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Meidell: Fed meeting no speed bump

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Typically, investors go into hibernation mode the day prior to and up until the Fed’s Federal Open Market Committee announcement, but that wasn’t the case on Tuesday as investors traded with little concern, prior to what is expected to be a 0.25 percent rate increase in the overnight lending rate when the Fed concludes its meeting Wednesday. Investors will be looking for cues from the Fed’s comments regarding how many rate increases to expect in 2017, with current expectations now between two or three.

The major market averages finished higher on Tuesday with the Dow Jones Industrial Average closing at 19,911.21. Some in the financial media are becoming giddy over the idea that the Dow is just a stone’s throw away from crossing the 20,000-point threshold. All the major market averages finished the day in the green with the Standard & Poor’s 500 up 0.65 percent and the Nasdaq Composite higher by 0.95 percent over the same period.

Market milestones are a funny thing, on one hand they help reinforce investors beliefs that stock markets are moving higher, a call to some that they are missing the train if they are currently out of the market. While for others, they may increase fears that stock prices are too high, triggering sentiments that it’s now time to sell. The media play a part in making these milestones out to be bigger than they should be. I mean, where was the celebration on Tuesday when the S&P 100 index closed above 1,000 by four points for the first time in history? It’s at times like these that we must remind ourselves that it’s only a number, it just happens to have more zeros in it than others.

Investors seem to be a little less concerned that interest rates are headed much higher in the short term, given a boost to dividend paying stocks. This week’s top performing sectors were led by the Dow Jones U.S. Utilities index up 4.62 percent over the past five trading days. In the No. 2 spot this week is the Dow Jones U.S. Technology index gaining 3.81 percent over the same period.

Meidell: Oil news helps major markets set records

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After gapping higher at the opening bell, U.S. stocks continued to add to their gains Monday, extending the rally that began the day prior to the presidential election, and sending the message that the bulls are clearly in charge.

Though the major market averages appeared last Friday to be rising at a slowing pace, and potentially stalling out, stocks were re-energized Monday as crude oil prices leaped higher. The gains in oil came after favorable news from OPEC’s meeting in Vienna this week gave investors hope that a deal could be reached to cut production. U.S. crude oil rose nearly 4 percent Monday to close at $47.49 per barrel, as word spread that Iran and Iraq were backing the proposal to cut output.

All the major market averages closed at record highs Monday while riding on the coattails of crude oil prices. Having multiple indexes break out to new highs shows that the advance is broad, and typically sends the message that the stock market has more room to run. The Standard and Poor’s 500 rose 0.75 percent and the Nasdaq Composite gained 0.89 percent.

Not surprisingly, the top performing sector on Monday was the Dow Jones U.S. Energy index, up 2.30 percent and higher by 4.16 percent over the past five trading days. Other leading sectors over the past week were the Dow Jones U.S. Technology index, higher by 3.97 percent, and the Dow Jones U.S. Consumer Services index, rising 2.19 percent over the same period.

As we head into the Thanksgiving holiday and a shortened trading week, the good feelings around the holiday tend to rub off on investors, usually resulting in a positive bias leading up the event. Market volume also tends to drop off the day before Thanksgiving as traders travel, or just prepare to partake in their holiday traditions.

For the week, energy commodities dominated the market, with the top-performing commodities led by the S&P GSCI Brent Crude Oil index, up 9.87 percent over the past five trading days, followed by the S&P GSCI Unleaded Gasoline index, up 9.12 percent.

Meidell: The Feds, not the Fed, make the difference

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Investors and analysts spend a lot of time watching the Fed — more accurately referred to as the Federal Reserve — to get its opinion on the economy and see how this might impact short-term interest rates, also referred to as monetary policy.

However, it was the Feds, as in the FBI, that jolted U.S. stock market futures higher Sunday evening, after the announcement from FBI Director James Comey. U.S. stocks gapped higher at the opening bell on Monday while making additional gains throughout the day. By the end of the trading day, all the major market averages had recovered more than 2 percent, with the Standard and Poor’s 500 up 2.22 percent and the Nasdaq Composite higher by 2.37.

To say that investors are getting jittery before the presidential election is an understatement, Monday’s gains have erased all the losses over the past week and then some.

Still, some might be trying to determine the outcome of the election based on Monday’s market gains, but we only have to look back to June of this year, prior to the U.K.’s “Brexit” vote, to find a time when that strategy failed. In the case of Brexit, market trends, polls, and even odds-makers were all indicating that the “Remain” vote would win. That clearly is not how things turned out.

In cases like we find ourselves in today, it typically pays to react to the real news instead of trying to anticipate it. Once we know the results of the election, calmer heads usually prevail, even if it’s not our preferred candidate.

Generally speaking, commodities have performed better this week, with the top of the list dominated by industrial metals. This week’s top performing commodities are led by the S&P GSCI Coffee index, up 6.64 percent over the past five trading days, followed by the S&P GSCI Palladium index, rising 6.27 percent.

Meidell: Stocks’ pattern could be inflation-based

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Inflation concerns appear to be getting the blame for the stock market’s melancholy behavior the past few days.

During a speech in Berlin earlier this week, European Central Bank President Mario Draghi said he believed the ECB’s policy of lowering rates to record low levels and buying massive amounts of bonds had benefited the economy by “boosting consumption and investment and creating jobs.” Draghi went on to declare victory over deflation, stating that the ECB had “succeeded” in removing the threat of cascading prices and falling demand, after a recent report showed inflation rose 0.4 percent.

Stocks began the trading day in the green, but it didn’t take long for gains to turn into losses. Though the major moving averages vacillated in a narrow trading range again for most of the day, by the closing bell they were trading at their lows of the day, with the Standard and Poor’s 500 down 0.3 percent and Nasdaq Composite lower by 0.62 percent.

Investors seem to be connecting the dots that there are now more signs of inflation going which includes, in some cases, higher commodity prices. As a result, bond prices are falling this week — both in the U.S. and abroad — with the ICE U.S. Treasury 20+ Year Bond index down 1.78 percent over the past five trading days. Not surprisingly, dividend-paying stocks are declining as well, with the Dow Jones U.S. Real Estate index down 2.29 percent on Thursday alone.

This week, we are seeing a large inflow of money into Treasury Inflation Protected Securities (TIPS) Bonds. For all those investors who may have been lured to take on more risk in exchange for higher interest rates, this might be a wake-up call.

The top-performing bonds this week are indicative of investors anticipating higher interest rates, led by the Barclays 1-3 Month U.S. Treasury Bill Index, unchanged over the past five trading days.

Meidell: Stock market not surging or ceding ground

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Due to their lack of upward progress since mid-July, the major market averages look as though they have hit the ceiling. However, as we saw on Wednesday, the market averages aren’t giving up much ground either, as stocks rallied to recover nearly all of the losses earlier in the week. Though the Standard & Poor’s 500 rose 0.43 percent and the Nasdaq Composite gained 0.50 percent, not all sectors of the market were a winner on Wednesday. This was particularly true of dividend-paying sectors like utilities and real estate.

It was the ninth negative day in a row for the Dow Jones U.S. Utilities index, which slid another 0.28 percent, and the fifth negative day in a row for the Dow Jones U.S. Real Estate index, which fell 1.93 percent on Wednesday.

Just two months ago, the utilities, real estate and telecommunications sectors were among the top performers of the year, but recent declines in these sectors over the past few weeks have brought them back to Earth. Though some blame overvaluations of the sectors for their latest losses, concerns over higher interest rates are beginning to filter their way back into the markets as well. This could be seen in falling bond prices in both the U.S. and Europe after a media report discussed the probability that the European Central Bank could begin scaling back its quantitative easing program before it is scheduled to end next March. The potential impact of rising interest rates is certainly something to be closely followed.

On Wednesday, the U.S. crude oil price continued higher, closing at $49.70 per barrel after the weekly EIA petroleum status report indicated a 3.0 million-barrel decline in inventory levels. There was additional good news on the economy from the ISM non-manufacturing index for September coming in a 57.1, well above consensus and the prior month’s reading of 51.4. Any reading of 50 or above indicates expansion. Of course, investors are most interested in the September U.S. employment report due out on Friday.

The top-performing countries for the week appear to be getting a boost from rising commodity prices such as crude oil. At the front of the pack of this week’s leaders is the MSCI Norway IMI index, gaining 3.88 percent over the past five trading days, followed by the MSCI All Argentina index, up 3.71 percent over the same period.

Reno Gazette Journal, 10-6-2016

Meidell: Market off to halting start in October

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Stocks began the new month on Monday with little enthusiasm, as the major market averages gave back a portion of last Friday’s gains. Maybe it was British Prime Minster Theresa May’s comments on Sunday that took wind out of the market’s sales, when she said the U.K. would start separating itself from the European Union by the end of March. Many have wondered what shape the Brexit would take, but so far the intent seems to be for what some are calling a “hard Brexit” or, in other words, a clean break. Though the major market averages attempted to recover some of their losses in the last hour of trading, by the closing bell the Standard & Poor’s 500 was off 0.33 percent and the Nasdaq Composite had slipped 0.21 percent.

On Monday, investors learned that the manufacturing sector of the U.S. economy expanded for the month of September with the ISM Manufacturing Index gaining over 2 points to 51.4. This was a welcome relief after the August manufacturing index contracted, due to an unexpected decline in new orders, and sent the index below 50 to 49.4. It takes a reading of 50 or above to indicate expansion. Some of the highlights of the September report were new orders gaining 6 points to 55.1, production up 1.4 points to 52.8 and export orders, which held firm at 52.0.

In other economic news, motor vehicle sales also improved during September, gaining 4.7 percent to a 17.8 million annualized rate. This higher-than-expected growth in auto sales is solid evidence that the U.S. economy was strong during the month of September, as sales of North American-made models grew by 6.0 percent 14.2 million. Strong auto sales are typically a reflection of a healthy jobs market, something we expect to hear more about this Friday when the September employment report is released.

This week’s top commodities tended to be energy-related after receiving a boost from last week’s OPEC meeting, where talk of capping oil production seemed to be getting some traction among oil-producing nations. For the week, the top-performing commodities were led by the S&P GSCI Lead index, up 7.65 percent over the past five trading days, followed by the S&P GSCI Crude Oil index, higher by 6.26 percent over the same period.

Meidell: Steep decline seen in market

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Stocks were down on Monday as financial shares across the globe suffered the largest decline of a single sector. This weakness in the financial stocks comes in part as a result of the Fed’s decision last week to keep interest rates unchanged until at least November, and concern over the impact of a settlement between a major European bank and the U.S. Justice Department. For others, the uncertainty of the presidential election may be beginning to weigh on investors’ minds, due to the first presidential debate that was held on Monday.

U.S. stock futures began losing ground on Sunday as markets in Europe and Asia declined, leading the major market averages to a lower price at the opening bell. Not even higher oil prices on Monday could invigorate the stock market as U.S. crude oil gained 3.3 percent to $45.93 per barrel. Though most of the day’s losses occurred in the first 30 minutes of trading, prices spent most of the day at the bottom of the range closing near their lowest prices of the day, with the Standard & Poor’s 500 down 0.86 percent and the Nasdaq Composite off 0.91 percent.

This week is expected to be relatively light on economic news, but throughout the week 11 members of the Federal Reserve are scheduled to speak, including Federal Reserve President Janet Yellen. This barrage of messages from the Federal Reserve should keep investors on their toes.

Thanks to the general decline in the U.S. dollar over the past week following the Fed’s decision to keep interest rates unchanged for now, commodities have generally gotten a lift. This week, the top-performing commodities were led by the S&P GSCI Aluminum index, up 5.02 percent over the past five trading days, followed by the S&P GSCI Crude Oil index, higher by 4.72 percent over the same period.

Meidell: Nosedive punctuates market’s instability

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The rebound rally on Monday had the potential to stop cold and reverse the stock market sell-off we saw last Friday. However, after Tuesday’s nosedive, it’s clear that investors are not ready to put this consolidation period behind them just yet. Instead, the stock market is behaving more like someone who just woke up from a deep sleep and is still floundering around trying to get its bearings. By the closing bell, the Standard & Poor’s 500 had fallen 1.48 percent and the Nasdaq Composite was lower by 1.09 percent.

One thing I like to look at during sell-offs like this is areas of the market that are making new lows versus those that aren’t. This can be a barometer of sorts that tells us which areas of the market investors are more confident in than others as they attempt to weather the storm. On Tuesday, it was clear that the technology sector was one of those favored areas with investors, as the Dow Jones U.S. Technology index declined 0.65 percent, much less than the major market averages, and the tech-heavy Nasdaq 100 index was down only 0.88 percent.

Typically during market declines, investors will shift to more defensive shares such as utilities, real estate and consumer staples. However, this time around those types of shares are fighting the headwind caused by an expectation the Fed will raise interest rates before year’s end. Falling crude oil prices and rising interest rates on Tuesday also cast a shadow over the stock market, as the S&P GSCI Crude Oil index fell roughly 2.5 percent and the Barclay’s 20+ Year U.S. Treasury Bond index declined 1.14 percent on the day.

Though three Fed officials spoke on Monday, attempting to reassure investors there would be no interest-rate increase this month, some investors appear to be waiting to hear it from Janet Yellen after the Federal Open Market Committee meets next week.

This week, the top-performing sectors are led by the Dow Jones U.S. Healthcare index, down 1.65 percent over the past five trading days, followed by the Dow Jones U.S. Telecommunications index, down 1.78 percent over the same period.

Meidell: U.K. stimulus news stimulates world markets

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By the time the U.S. markets opened Tuesday morning, stocks had rallied in Europe in overnight trading after Ian McCafferty, a member of the Monetary Policy Committee from the Bank of England, provided assurance that the U.K. stimulus package could be expanded if necessary. U.K. bond prices rose, and interest rates fell, on the suggestion that potential stimulus measures would continue to hold interest rates lower for an extended period; bonds rallied around the globe on the news.

Stock prices continue to grind higher, though many have expected the stock market to drift sideways during the month of August, as earnings season winds down and investors take their last vacations for the summer. The technology, financial and consumer staples sectors helped the major market averages finish in positive territory on Tuesday, with the Standard & Poor’s 500 eking out 0.04 percent gain and the Nasdaq Composite higher by 0.24 percent.

On Tuesday, the Department of Labor released the Productivity and Costs report for the second quarter, which showed that productivity fell by 0.5 percent — the consensus was for an increase of 0.5 percent. Though this is typically not a market-moving report, it was the third declining quarter in a row, which is the longest negative streak in the history of this report, going back to just after WWII. Though Americans worked more hours, productivity was not affected. Specifically, the report showed that although unit labor costs rose 2.0 percent, the lack of business investment played the largest role in falling productivity for the nation.

As the major market averages are breaking out to new highs, some investors are calling for the end of the bull market. However, what some may be missing is that a rotation among sectors can refresh and renew an advance that may appear to be getting tired. This week, energy stocks are getting some relief after a four-day rebound in crude oil prices, but the more important sectors to watch are financial and technology. The financial sector seems to be strengthening as the probability of the Fed raising interest rates later this year has gone up, while the technology sector appears to be anticipating a surge in the economy.

For the week, the top-performing sectors were led by the Dow Jones U.S. Energy index, up 3.58 percent over the past five trading days, followed by the Dow Jones U.S. Financial index, higher by 2.66 percent, and the Dow Jones U.S. Technology index rising by 2.47 percent over the same period.

Meidell: Buying bonds not always the safe bet

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Investors were unwilling to make any big changes to their portfolios on Thursday, opting instead to sit on their hands awaiting Friday morning’s release of the July employment report.

U.S. oil prices got a boost for a second day, rising 2.69 percent, after the Energy Information Association reported on Wednesday that weekly gasoline inventories fell by 3.3 million barrels, lowering concern over the oil supply glut. Though rebounding oil prices set a positive tone for the stock market, the major market averages finished the day little changed with the Standard and Poor’s 500 up a mere 0.02 percent and the Nasdaq Composite was higher by 0.13 percent on the day.

The big story on Thursday was the Bank of England’s announcement that it would buy as much as £10 billion ($13.33 billion) of U.K. corporate bonds starting in September, as well as £60 billion in government bonds. By purchasing corporate bonds, the Bank of England is taking a page from the European Central Bank’s play book, which started buying corporate debt two months ago as part of its stimulus efforts within the European Union. In response to the BOE’s announcement, the British Pound fell over 1.6 percent to nearly its post-Brexit lows, and interest rates fell around the globe.

Though buying bonds is just one move by central banks to hold interest rates low for extended periods, it is essentially a two-edge sword. Although it benefits corporations around the globe by providing them ultra-low interest rates, and therefore borrowing costs, it creates an environment where investors can be lured into taking excessive risk in search of yield.

After the stock market selloff in January, I was asked to take a look at an investor’s portfolio who thought they were adequately diversified between stocks and bonds. To my surprise, and theirs, nearly 40 percent of the portfolio was invested in low quality (junk) bonds, while the remainder was in stocks.  Understandably, the investor was attempting to increase the portfolio’s interest payments, but didn’t realize the additional risks.

This week the top performing areas of the bond market have gotten a bounce from both the recent weakness in the U.S. dollar and the BOE’s announcement of a new bond buying program. In the No. 1 spot this week is the Citi International Inflation Linked Securities index up 1.56 percent over the past five trading days, followed by the S&P International Corporate Bond index higher by 1.32 percent.