5 Minute Market Update – August 29, 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 small-cap US stocks experiencing the largest gains. S&P 500 sectors finished the week mostly positive 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 week as oil prices fell 1.32%. Oil prices have been volatile so far in 2017 as the positive effects of strengthening demand have been conflicting with the negative effects of high global supply. Recent sentiment towards oil remains bearish amid fears the OPEC supply cuts may fall apart as countries continue to fall short of the pledged reductions. Gold prices rose 0.49% and remain moderately positive with a 12.82% gain YTD amid various political uncertainties.

Bonds: The 10-year treasury yield fell from 2.19% to 2.17%, resulting in positive performance for treasury and aggregate bonds.

High-yield bonds were positive as credit spreads tightened and most riskier asset classes performed well for the week.

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

Lesson to be learned: “Remember that the stock market is a manic depressive.” –  Warren Buffett. Sometimes the market is sensible and prices are based on economic and business developments. However, at other times the market can be emotionally unstable, swinging from euphoria to pessimism in an instant. 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 24.69, 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 negative for the second consecutive week, but remains in the upward trend that began in mid-February 2016. While intermediate and long-term momentum remains positive, shorter-term momentum has slowed as the Index closed below its three-month moving average for the first time since April. Many indices have reached new all time highs multiple times this year, illustrating there may still be further gains ahead, but volatility and downward pressure has slightly increased in recent weeks. 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 stock markets snapped their recent losing streak to finish the week positive on renewed optimism for tax reform.

Stocks received a boost as chief economic advisor Gary Cohn announced President Trump will start publicly campaigning for tax reform in the upcoming week. According to Cohn, “starting next week, the president’s agenda and calendar is going to revolve around tax reform… He will start being on the road making major addresses justifying the reasoning for tax reform and why we need it in the U.S.” Cohn mentioned the administration does not have a fixed / detailed tax reform plan, but they do expect it to include a one-time corporate tax repatriation on overseas profits as well as include protections for personal charitable, mortgage, and retirement savings deductions while taking away other deductions for individuals.

Further illustrating the renewed optimism regarding tax reform, small-cap US stocks markedly outperformed large-cap US stocks for the first week since June 26 – 30. Small-cap stocks surged immediately following the election with the idea lower corporate tax rates coupled with rising bond yields would drive investor cash to smaller companies. However, year-to-date the large-cap S&P 500 (SPY) is up 10.42% compared to only a 2.24% gain for the small-cap Russell 2000 (IWM) as interest rates remained suppressed and talks about tax reform seemed to have stalled. While it remains to be seen, if US growth continues to improve and tax reform gets pushed forward, it could lead to a resurgence of the smaller-cap US stock rally.

The recent divergences in stocks and increased volatility reminds us why 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, sectors, and indices can go from periods of over-performance to under-performance without a moments notice.

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 – August 29, 2017 appeared first on The Blog of Phil Calandra.

Source: Phil Calandara

5 Minute Market Update – August 22, 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 US 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, 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 week as oil prices fell 0.63%. Oil prices have been volatile so far in 2017 as the positive effects of strengthening demand have been conflicting with the negative effects of high global supply. The most recent large move was to the positive side four weeks ago as reports showed US oil and gasoline inventories fell more than expected and Saudi Arabia announced it would further reduce output. Gold prices fell 0.19%, but remain moderately positive with a 12.32% gain YTD.

Bonds: The 10-year treasury yield remained at 2.19%, resulting in mostly flat performance for treasury and aggregate bonds.

High-yield bonds were slightly positive as the negative impact of riskier asset classes experiencing losses was offset by lower credit spreads.

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

Lesson to be learned: “Remember that the stock market is a manic depressive.” –  Warren Buffett. Sometimes the market is sensible and prices are based on economic and business developments. However, at other times the market can be emotionally unstable, swinging from euphoria to pessimism in an instant. 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 24.69, 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 negative for the second consecutive week, but remains in the upward trend that began in mid-February 2016. While intermediate and long-term momentum remains positive, shorter-term momentum has slowed as the Index closed below its three-month moving average for the first time since April. Many indices have reached new all time highs multiple times this year, illustrating there may still be further gains ahead, but volatility and downward pressure has slightly increased in recent weeks. 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

US stocks were broadly negative for the second consecutive week as political tensions continued to drive markets lower.

Since reaching record-low levels of volatility in July, the S&P 500 has recorded two of its three worst trading days over the past two weeks. The most recent pullback follows heightened concerns that focus is being diverted from President Trump’s agenda with other political distractions. However, there have been similar short-term pullbacks in 2017 that markets have quickly shrugged-off (a 1.8% drop in March as the initial health care reform bill failed to find support and a 1.9% drop in May following the controversy with former FBI Director James Comey).

While political worries have pushed stocks lower in recent weeks, market fundamentals seem to remain healthy for now. Q2 2017 earnings have been strong as the blended S&P 500 earnings growth rate currently stands at 10.2%, compared to the initial estimate of 6.5% on June 30 before earnings season started. The labor market also remains strong as the economy continues to add jobs at a resilient pace and unemployment is at its lowest level since 2001.

Though healthy economic data cannot protect markets against normal levels of volatility, history shows fundamentals drive longer-term market performance a majority of the time. Generally, as long as there are no further clear reasons for a sell-off (such as an economic slowdown or a war), political tensions are short-lived and end up just becoming a bump in the road. With earnings and job growth remaining strong, the economy seems to remain on solid footing for now.

The recent spike in volatility reminds us why 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, sectors, and indices can go from periods of over-performance to under-performance without a moments notice.

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 – August 22, 2017 appeared first on The Blog of Phil Calandra.

Source: Phil Calandara

Portfolio Recap – August 2017

In this recap, we 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,

Phil Calandra

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

Source: Phil Calandara

5 Minute Market Update – August 15, 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 US 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, 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 1.53%. Oil prices have been volatile so far in 2017 as the positive effects of strengthening demand have been conflicting with the negative effects of high global supply. The most recent large move was to the positive side three weeks ago as reports showed US oil and gasoline inventories fell more than expected and Saudi Arabia announced it would further reduce output. Gold prices rose 2.32% amid increasing tensions between the US and North Korea. Gold has been supported by doubts about further near-term rate hikes, a weak dollar, and recent geopolitical uncertainty, leading to a 12.52% gain YTD.

Bonds: The 10-year treasury yield fell from 2.27% to 2.19%, resulting in positive performance for treasury and aggregate bonds.

High-yield bonds were negative as riskier asset classes experienced moderate downward pressure for the week.

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

Lesson to be learned: “Remember that the stock market is a manic depressive.” –  Warren Buffett. Sometimes the market is sensible and prices are based on economic and business developments. However, at other times the market can be emotionally unstable, swinging from euphoria to pessimism in an instant. 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 24.69, 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 negative for the week but remains firmly 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, 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

The S&P 500 experienced its second-worst week of the year as tensions between the US and North Korea heightened.

Prior to the past week, US stocks had been experiencing an extremely smooth ride this year. The Dow Jones Industrial Average just recently achieved 10 consecutive days of gains (the second time this has happened in 2017) and the S&P 500 Volatility Index had been near historical low levels (recently reaching the lowest levels since 1993). However, broad equity markets traded down on Thursday and volatility spiked as tensions between the US and North Korea escalated.

Throughout the week North Korea threatened to launch missiles near Guam while President Trump stated there would be “fire and fury” if there are any more threats to the United States. These statements sent a sense of restlessness through the markets as investors feared the US and North Korea may be near war, but security officials say the chance of an actual attack on Guam is still very low.

While it may seem stock markets were sharply negative following the increasing political uncertainty, the pullback was not extraordinarily large. Even after a bad week in the markets, the S&P 500 has not experienced a 5% decline from a prior high-water mark since June 27, 2016 (284 trading days). This is the fourth longest streak in history without a 5% correction for the Index.

Broad US stocks were slightly positive on Friday, illustrating markets may already be ready to shrug-off the recent geopolitical risks as long as things do not escalate any further. Generally, as long as there are not further clear reasons for a sell-off (such as an economic slowdown or an actual war ensuing), political tensions are short-lived and end up just becoming a bump in the road. With earnings and job growth remaining strong, the economy seems to remain on solid footing for now.

The recent spike in volatility reminds us why 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, sectors, and indices can go from periods of over-performance to under-performance without a moments notice.

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 – August 15, 2017 appeared first on The Blog of Phil Calandra.

Source: Phil Calandara

5 Minute Market Update – August 8, 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 large-cap US stocks experiencing the largest gains and small-cap US stocks experiencing losses. S&P 500 sectors finished the week mixed as cyclical sectors generally outperformed defensive sectors.

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 week as oil prices fell 0.26%. Oil prices have been volatile so far in 2017 as the positive effects of strengthening demand has been conflicting with the negative effects of high global supply. The most recent large move was to the positive side two weeks ago as reports showed US oil and gasoline inventories fell more than expected and Saudi Arabia announced it would further reduce output in August. Gold prices fell 0.84% following three consecutive weeks of increases. Gold has been supported by doubts about further near-term rate hikes and a weak dollar, leading to a 9.97% gain YTD.

Bonds: The 10-year treasury yield fell slightly from 2.30% to 2.27%, resulting in positive performance for treasury and aggregate bonds.

High-yield bonds were flat as interest rates remained mostly stable and riskier asset classes were mixed.

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

Lesson to be learned: “To be a successful business owner and investor, you have to be emotionally neutral to winning and losing. Winning and losing are just part of the game.” – Rich Dad. Many investors allow emotions to guide their investment decision making process, but the most successful investors are able to take emotions out of the equation. 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 23.43, 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 mostly flat for the second consecutive week but remains firmly 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, 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

Broad equity markets finished mixed for the second consecutive week as earnings continued to roll in and investors reacted to numerous economic data reports.

We are well into Q2 2017 earnings season, and so far earnings have been moderately strong. Of the 84% of companies in the S&P 500 that have reported Q2 earnings so far, 72% have beat the average earnings estimate and 70% have beat the average sales estimate. The blended S&P 500 earnings growth rate currently stands at 10.1%, compared to the initial estimate of 6.5% on June 30 before earnings season started.

While earnings remain strong, there was a slew of economic data reported over the past week. Many of the reports exhibited mixed signals for investors, but broad equity markets ended the week on a positive note as the employment report released on Friday showed there were 209,000 jobs added in July compared to the expected 185,000. As job growth continued its positive momentum the unemployment rate fell from 4.4% to 4.3%, matching its lowest level since 2001 for the second time this year.

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, sectors, 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 – August 8, 2017 appeared first on The Blog of Phil Calandra.

Source: Phil Calandara

5 Minute Market Update – August 1, 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 large-cap US 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, 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 positive for week as oil prices rose 8.61%, the largest weekly gain so far in 2017. This sharp increase follows reports showing US oil and gasoline inventories fell more than expected and Saudi Arabia announcing it would further reduce output in August. However, oil prices remain volatile and many experts do not expect the recent gains to last. Gold prices rose 1.08%, marking the third consecutive week of gains. Gold had faced some recent downward pressure, but investors continue to have doubts about further near-term rate hikes, adding support to gold.

Bonds: The 10-year treasury yield increased from 2.24% to 2.30%, resulting in negative performance for treasury and aggregate bonds.

High-yield bonds were positive as credit spreads tightened and most riskier asset classes performed well for the week.

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

Lesson to be learned: “To be a successful business owner and investor, you have to be emotionally neutral to winning and losing. Winning and losing are just part of the game.” – Rich Dad. Many investors allow emotions to guide their investment decision making process, but the most successful investors are able to take emotions out of the equation. 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 23.43, 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 flat and remains firmly 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, 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

Broad equity markets finished the week mixed as the Fed announced it would leave interest rates unchanged.

The Federal Open Market Committee (FOMC) announced it would leave the target federal funds rate unchanged at a range of 1.00% – 1.25%. Though this was the expected outcome and the meeting seemed somewhat uneventful on the surface, the FOMC did provide some hints regarding the path of monetary policy through the end of 2017.

In her statement following the two-day meeting, Fed Chair Janet Yellen said the economy is expected to warrant gradual increases in rates going forward. Most Fed officials expect one more rate hike before the end of the year. Beyond increasing interest rates, central bankers said they expect to begin the process of shrinking its $4.5 trillion balance sheet “relatively soon,” leading many investors to believe the unwinding will begin in October (following the next Fed meeting in late September).

If the Fed begins to unwind the balance sheet this year, it would likely result in a steepening of the yield curve (longer-term interest rates such as 10-year treasury yields increasing faster than shorter term interest rates). While rising interest rates generally adds downward pressure to the economy and equity markets, with the slow and steady expected pace of monetary tightening there should be room for further growth as long as economic data remains strong.

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, sectors, 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 – August 1, 2017 appeared first on The Blog of Phil Calandra.

Source: Phil Calandara