor. 


Next Week

Next week will be a fairly quiet one for scheduled news as investors start gearing up for Christmas.  For economic data, we’ll get reports on durable goods and some housing stats.  Other than that, it looks like it could be a quiet week.  


Investment Strategy

No change here.  We still think stocks are on the expensive side in the short-term, though we have thought that the last few weeks and stocks keep moving higher.  We would wait for a pullback before putting any new money into the market. 

While we are cautious in the short term, we are optimistic in the longer run.  We had been cautious on the long term – and still are to some degree – because much of the rise in the market over the past few years has been due to the central banks and their stimulus.  It may have caused markets to rise, but has also distorted markets and created bubbles, which usually ends badly.

Our optimism comes from the new pro-business policies that may balance out or negate the distortions caused by the stimulus.  We are unsure how this will eventually play out, but pro-growth policies will be a net positive for the economy.   However, the path of the economy can differ from that of the stock market.  

While stocks look expensive here, bonds prices look cheap and this could be a good opportunity to add to fixed income positions. 

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 eventually 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 see weakness around the globe and favor neither the developed or emerging markets, though they are looking cheap.

Please note, these day-to-day and week-to-week fluctuations have little impact on positions we intend to hold for several years or longer.  Our short and medium term investments are the only positions affected by these daily and weekly fluctuations. 


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.

Commentary for the week ending 12-9-16

The Trump rally continued this week as stocks again reached new record highs.  For the week, the Dow gained 3.0%, the S&P rose 3.1%, and the Nasdaq saw a solid 3.6% return.  Bonds prices continue to hover around the lowest level in a year as yields have risen.  Gold moved lower on the week, off 1.4%.  Oil prices saw little change, closing at $51.48 per barrel.  The international Brent oil ended the week at $54.36.

Source: Google Finance

This week was the first one in five years where all three major indexes rose five days in a row.  Clearly investors are enthusiastic about the potential for economic growth under a Trump administration and are pouring new money into the market, pushing stocks to new record highs.  

More cabinet appointments released this week were also cheered by investors.  These are business leaders with real leadership experience, not the bureaucrats we often find in Washington.  The news was cheered by investors as it is a positive sign for U.S. businesses. 

Investors are being more selective here, too, as new money is flowing into companies whose revenue mostly comes from the U.S.  Transport-related stocks, in particular, have benefitted.  These are companies in sectors like airlines, railroads, and shipping.  This is worth mentioning since their performance is confirming the “Dow Theory.”

The Dow Theory basically suggests that new highs in the broader market need to see transportation stocks also moving higher.  Transports are seen as a proxy for the health of the economy since they move the goods and raw materials used in manufacturing and construction.  So if they do well, the broader market tends to do well. 

Transports rarely make highs when the broader market is about to fall, which suggests the rally has legs and could continue. 

The week did not have a lot of other market moving news.   One bit of news we did have came from Europe with their central bank’s policy meeting. 

The stimulus policy from the European Central Bank (or ECB) is set to wind down in March.  Investors believed the ECB would announce an extension of this program since their economy still remains fragile. 

The ECB did announce a stimulus extension, though at a smaller amount than expected.  They are currently printing the equivalent of $85 billion a month to pour into the markets, but will be lowering the amount to $63 billion a month.  However, the program is expected to run until the end of 2017, which is longer than originally expected.  So all-in-all, it was a wash that met expectations. 

All these years of money printing have produced little in the way of results and we don’t think more of the same will produce anything different.  We only need to look at the reaction of our markets over the past month to see what needs to be done.  Pro-growth policies will get them out of this rut – lower taxes, less regulations, stable currency, etc.  They keep digging the hole deeper until real reforms like these are enacted.


Next Week

The big news next week will come from our Fed and their policy meeting.  There is a nearly 100% chance they raise interest rates at this meeting.  The unknown is the pace of future rate hikes.  They are likely to take a wait-and-see approach and not announce anything too drastic, but a stronger stance with more rate hikes will probably weigh on the market.

There will be a handful of important economic reports, too.   There will be data on retail sales, industrial production, housing, and inflation at the consumer level. 


Investment Strategy

We still think stocks are on the expensive side in the short-term, but have thought that the last couple weeks as stocks continued to rise.  We aren’t selling here and have enjoyed the rise, but are very cautious.  We would wait for a pullback before putting any new money into the market. 

While we are cautious in the short term, we are optimistic in the longer run.  We had been cautious – and still are to some degree – because much of the rise in the market over the past few years has been due to the central banks and their stimulus.  The money they have printed has caused markets to rise and may have inflated bubbles.

However, we could see the new pro-business policies balance out or negate the distortions caused by the stimulus.  We are unsure how this will eventually play out, but pro-growth policies will be a net positive for the economy.   Often the path of the economy can differ from the stock market.  

While stocks look expensive here, bonds prices look cheap and this could be a good opportunity to add to fixed income positions. 

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 eventually 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 see weakness around the globe and favor neither the developed or emerging markets.

Please note, these day-to-day and week-to-week fluctuations have little impact on positions we intend to hold for several years or longer.  Our short and medium term investments are the only positions affected by these daily and weekly fluctuations. 


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.