5 Minute Market Update – June 27, 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 mixed with small-cap US stocks experiencing the largest gains. S&P 500 sectors finished the week mostly negative with no discernable difference between defensive and cyclical sectors.

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

Commodities: Commodities were negative for the fifth consecutive week as oil prices fell 3.87%. Rising production in the United States, Nigeria, and Libya, coupled with faltering demand in Asia, has offset OPEC’s attempt to support prices by cutting output. Gold prices were flat for the week as gold remains moderately positive (+9.25%) for the year.

Bonds: The 10-year treasury yield fell slightly from 2.16% to 2.15%, resulting in mostly flat performance for treasury and aggregate bonds.

High-yield bonds were flat as well, as there was not much movement in the US stock and bond markets over the past 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 8.94, 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 marginally positive for the second consecutive week, reaching a new record high on Monday. Though the current rally has slowed slightly in recent months, the Index remains in the upward trend that began in mid-February 2016. Short and intermediate-term momentum remains positive as many indices have reached new all time highs multiple times this year, illustrating there may still be further gains ahead. The coming weeks should continue to provide valuable insight about the near-term direction of the S&P 500, but it seems to remain in a bullish pattern for now.

*Chart created at StockCharts.com

Global equity markets finished the week mixed as falling oil prices has raised concern for some investors.

The week started off strong as the S&P 500 and Dow Jones Industrial Average reached new all-time highs on Monday. However, US stock markets gave back most of the gains on Tuesday as oil prices continued to tumble amid supply concerns. Markets finished the week mostly unchanged as oil leveled off on Thursday and Friday. With oil prices already down 20% YTD, what is ahead for oil and how might this impact US stock markets?

Oil prices hit a 10-month low as the OPEC-led production cuts have so far failed to significantly reduce the global supply glut. Though compliance with the OPEC cuts has been surprisingly high, higher production in Nigeria and Libya (countries exempt from the deal) as well as higher production in the US has pushed oil prices significantly lower. US oil production has increased more than 10% in the past year, offsetting the lower levels of OPEC production. As oversupply remains a problem, demand is not expected to accelerate sufficiently to help decrease inventory levels. Many experts see even lower prices ahead for oil in the near-term.

As oil prices remain relatively low, it is still somewhat unclear whether this is good or bad for the US economy overall. Some argue the effect of lower oil prices is positive as it lowers the prices at gas pumps, resulting in more money being spent on other sectors of the economy. Others argue the negative impact on the oil industry offset the minor benefits of lower prices, resulting in fewer jobs and less money being spent in the economy.

In reality, the effects of oil prices on the stock market is debatable. Oil prices have experienced both positive and negative correlations with stocks over time. This is because stock markets do not necessarily respond to oil prices directly, but rather they respond to the underling reason behind oil prices. When lower oil prices are caused by low demand due to a weaker global economy, stock prices would generally be expected to trend down with oil. However, when lower oil prices are caused by oversupply while the global economy remains relatively strong, stock prices would generally be expected to trend up even as oil prices fall (as experienced so far in 2017).

While the economy seems stable at the moment, it is important to include a broad range of asset classes in your portfolio for more consistent and more stable longer-term results. Individual stocks and indices can go from periods of over-performance to under-performance without a moments notice. It is crucial not to chase returns just because a stock is “hot” at the moment.

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 – June 27, 2017 appeared first on The Blog of Phil Calandra.

Source: Phil Calandara

5 Minute Market Update – June 13, 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 mixed with small-cap US stocks experiencing the largest gains. S&P 500 sectors finished the week mixed with no discernable performance difference between defensive and cyclical sectors, though cyclical sectors experienced a wider range of positive and negative returns.

So far in 2017 technology, healthcare, and consumer discretionary 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 3.84%. Oil prices had been trending upward following a report showing falling US crude oil inventories on May 10, but have dropped sharply again 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 fell 0.69% for the week, but gold remains moderately positive (+10.56%) for the year.

Bonds: The 10-year treasury yield increased from 2.15% to 2.21%, resulting in negative performance for treasury and aggregate bonds.

High yield bonds were negative as broad interest rates increased and risky assets experienced some downward pressure.

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 8.94, 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 slightly negative after touching new record highs for the fifth consecutive week. The Index remains in the upward trend that began in mid-February 2016, though the current rally has slowed slightly in recent months. Short and intermediate-term momentum remains positive as many indices have reached new all time highs multiple times this year. The coming weeks should continue to provide valuable insight about the near-term direction of the S&P 500, but it seems to remain in a bullish pattern for now.

*Chart created at StockCharts.com

Broad US stocks were mixed for the week as small-cap stocks rose over 1% and large-cap stocks were flat to slightly negative.

However, while US stocks in general continued to perform strongly, the heavily technology based Nasdaq index fell 1.55% during the week. This was the worst week of the year for the Index as a sharp 1.80% sell-off on Friday pushed prices lower. Prior to the drop on Friday, the Nasdaq index had been surging higher, reaching new all-time-highs numerous times in recent months (and in 10 of the previous 12 trading sessions). Even after the negative week, the Index is still up 15.32% year-to-date, far outpacing other major US indices. So what was behind the sharp sell-off on Friday, and was this a one-day anomaly or the start of a reversal in the surging technology sector?

The largest contributor behind the downward move seemed to be the growing concern among investors that some of the largest tech names (Apple, Amazon, Facebook, Alphabet aka Google, and Microsoft) have become overvalued. On Friday morning, Goldman Sachs wrote a widely read piece illustrating how the five stocks have been an integral part of the US market rallies, both S&P 500 and Nasdaq, so far in 2017. In the report Goldman Sachs stated that many investors may be leaning too heavily on the hot companies due to recent momentum, which was creating extreme positioning and an “air pocket” of extreme valuations. These five large companies fared worse than the broad Index, with Apple falling the most (-3.88%) on Friday.

The downward pressure increased throughout the day as more and more investors began reacting to the article and started taking profits from their recent gains. Some analysts believe this could be the start of a regime change, as investors may start to move away from momentum toward more value over the coming months, while others believe this could just be another short-term blip on the long-term growth chart for these technology giants.

While it is still unclear as to the severity and length of this tech sell-off, this is a prime example of why it is so important to include a broad range of asset classes in your portfolio for more consistent and more stable longer-term results. Individual stocks and indices can go from periods of over-performance to under-performance without a moments notice. It is crucial not to chase returns just because a stock is “hot” at the moment.

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 – June 13, 2017 appeared first on The Blog of Phil Calandra.

Source: Phil Calandara

5 Minute Market Update – June 6, 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 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 4.30%. Oil prices had been trending upward following a report showing falling US crude oil inventories on May 10, but have dropped sharply again 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 0.69% for the week as gold remains moderately positive for the year.

Bonds: The 10-year treasury yield fell from 2.25% to 2.15%, resulting in positive 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 this year. The coming weeks should continue to provide valuable insight about the near-term direction of the S&P 500, but it seems to remain in a bullish pattern for now.

*Chart created at StockCharts.com

Broad US stocks continued higher as May’s disappointing jobs report did not suppress the current level of optimism surrounding the economy.

The jobs report released on Friday showed payroll gains of only 138,000 in May compared to the expected 185,000 increase. There were also downward revisions to the March and April reports. The unemployment rate hit a 16-year low, falling to 4.3%, but this decline was mostly due to a reduction in the labor force participation rate (i.e. less people are actively searching for jobs, so less people are considered unemployed). None of this data was necessarily positive, but markets ended the week on a high note despite the short-term labor slowdown.

Many economists believe the labor market may be near full employment now. We have seen eight consecutive years of job expansion, so the large improvements from recent years may not continue going forward. However, at the moment the overall economy remains relatively healthy. Though job growth may be more gradual in the future, investors are optimistic that as long as we continue adding a moderately positive number of jobs each month (around 100,000 on average), there is still room for continued economic expansion from current levels.

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 – June 6, 2017 appeared first on The Blog of Phil Calandra.

Source: Phil Calandara