The Fed will most likely announce a 1/4% rate hike this week. We will want to watch the stock market’s reaction, not just for a few days, but leading into European elections. They start this week in the Netherlands, in late April in France, and into the fall in Germany. The market dislikes uncertainty and a Fed that may be anticipating more inflation due to administration policies may talk tougher than we expect. This would most likely tip the market towards uncertainty, especially if it’s perceived the Fed would be intentionally acting as a counterweight to administration policies. As well, market participants (think institutions) will be watching election polling in the Netherlands, France, and Germany for further signs of an unraveling European Union. Political instability in Europe could certainly lead to more uncertainty about global trade after the Brexit vote, and in light of our administration’s view of global trade pacts. So, in the context of a market that has had a 13% run since early November, let’s pay attention to these looming market influences. As per our February post, keep trimming laggards and take some profits in non-core positions. As well, it’s probably not too late to shorten maturities in […]
Most major U.S. stock indices are at new all-time highs in expectations of economic stimulus, fewer business regulations, and lower corporate taxes. Layer on hundreds of billions in potentially repatriated profits, more profitable big banks, and significantly increased tech spending, and you’ve got the makings of a relentlessly up stock market. At this point we’re almost vaulting over the wall of worry of higher interest rates, possible tariff wars, potentially dramatic changes in healthcare, and a political environment that seems nearly unpredictable. The market is showing no signs of letting up, at least at this point. Although there seems to be nothing on the horizon to stop this powerful move, it probably is a good time to look at reducing under performing positions and taking some partial profits on big winners. Incremental is the by word, though, as trends have a way of lasting longer than almost anyone expects.
Well, we’ve had a nice run in the U.S. stock market, especially if you look all the way back to the bottom in the spring of 2009. The question on most investors’ minds is whether it’s time to re-balance, or not. As we noted in our post at the end of the year, the important things to pay attention to this year are; the Fed, politics, and the economy. So far, so good. The economy continues to improve, the market is absorbing big changes in the political structure without much disturbance, and the Fed seems to be holding it’s line on rate hikes. So, although there seems to be no compelling reasons to change strategies at this point, re-balancing portfolios has more to do with preparing for the future than reacting to current conditions. There are two futures to prepare for; yours and the market’s. Our clients tend to fall into three general age categories; Emerging Investors (20s-30s,) Peak Earners (40s-50s,) and Retirees (60+.) Each age group should respond just a little differently than the others to the need for investment re-balancing. Emerging Investors probably need to be least concerned with re-balancing. Once their long term allocations are set it becomes more […]
Predictions are often easy to make, but even the best researched and considered predictions are often 180 degrees wrong. So for that reason, we are reluctant to make New Year predictions. However, what is important is to figure out what are likely to be the biggest influences on the markets in the coming year. It’s an especially good idea to consider macro factors this year because markets have made dramatic turns around the recent elections. Domestic stocks indices are at new highs (up from highs set last Spring) and bonds are now testing the lows of summer 2015, after reaching record high prices this past summer. We’re thinking the big 2017 market influences will be: The Fed Politics The Business Cycle The markets could be facing real headwinds if the Fed decides to get aggressive in its efforts to head off inflation. Politics are important here because a surge in economic activity due to fiscal stimulus, should it lead to an acceleration in wage gains, will almost certainly force the Fed to raise rates more rapidly. Of course, the result will be lower bond prices and, probably, lower stock prices. Conversely, should fiscal stimulus efforts get stuck in congress, or […]
We got our 1/4 point rate hike from the Fed and it seems it’s Game On for higher interest rates, barring a dramatic downturn in the economy. The markets are acting like it’s pretty much what was expected from the Fed, including their language on expected tightening in the labor market and increased inflation. The stock market has had a nice run since the election and the bond market a significant drop. All, it seems, in anticipation of more economic activity and the tighter labor market the Fed describes. We could get a “sell the news” reaction in stocks, which might be welcome by many after such a steep run, but it’s hard to see a correction turning into a rout. True, stock valuations are full, but the new administration’s business friendly policies have a tailwind in the improving economy and 2017 earnings will benefit from easy comparisons in many industries. #fed #inflation #labormarket #economy
We’re in the midst of a very large market rotation based on several anticipated economic policy changes. Although the President-elect is not easy to nail down, his economic cabinet and other leadership choices are pointing to less bank and business regulation, lowered corporate taxes, and economic stimulus. Bond prices are down significantly as big investors, fearing inflation and higher interest rates, exit fixed income. Stock managers are rotating out of healthcare (lingering fears of pricing pressure,) interest sensitive stocks (like utilities and REITs,) and tech stocks, just because they need cash to chase industrials and commodities, as beneficiaries of fiscal stimulus (infrastructure spending,) and banks as beneficiaries of higher interest rates (making loans more profitable.) If we get signs that all this leads to increased economic activity, more employment and higher wages, more capital investment, and more bank lending, we think current stock prices can generally be supported. Although there may be moments of doubt and fear, given the above assumptions, we would probably see those moments as opportunities to add to quality stocks, especially if the sector rotation continues to be so robust. However, the going looks difficult for bonds.
Based on Trump’s campaign statements and his record as a businessman, here are some things we can watch for from his administration: Borrow to Fund #Infrastructure Spending-helps industrial companies, raises #Inflation expectations and hurts bond prices. #Banks profit margins will improve while lending accelerates. #Deregulation-helps most industrial companies. Much of #Defense spending should be safe from cuts. #Pharmaceutical and #Biotech can breath a sigh of relief. #Mergers and #Acquisitions should benefit from a reigned in Justice Department. Some #Exporters could be vulnerable to changes in #TradeDeals.
The markets got a lift in the third quarter from continued job gains and, surprisingly, a striking improvement in wage growth. Domestic politics and Brexit fallout didn’t seem to hurt much. The S&P 500 was up nearly 4% and the Dow up nearly 3% in the quarter. Balanced indices returned generally 2-3.5% in the quarter. U.S. bonds generally returned less than .5% but international bonds showed improvement, returning nearly 3%. Q4 is starting off with a little more concern about stock valuations and bonds being vulnerable to a probable rate hike before year end. As well, the markets seem somewhat uncertain about potential power shifts in congress as a result of the elections and the effects on big banks, pharma and biotech. Both stocks and bonds have sold off some since the end of Q3 and we could be in for continued weakness leading up to the holidays. However, assuming the current earnings season is not worse than expected, consumers remain buoyant going into the holidays, and oil prices stay near current levels, we feel we’re probably seeing a normal market pullback. It continues to be a good time to clean out underperformers in fixed income and equities, as well […]
July and August were good to stock investors after the Brexit dip. In the end, Q2 earnings came in mixed. That is; some stocks in each sector turned in good earnings and some stocks in each sector turned in not so good earnings. The market seemed to like most of it, and the S&P was up nearly 10% off the July low. Then, this week, we hear from the Fed that the second interest rate hike is imminent. There was a bit of a delayed reaction, but market participants seem to agree, all at once, that stock and bond prices need to get cheaper. The S&P is off by 2.3% and small caps by nearly 3.3% as I type. We suspect the weakness will continue a bit as the market continues to adjust to the not-so-new reality of a rate hike. It’s a good time to look at our allocations to stocks, bonds and other interest rate sensitive investment to see if we’ve gotten too enthusiastic about any asset class or sector; if we’ve got any positions we’ve become concerned about longer term; or if we’ve got any positions that have had big moves that we may want to trim. The […]
We’re up 9% off the #Brexit bottom on June 27. What is the market saying? Here are some possibilities: * Britain is going to be able to strike important economic accords with their trading partners on the Continent. * Second quarter corporate earnings may be better than we’ve expected. Last night #Microsoft reported surprising growth across most of their business lines including their PC related businesses. This probably would not have happened in a weakening global economy. (Let’s see how Intel earnings look tonight.) * Institutional investors may be developing more confidence in the #Fed ‘s ability to manage monetary policy in this period of transition. * These same investors may be less concerned about the outcome of the #election. (The conventions could still provide some surprises.)