5 Minute Market Update – May 31, 2017

I am happy to present this week’s market commentary from FormulaFolio Investments. The goal is to give our clients and friends a simple way to see everything they need to know about the financial markets on a weekly basis, in 5 minutes or less. After all, investing should be simple, not complicated.

Market Update

Equities: Broad equity markets finished the week mostly positive with large-cap US stocks experiencing the largest gains. S&P 500 sectors finished the week mostly positive as defensive sectors generally outperformed cyclical sectors.

So far in 2017 technology, consumer discretionary, and healthcare are the strongest performers while energy and telecommunications are the only sectors with negative performance year-to-date.

Commodities: Commodities were negative for the week as oil prices fell 1.05%. Oil prices had been trending upward following a report showing falling US crude oil inventories on May 10, but prices dropped almost 5% on Thursday on disappointment that the extension of OPEC output cuts did not go deeper (investors were hoping for an even lower level of production rather than simply the extension of current output cuts). Gold prices rose 1.16% for the week as gold remains moderately positive for the year.

Bonds: The 10-year treasury yield increased slightly from 2.23% to 2.25%, resulting in mostly flat performance for treasury and aggregate bonds.

High yield bonds were positive as riskier asset classes performed well during the week.

Indices are mostly positive for 2017, with equity markets leading the way while commodities and bonds lag behind.

Lesson to be learned: “Every once in a while, the market does something so stupid it takes your breath away.” – Jim Cramer. It can be easy to spot the moments of “market stupidity” in hindsight, but it is not always so clear at the time they are happening. As investors, we need to be prepared for the unexpected so we do not get caught up in the irrationalities the markets so often display. By sticking to a disciplined investment strategy you can minimize the effect that emotions can have on your portfolio, improving your chances for long-term portfolio success.

FFI Indicators

FormulaFolios has two simple indicators we share that help you see how the economy is doing (we call this the Recession Probability Index, or RPI), as well as if the US Stock Market is strong (bull) or weak (bear).

In a nutshell, we want the RPI to be low on the scale of 1 to 100.  For the US Equity Bull/Bear indicator, we want it to read least 67% bullish.  When those two things occur, our research shows market performance is strongest and least volatile.

The Recession Probability Index (RPI) has a current reading of 25.44, forecasting further economic growth and not warning of a recession at this time. The Bull/Bear indicator is currently 100% bullish. This means our models believe there is a slightly higher than average likelihood of stock market increases in the near term (within the next 18 months).

Weekly Comments & Charts

The S&P 500 finished the week positive after reaching new record highs and remains in the upward trend that began in mid-February 2016. Though the current rally has slowed in recent months, short and intermediate-term momentum remains positive as many indices have reached new all time highs multiple times in recent months. The coming weeks should continue to give valuable insight about the near-term direction of the S&P 500, but it seems to remain in a bullish pattern for now.

Investors continued to shrug off recent political concerns as focus was turned to corporate earnings, GDP growth, and commentary from the Federal Reserve.

Approximately 98% of companies in the S&P 500 have reported earnings for Q1 2017. Of the companies that have already reported, 75% achieved earnings above the average estimate and 64% achieved sales above the average estimate. The total blended S&P 500 earnings growth rate is now 13.9% for the quarter compared to Q1 2016, higher than the initial 9.0% growth estimate before earnings season began.

As corporate earnings continued to come in stronger than expected, Q1 2017 GDP growth was revised upward from 0.7% to 1.2%. Though this is still well below the 2.1% growth in Q4 2016, many indicators currently point to economic strength and it is typical for first quarter GDP to be weak with stronger performances in the second and third quarters.

In response to the relatively strong economy, the Federal Open Market Committee indicated it may soon begin the process of unwinding its balance sheet. The Fed is currently holding a $4.5 trillion portfolio of mostly government debt accumulated in the years following the financial crisis of 2008, with the goal of reducing this to around $2.5 trillion over several years. The Fed has used this balance sheet to keep interest rates low and the economy moving higher since the crisis. Though rates are expected to remain relatively low in the foreseeable future, it seems we are finally moving toward the end of the nine-year economic stimulus plan, and into a more normalized interest rate environment

Stocks have been performing well since the US presidential election with minimal volatility and virtually no drawdowns, but it is important to remember to include a broad range of asset classes in your portfolio for more consistent and more stable longer-term results.

As investors, we need to stay committed to our long-term financial goals. All the short-term news and market movements can be the most debilitating of all when it comes to making sound investment decisions; especially if we allow them to influence knee-jerk decisions.

More to come soon.  Stay tuned.

Regards,

Phil Calandra

The post 5 Minute Market Update – May 31, 2017 appeared first on The Blog of Phil Calandra.

Source: Phil Calandara

5 Minute Market Update – May 23, 2017

I am happy to present this week’s market commentary from FormulaFolio Investments. The goal is to give our clients and friends a simple way to see everything they need to know about the financial markets on a weekly basis, in 5 minutes or less. After all, investing should be simple, not complicated.

Market Update

Equities: Broad equity markets finished the week mostly negative with small-cap stocks experiencing the largest losses. S&P 500 sectors finished the week mostly negative as defensive sectors generally outperformed cyclical sectors.

So far in 2017 technology, consumer discretionary, and healthcare are the strongest performers while energy and telecommunications are the only sectors with negative performance year-to-date.

Commodities: Commodities were positive for the week as oil prices rose 5.20%. Oil prices had fallen sharply in recent weeks on renewed concerns that higher US production would impede OPEC’s attempts to reduce global supply, but prices spiked following a report showing falling US crude oil inventories on May 10 and have continued higher on growing expectations for further OPEC output cuts. Gold prices rose 2.11% for the week as gold remains moderately positive for the year.

Bonds: The 10-year treasury yield fell from 2.33% to 2.23%, resulting in positive performance for treasury and aggregate bonds.

High yield bonds were positive as the drop in broad interest rates offset the mostly negative performance in riskier asset classes.

Indices are mostly positive for 2017, with equity markets leading the way while commodities and bonds lag behind.

Lesson to be learned: “It’s not whether you’re right or wrong that’s important, but how much money you make when you’re right and how much you lose when you’re wrong” – George Soros. Many investors make the mistake of focusing solely on the gains in their portfolio, however it is equally as important (if not more so) to make sure your mistakes aren’t big enough to damage your portfolio beyond repair. Nobody can be right 100% of the time, but if you stick to a disciplined investment strategy that has the potential to minimize downside risk you can improve your chances of long term portfolio success.

FFI Indicators

FormulaFolios has two simple indicators we share that help you see how the economy is doing (we call this the Recession Probability Index, or RPI), as well as if the US Stock Market is strong (bull) or weak (bear).

In a nutshell, we want the RPI to be low on the scale of 1 to 100.  For the US Equity Bull/Bear indicator, we want it to read least 67% bullish.  When those two things occur, our research shows market performance is strongest and least volatile.

The Recession Probability Index (RPI) has a current reading of 25.44, forecasting further economic growth and not warning of a recession at this time. The Bull/Bear indicator is currently 100% bullish. This means our models believe there is a slightly higher than average likelihood of stock market increases in the near term (within the next 18 months).

The S&P 500 finished the week negative but remains well above the support level that was set following the breakout in July last year. Though the current rally has slowed in recent months, short and intermediate-term momentum remains positive as many indices have reached new all time highs multiple times in recent months. The coming weeks should continue to give valuable insight about the near-term direction of the S&P 500, but it seems to remain in a bullish pattern for now.

Broad US stock markets finished negative after a volatile week of trading.

US stocks suffered the largest pullback of 2017 on Wednesday, following news that former FBI Director James Comey stated he was asked to stop investigating former Trump National Security Adviser Michael Flynn. This news introduced some additional political risk into the markets, interrupted the recent run of optimism, and caused US stocks to slide as the S&P 500 fell over 1.75% and the Russell 2000 fell 2.70%. However, stocks shrugged off the negative news on Thursday and Friday, recovering some of the mid-week losses and finishing the week only slightly negative.

Following the sharp drawdowns on Wednesday, emerging markets took another hit on Thursday as Brazil stocks posted the worst trading day since October 2008. The Brazilian Bovespa Index was down 8.80% following news that President Michel Temer encouraged a corporate executive to pay a potential witness to remain silent in the country’s largest ever investigation into political bribery. The wide-ranging corruption scandal, known as Operation Car Wash, has been casting its shadow over Brazil since March 2014 and continues to pull in new names on a regular basis. Similar to US markets however, broad emerging market stocks recovered most of their losses on Friday to end the week only slightly negative (though Brazilian stocks still remained largely negative for the week).

Though broad stocks ended the week on a positive note relative to the large mid-week drops, the past week illustrates there may be some soft spots in the recent stock market rally. While global economic data remains mostly positive, investors have become slightly more wary regarding the various political risks and other global uncertainties surrounding the markets.

Stocks have been performing well since the US presidential election with minimal volatility and virtually no drawdowns, but it is important to remember to include a broad range of asset classes in your portfolio for more consistent and more stable longer-term results.

As investors, we need to stay committed to our long-term financial goals. All the short-term news and market movements can be the most debilitating of all when it comes to making sound investment decisions; especially if we allow them to influence knee-jerk decisions.

More to come soon.  Stay tuned.

Regards,

Phil Calandra

The post 5 Minute Market Update – May 23, 2017 appeared first on The Blog of Phil Calandra.

Source: Phil Calandara

FormulaFolios Portfolio Recap – May 2017

In this recap, we cover the prior month and YTD performance, touch on the current asset allocation of our tactical models, as well as the most up to date economic analysis of our proprietary economic model – the Recession Probability Index.

Warmest Regards,

Jason Wenk
Chief Investment Strategist
FormulaFolio Investments, LLC

The post FormulaFolios Portfolio Recap – May 2017 appeared first on The Blog of Phil Calandra.

Source: Phil Calandara

5 Minute Market Update – May 16, 2017

I am happy to present this week’s market commentary from FormulaFolio Investments. The goal is to give our clients and friends a simple way to see everything they need to know about the financial markets on a weekly basis, in 5 minutes or less. After all, investing should be simple, not complicated.

Market Update

Equities: Broad equity markets finished the week negative with small-cap stocks experiencing the largest losses. S&P 500 sectors finished the week mostly negative with no discernable difference between cyclical and defensive sectors.

So far in 2017 technology, consumer discretionary, and healthcare are the strongest performers while energy and telecommunications are the only sectors with negative performance year-to-date.

Commodities: Commodities were positive for the week as oil prices rose 3.50%. Oil prices had fallen sharply in recent weeks on renewed concerns that higher US production would impede OPEC’s attempts to reduce global supply, but prices spiked on Wednesday following a report showing falling US crude oil inventories coupled with greater demand. Gold prices were mostly flat with a 0.07% gain for the week but remain moderately positive for the year.

Bonds: The 10-year treasury yield fell slightly from 2.36% to 2.33%, resulting in positive performance for treasury and aggregate bonds.

High yield bonds were positive as risky assets performed well and credit spreads fell slightly.

Indices are mostly positive for 2017, with equity markets leading the way while commodities and bonds lag behind.

Lesson to be learned: “It’s not whether you’re right or wrong that’s important, but how much money you make when you’re right and how much you lose when you’re wrong” – George Soros. Many investors make the mistake of focusing solely on the gains in their portfolio, however it is equally as important (if not more so) to make sure your mistakes aren’t big enough to damage your portfolio beyond repair. Nobody can be right 100% of the time, but if you stick to a disciplined investment strategy that has the potential to minimize downside risk you can improve your chances of long term portfolio success.

FFI Indicators

FormulaFolios has two simple indicators we share that help you see how the economy is doing (we call this the Recession Probability Index, or RPI), as well as if the US Stock Market is strong (bull) or weak (bear).

In a nutshell, we want the RPI to be low on the scale of 1 to 100.  For the US Equity Bull/Bear indicator, we want it to read least 67% bullish.  When those two things occur, our research shows market performance is strongest and least volatile.

The Recession Probability Index (RPI) has a current reading of 25.44, forecasting further economic growth and not warning of a recession at this time. The Bull/Bear indicator is currently 100% bullish. This means our models believe there is a slightly higher than average likelihood of stock market increases in the near term (within the next 18 months).

Weekly Comments & Charts

The S&P 500 finished the week negative but remains well above the support level that was set following the breakout in July last year. Though the current rally has slowed in recent months, short and intermediate-term momentum remains positive as many indices have reached new all time highs multiple times so far this year. The coming weeks should continue to give valuable insight about the near-term direction of the S&P 500, but it seems to remain in a bullish pattern for now.

Broad stock markets finished negative for week as US indices remain in a narrow trading pattern.

Though US stocks are moderately positive so far in 2017, many indices have stalled out since the beginning of March. Most of the returns this year can be attributed to January and February (approximately 80% of S&P 500, 88% of Dow Jones Industrial Average, and 98% of Russell 2000 (small-cap) returns were in the first two months of the year). There has been a minimal amount of market movement since then. On Monday, the CBOE Volatility Index (VIX) closed at 9.77 – the lowest level since 1993. This illustrates a low amount of market volatility and fear. So what has caused the markets to become so complacent with such a low level of volatility?

In recent months, there has been a plethora of conflicting headlines. On the positive side, it seems the Trump administration is working toward tax reform, the French presidential election went as many investors had hoped, and the US economy is relatively healthy as the labor market remains strong and corporate earnings have been better than expected. However, there are still many uncertainties surrounding the markets including growing tensions between the US and North Korea, the ambiguity still surrounding President Trump and some of his policies and actions, and the near-term path of US interest rates.

So far, the fear of the unknown has been offset by positive news, resulting in a trading deadlock between bears and bulls. But volatility is not expected to remain this low forever. If we continue to move through the near-term risks with no hiccups, volatility may remain subdued for the time being, but there is always the risk of an unfavorable economic report or other unknown event that could inject a higher level of fear and volatility into the markets without a moment’s notice.

Stocks have been performing well since the US presidential election with minimal volatility and virtually no drawdowns, but it is important to remember to include a broad range of asset classes in your portfolio for more consistent and more stable longer-term results.

As investors, we need to stay committed to our long-term financial goals. All the short-term news and market movements can be the most debilitating of all when it comes to making sound investment decisions; especially if we allow them to influence knee-jerk decisions.

More to come soon.  Stay tuned.

Regards,

Phil Calandra

The post 5 Minute Market Update – May 16, 2017 appeared first on The Blog of Phil Calandra.

Source: Phil Calandara

5 Minute Market Update – May 9, 2017

I am happy to present this week’s market commentary from FormulaFolio Investments. The goal is to give our clients and friends a simple way to see everything they need to know about the financial markets on a weekly basis, in 5 minutes or less. After all, investing should be simple, not complicated.

Market Update

Equities: Broad equity markets finished the week mostly positive with international stocks experiencing the largest gains. S&P 500 sectors finished the week mixed as cyclical sectors generally outperformed defensive sectors.

So far in 2017 technology, consumer discretionary, and healthcare are the strongest performers while energy and telecommunications are the only sectors with negative performance year-to-date.

Commodities: Commodities were negative for the week as oil prices fell 6.30%. Oil prices had experienced some recent upward pressure on news of support for a potential OPEC production cut extension, but renewed concerns that higher US production will impede OPEC’s attempts to reduce global supply have pushed prices lower in recent weeks. Gold prices fell 3.26% for the week but remain moderately positive for the year.

Bonds: The 10-year treasury yield increased from 2.29% to 2.36%, resulting in negative performance for treasury and aggregate bonds.

High yield bonds were slightly negative as the positive performance in risky assets was offset by increases in credit spreads and broad interest rates.

Indices are mostly positive for 2017, with equity markets leading the way while commodities and bonds lag behind.

Lesson to be learned: “It’s not whether you’re right or wrong that’s important, but how much money you make when you’re right and how much you lose when you’re wrong” – George Soros. Many investors make the mistake of focusing solely on the gains in their portfolio, however it is equally as important (if not more so) to make sure your mistakes aren’t big enough to damage your portfolio beyond repair. Nobody can be right 100% of the time, but if you stick to a disciplined investment strategy that has the potential to minimize downside risk you can improve your chances of long term portfolio success.

FFI Indicators

FormulaFolios has two simple indicators we share that help you see how the economy is doing (we call this the Recession Probability Index, or RPI), as well as if the US Stock Market is strong (bull) or weak (bear).

In a nutshell, we want the RPI to be low on the scale of 1 to 100.  For the US Equity Bull/Bear indicator, we want it to read least 67% bullish.  When those two things occur, our research shows market performance is strongest and least volatile.

The Recession Probability Index (RPI) has a current reading of 25.44, forecasting further economic growth and not warning of a recession at this time. The Bull/Bear indicator is currently 100% bullish. This means our models believe there is a slightly higher than average likelihood of stock market increases in the near term (within the next 18 months).

Weekly Comments & Charts

The S&P 500 finished the week positive and remains well above the support level that was set following the breakout in July last year. Though the current rally has slowed in recent months, short and intermediate-term momentum remains positive as many indices have reached new all time highs multiple times so far this year. The coming weeks should continue to give valuable insight about the near-term direction of the S&P 500, but it seems to remain in a bullish pattern for now.

US stocks finished mostly positive during a busy week of news for the markets and economy.

On Wednesday, the Federal Reserve announced it would keep the target federal funds rate unchanged at a range of 0.75% – 1.00%. This was the expected decision as the Fed increased rates following its most recent meeting in March, but the Fed remained optimistic about staying course for two more rate hikes before the end of 2017 despite softer than expected data in the first quarter. The implied probability for a rate hike in June currently stands at 83% according to the CME Group’s 30-Day Fed Fund futures prices.

Following the Fed meeting, the House of Representatives passed a new health care bill seeking to replace the Affordable Care Act (Obamacare) on Thursday. Some of the major points of the bill include repealing the individual mandate requiring health insurance and replacing subsidies with tax credits. Though there is still a lot of work to be done before there is a final bill that will become law, this was an important step forward for the Trump administration’s new policies. Now that the House has passed a bill, the likely next step is the Senate writing its own health care bill to be placed to a vote.

Concluding the busy week, it was reported on Friday the economy added 211,000 jobs in April – beating the expectation of 185,000 jobs. This data helps support the view that the weakness in the March employment report was mostly attributable to factors such as weather and not a slowdown in labor market growth. Accompanying strong job gains, the unemployment rate fell from 4.5% to 4.4%, which is the lowest level since May 2007.

Stocks had been performing well since the US presidential election with minimal volatility and virtually no drawdowns, but it is important to remember to include a broad range of asset classes in your portfolio for more consistent and more stable longer-term results.

As investors, we need to stay committed to our long-term financial goals. All the short-term news and market movements can be the most debilitating of all when it comes to making sound investment decisions; especially if we allow them to influence knee-jerk decisions.

More to come soon.  Stay tuned.

Regards,

Phil Calandra

The post 5 Minute Market Update – May 9, 2017 appeared first on The Blog of Phil Calandra.

Source: Phil Calandara

5 Minute Market Update – May 2, 2017

I am happy to present this week’s market commentary from FormulaFolio Investments. The goal is to give our clients and friends a simple way to see everything they need to know about the financial markets on a weekly basis, in 5 minutes or less. After all, investing should be simple, not complicated.

Market Update

Equities: Broad equity markets finished the week positive with international stocks experiencing the largest gains. S&P 500 sectors finished the week mixed as cyclical sectors generally outperformed defensive sectors.

So far in 2017 technology, consumer discretionary, and healthcare are the strongest performers while energy and telecommunications are the only sectors with negative performance year-to-date.

Commodities: Commodities were slightly negative for the week as oil prices fell 0.58%. Oil prices had experienced some recent upward pressure on news of support for a potential OPEC production cut extension, but renewed concerns that higher US production will impede OPEC’s attempts to reduce global supply has pushed prices lower in recent weeks. Gold prices fell 1.61% for the week but remain positive at +10.29% for the year.

Bonds: The 10-year treasury yield increased from 2.24% to 2.29%, resulting in slightly negative performance for treasury and aggregate bonds.

High yield bonds were positive as risky assets performed well and credit spreads fell slightly.

Indices are mostly positive for 2017, with equity markets leading the way while commodities and bonds lag behind.

Lesson to be learned: Paul Samuelson once said “Investing should be more like watching paint dry or watching grass grow. If you want excitement, take $800 and go to Las Vegas.” Proper investing requires a large amount of patience, which can be difficult for many investors to maintain at times. However, if you create and stick to a disciplined investment strategy, the gains you see over time will become exciting in the long-term.

FFI Indicators

FormulaFolios has two simple indicators we share that help you see how the economy is doing (we call this the Recession Probability Index, or RPI), as well as if the US Stock Market is strong (bull) or weak (bear).

In a nutshell, we want the RPI to be low on the scale of 1 to 100.  For the US Equity Bull/Bear indicator, we want it to read least 67% bullish.  When those two things occur, our research shows market performance is strongest and least volatile.

 

The Recession Probability Index (RPI) has a current reading of 25.44, forecasting further economic growth and not warning of a recession at this time. The Bull/Bear indicator is currently 100% bullish. This means our models believe there is a slightly higher than average likelihood of stock market increases in the near term (within the next 18 months).

Weekly Comments & Charts

The S&P 500 finished the week positive and remains well above the support level that was set following the breakout in July last year. Though the current rally has slowed in recent months, short and intermediate-term momentum remains positive as many indices have reached new all time highs multiple times so far this year. The coming weeks should continue to give valuable insight about the near-term direction of the S&P 500, but it seems to remain in a bullish pattern for now.

Global stock markets breathed a sigh of relief and finished positive last week as the first round of the French election went as many investors hoped.

France held the first round of voting for its presidential election on April 23. The top two candidates from the initial field, Emmanuel Macron and Marine Le Pen, will now face off in the final round of voting on May 7. Recent opinion polls suggest Macron will take 65% of the head-to-head vote. Le Pen is in support of France exiting the European Union and anti-immigration policies, which could lead to additional political turmoil in Europe if she is elected, but a large amount of investor anxiety was focused on the first round of voting (there was more uncertainty about the results in the first round as numerous candidates competed in a free for all).

Helping support stock markets, a brief summary of Trump’s tax plan was released on Wednesday. Though the tax reform outline did not have enough detail to calculate its overall economic impact, some specific numbers were given. The outline calls for the corporate tax rate to be sharply cut (from 35% to 15%), a simpler tax code reducing the number of tax brackets for individuals from seven to three (with levels of 10%, 25%, and 35%), and increases in standard deductions (from $6,350 to $12,700). There are still numerous details that need to be worked out, but the release of this outline has increased optimism about a tax reform in the somewhat near future.

Stocks had been performing well since the US presidential election with minimal volatility and virtually no drawdowns, but it is important to remember to include a broad range of asset classes in your portfolio for more consistent and more stable longer-term results.

As investors, we need to stay committed to our long-term financial goals. All the short-term news and market movements can be the most debilitating of all when it comes to making sound investment decisions; especially if we allow them to influence knee-jerk decisions.

More to come soon.  Stay tuned.

Regards,

Phil Calandra

The post 5 Minute Market Update – May 2, 2017 appeared first on The Blog of Phil Calandra.

Source: Phil Calandara