Stocks slip as the week begins

Stocks started the week with declines, weighed in part by sentiment from overseas, where European financials posted steep losses.

The Dow dropped 166 points, with 28 of its 30 components retreating; the S&P 500 Index fell 18 points; and the Nasdaq lost 48. Decliners topped advancers by about five to two on the NYSE and by about three to one on the Nasdaq. The prices of Treasuries strengthened. Gold futures edged up $2.40 to close at $1,344.10 an ounce. The price of crude oil rose $1.45, settling at $45.93 a barrel.

In earnings news:

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A warning for long-maturity bonds

Pencils of different lengthsBond prices have declined and yields have increased since early July, when the yield on the benchmark 10-year Treasury note reached a record low of 1.35%. Yields in other sectors of the bond market have also increased, despite the fact that the Federal Reserve (Fed) has kept the federal funds rate unchanged. Because the Fed has not yet adopted a policy of gradually boosting the funds rate, this sell-off is probably not the beginning of a cyclical uptrend in bond yields. Nevertheless, it might have provided a blueprint for how markets could react during that cyclical process.

If the sell-off is an example of what might happen when the funds rate is rising, that example is not encouraging for investors who own the long-maturity segments of the bond market. The sell-off was sparked, in part, by better economic data and by a mere hint that the European Central Bank (ECB) may not expand or extend its bond-buying program. The fact that markets responded so violently illustrated how dependent they had become upon the central banks’ extreme policies. Apparently, global investors may have been assuming those policies would never end.

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No reflex fast enough to save food from five-second rule

Falling crude-oil prices and disappointing data on U.S. manufacturing activity were the main contributors to today’s down market.

The Dow fell 131 points, with 27 of its 30 components in the red; the S&P 500 Index lost 12; and the Nasdaq dropped 33. Decliners outpaced advancers by about five to three on the NYSE and by three to two on the Nasdaq. Treasury prices strengthened. Gold futures slumped $3.00 to close at $1,341.70 an ounce. Crude-oil futures tumbled $1.84 to settle at $44.48 a barrel after it was reported that Saudi Arabia doesn’t expect major oil producers to come to an agreement to freeze oil production at a meeting in Algiers next Monday.

For the week, the Dow gained 0.78%, the S&P 500 Index rose 1.20%, and the Nasdaq added 1.17%.

In other business news:

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Stocks gain for third straight day

Today’s Daily Advantage comes to us from guest writer Jim Durning.

Major stock indexes in the U.S. moved higher as investors reacted to the decision to leave short-term interest rates unchanged for now. The Dow added 98 points, with 28 of its 30 components advancing; the S&P 500 Index was up 14 points; and the Nasdaq gained 44. Advancers led decliners by five to one on the NYSE and by three to one on the Nasdaq. The prices of Treasuries strengthened. Gold futures gained $13.30 to settle at $1,344.70 an ounce. The price of crude-oil futures increased $0.98, settling at $46.32 a barrel.

In earnings news:

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Fixed income focused, part 3: How now?

Charts and graphs on tableQuality credit research and teams are crucial to finding opportunity. Dr. Brian Jacobsen and Jim Kochan, capital market strategists with Wells Fargo Asset Management, explain.

Jon Lagerstedt: Reliance on quality credit research and teams are crucial for seeking opportunity in fixed income. I’m Jon Lagerstedt, and this is The Essential Practice. Dr. Brian Jacobsen, chief portfolio strategist, and Jim Kochan, chief fixed-income strategist, with Wells Fargo Asset Management join us for this, the third and final installment of our focus on fixed-income—gentlemen, welcome.

Brian Jacobsen: Thanks for having us back.

Jim Kochan: Nice to be here.

Jon: I’ve been listening to my colleagues in the previous two editions, and you make it clear that teams and research are crucial to selecting credits. But why not just rely on credit-rating agencies for that?

Jim: You’re right. In that regard, most portfolio management groups, particularly those at Wells Fargo, do their own credit research—in the corporate market and in the municipal market. That is very important they have independent credit research functions. Sure they look at the ratings from the ratings agencies, but they don’t rely on them; they do their own credit work.

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Stocks rise on Fed and Bank of Japan news

Stocks posted gains after the Federal Reserve (Fed) announced it would keep short-term interest rates unchanged but hinted toward a hike later this year.

The Dow climbed 163 points, with 27 of its 30 components gaining; the S&P 500 Index rose 23 points; and the Nasdaq added 53. Advancers topped decliners by six to one on the NYSE and by about three to one on the Nasdaq. The prices of Treasuries strengthened. Gold futures increased by $13.20 to close at $1,331.40 an ounce. The price of crude oil rose $1.29, settling at $45.34 a barrel.

In earnings news:

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Rotating into opportunity in core-plus bonds

Portfolio Manager Ashok Bhatia points to the plus sectors for opportunity.

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What central banking’s new twist means to investors

Federal ReserveThe Federal Open Market Committee (FOMC) made no changes to its interest-rate target but hinted that it could hike for the holidays. That’s in contrast to the Bank of Japan (BOJ), which appears to be the gift that keeps on giving based on the plans it announced this morning.

The FOMC acknowledged that the case for hiking has strengthened. Importantly, it inserted into its policy statement a “balance of risks” phrase. This phrase vanished a while ago as the Federal Reserve (Fed) was trying to figure out which way the economy was going. Now, the FOMC says “near-term risks to the economic outlook appear roughly balanced.” That’s a hint that a hike might be forthcoming. However, based on the projections in the Summary of Economic Projections, the median member is looking to hike only once in 2016. Markets seem to be keying in on the idea that the Fed won’t hustle to hike twice this year. It also will take it extra slow. Instead of getting to 3.0% over the long term, the Fed is eyeing a long-term federal funds rate target closer to 2.75%.

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Characters can boost brands

Today’s Daily Advantage comes to us from guest writer Jim Durning.

Major stock indexes in the U.S. were just slightly positive as the Federal Open Market Committee opened its two-day meeting. The Dow added 9 points, with 15 of its 30 components advancing; the S&P 500 Index was up less than a point; and the Nasdaq gained 6. Decliners led advancers by 5 to 4 on the NYSE and by 10 to 9 on the Nasdaq. The prices of Treasuries strengthened. Gold futures gained $0.40 to settle at $1,318.20 an ounce. The price of crude-oil futures increased $0.19, settling at $44.05 a barrel.

In earnings news:

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Where to focus core-plus bond strategies now

Dice with percentage symbols on themWith three Federal Reserve (Fed) meetings left in 2016, the bond market is assigning about a 50% probability to a hike before year-end. While this probability has declined over the past few weeks, following weaker-than-expected capital spending and labor market data in the U.S., we believe it still seems likely that the Fed will raise rates before year-end, particularly if we see any strengthening of economic data over the next couple of months. That raises the question of how to invest a bond portfolio now if a Fed hike is likely in the near term? Below we explain why we continue to focus on income, particularly in certain sectors such as European high yield and U.S. high-yield loans, and favor a more conservative duration tilt.

Three areas of opportunity for investors in the coming months:

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