Stocks posted solid gains as investors keep a lookout for potential stimulus expansion from Europe’s central bank and for new economic data that could signal whether the U.S. central bank will hike rates by year-end.
The Dow climbed 168 points, with all but 3 of its 30 components gaining; the S&P 500 Index added 22 points; and the Nasdaq increased by 47. Advancers led decliners by nine to four on the NYSE and by four to three on the Nasdaq. The prices of Treasuries strengthened. Gold futures fell $1.80 to close at $1,063.50 an ounce. The price of crude oil rose 20 cents, settling at $41.85 a barrel.
In other business news:
When it comes to commodities, I believe they’re best for consuming, not for investing.
From a portfolio construction perspective, direct investment in commodities adds too much volatility without enough possible gains to merit the risks. Remember the commodity super cycle? In the mid-2000s, many investors bought into the idea that commodity prices would go to the moon or that the rising emerging markets middle class would gobble up commodities such as oil, copper, and gold (because who doesn’t want gold?). Even during the financial crisis, commodity prices collapsed but only temporarily. Extraordinary monetary policy in the developed world and from a rising China bid up commodities prices, so the fervor lived on.
My, how things have changed since 2011. Consider what’s happened to oil, copper, and gold:
Stocks limped to a close in today’s session but still managed to close out the month of November with modest gains. This was no small feat given the outsized gains in October. This week sees the release of several major economic reports that could set the tone for the December 16 Federal Open Market Committee interest-rate announcement, including the official jobs report, Institute for Supply Management surveys, factory orders, and speeches by Federal Reserve Chair Janet Yellen.
The Dow fell 78 points, with 20 of its 30 components retreating; the S&P 500 Index lost 9; and the Nasdaq slipped 18. Decliners led advancers by five to four on the NYSE and more narrowly on the Nasdaq. The prices of Treasuries strengthened. Gold futures rose $9.10 to close at $1,065.30 an ounce, but the metal had a dismal month, with the most actively traded contract down 6.7%. Crude oil declined six cents to settle at $41.65 a barrel.
For the month of November, the Dow gained 0.33%, the S&P 500 Index was basically flat at 0.06% higher, and the Nasdaq advanced a more solid 1.07%.
In other business news: Continue reading
- Some have argued that the benign bond yield increases during the Federal Reserve (Fed) tightening cycle of 2004 to 2006 shows that investors shouldn’t be concerned ahead of potential rate increases from the Fed.
- While strictly true during the period of rate increases, this comparison with 2004 doesn’t take into consideration the jump in yields that immediately preceded the onset of tightening. Doing so presents a drastically different total return situation.
- Investors should keep in mind that today’s yield curve is significantly flatter than in 2004, which means bonds have much less protection against a rise in short-term rates.
Now that the Fed is expected to start raising the federal funds rate in December, there is renewed interest in how the bond markets fared during the most recent cyclical uptrend in short-term rates. That was late-June 2004 to late-June 2006 when the federal funds rate rose from 1% to 5.25%—increases of 25 basis points (bps; 100 bps equals 1.00%) at every Federal Open Market Committee meeting.
That was the slowest and most predictable episode of Fed tightening ever, and the reaction of bond yields was the mildest ever. The first part of the graphic below shows that from late June 29, 2004, the day before the Fed first raised the federal funds rate, to June 30, 2006, the day after the last increase in the federal funds rate, most bond yields were remarkably stable. Some were even lower in June 2006 than in June 2004.
Stocks ended the day almost flat, as investors monitored a new batch of economic data before wrapping up for the Thanksgiving holiday.
The Dow rose 1 point, with 16 of its 30 components declining, the S&P 500 Index lost less than one point, and the Nasdaq increased by 13. Advancers led decliners by three to two on the NYSE, and by nine to five on the Nasdaq. The prices of Treasuries strengthened. Gold futures fell $3.80 to close at $1,070.00 an ounce. The price of crude oil rose 17 cents, settling at $43.04 a barrel.
In earnings news:
- HP Inc.’s fourth-quarter net income slipped to $1.32 billion from $1.33 billion a year earlier. Revenue declined 9.5% to $25.7 billion, due to weak PC and printer sales. This will be HP’s final earnings report before it splits into two companies that will report results separately. HP’s shares (HPQ) dropped 13.6%, after it lowered its 2016 earnings outlook.
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The downing of a Russian military jet by the Turkish air force raised concerns about the conflict in Syria escalating. European shares closed sharply lower, while U.S. indexes swooned in the morning but recovered in afternoon trading.
The Dow rose 19 points, with 16 of its 30 components closing higher; the S&P 500 Index rose 2; and the Nasdaq gained less than a point. Advancers led decliners by eight to five on the NYSE and three to two on the Nasdaq. The prices of Treasuries strengthened. Gold futures rose $7.00 to close at $1,073.80 an ounce, and the price of crude oil jumped $1.12 to settle at $42.87 a barrel.
In earnings news:
When looking at current emerging markets debt levels, it’s understandable that investors have concerns and questions, especially when analyzing past debt crises for clues on what could happen soon. From Latin America in 1982 to Uruguay in 2002, emerging markets debt spikes have left investors scarred and wondering whether the next crisis could bring a debt contagion, rising defaults, or price pressure on stocks in commodity-reliant emerging markets.
While it’s true the current rise in emerging markets debt may bring pockets of trouble, I don’t think investors should worry too much about the present emerging markets debt crisis overall. Emerging markets equities have already declined in anticipation of a rate increase from the Federal Reserve (Fed)—and in turn, they’re at better valuations now than in previous debt crises. The key is being judicious about which regions you build exposure to. As my colleague Anthony Cragg noted in his recent blog post—yes, emerging markets are volatile, but investors don’t have to invest in all of them.
So let’s analyze and contrast today’s emerging markets debt situation with past events and break down what all of this means for investors.
Today we share a monthly update from the Wells Fargo Asset Management Municipal Fixed-Income team. This month we take a snapshot look at growth in local tax revenues, how Illinois’ credit situation seems to be retracing California’s route to solvency, and technical factors supporting the municipal market.
In a period of rising global volatility, the municipal market has benefited from its safe-haven status, supported by the taxing power of state and local governments. The Barclays Municipal Bond Index, a broad measure of investment-grade municipal bonds, returned 2.17% during the first 10 months of 2015. As a result, municipal bonds have outperformed U.S. Treasuries, investment-grade corporate bonds, and high-yield bonds over the same time period. As we head into year-end, 10-year municipal bond yields have been fairly stable ahead of a potential increase in the federal funds rate. (The federal funds futures market is pricing in a 70% implied probability of a rate hike in December, up from a 41% chance on September 30.) In general, municipal credits are being supported by increased tax revenues even as negative news surrounding high-profile issuers such as Illinois causes investor concerns. Less new supply amid demand for municipal bond funds also has supported the asset class.
A morning rally gave way to afternoon pessimism as declining existing-home sales and falling oil prices weighed on stocks.
The Dow fell 31 points, with 21 of its 30 components retreating; the S&P 500 Index dropped 2; and the Nasdaq lost 2. Advancers narrowly outpaced decliners on the NYSE and the Nasdaq. The prices of Treasuries strengthened. Gold futures lost $9.50 to close at $1,066.80 an ounce, and the price of crude oil declined 15 cents to settle at $41.75 a barrel.
In other business news:
With 2015 nearly over and 2016 looming before us, it seemed to be a good idea to give a quick synopsis (one or two sentences) on why we like or don’t like certain areas of the domestic equities market. I should say at the beginning that, after all the events and changes of the past several years, I am still positively disposed toward stocks. Valuations appear full but not excessive. The Federal Reserve probably will raise rates but not tighten (and it bears repeating that removing some accommodation is not the same thing as deliberately trying to slow down the economy). Earnings growth has been largely absent in the past few quarters but should reemerge with the world’s economy in the year ahead. Thus, when I am underweight a sector, this does not necessarily connote a dislike as much as the perception of better opportunities elsewhere. Also, things change as the economic cycle evolves, and I like to think that we can and will change with it.
Here are some simple thoughts: