Summary of This Month’s Review and Outlook:
- What the “average” Thanksgiving Dinner cost this year.
- For November, stocks, gold rose; oil and interest rates fell.
- Our outlook: Utilizing our stock models for equity exposure.
- Stock prices in general continue to stretch valuations, but additional defensive measures still not warranted.
- The path of least resistance for interest rates appears to be lower.
Read on for Additional Details…………………………………………………..
What did Your Thanksgiving Dinner Cost?
The following graph shows the average cost for a Thanksgiving Dinner from 1986 to 2014. It is estimated that 51 million turkeys were sold this Thanksgiving.
The Markets:
The major U.S. market indices were able to finish with positive results for the month of November, with the Dow Jones Industrial Average gaining over 437 points for an increase of 2.5%. The broader based Standard &Poor’s 500 stock index was up just over 49 points, for a monthly increase of 2.5%. (Google Finance) Gold also rose $18.50 per ounce to close at $1,182.75 per ounce last Friday.
Oil’s slide continued in November, now reaching levels not seen since 2009. In last Friday’s trading session, the price of West Texas Intermediate Crude oil (WTI) fell over 6% per barrel. The average price for unleaded gasoline per gallon in Oklahoma hit $2.55, $2.77 for the nation, which is down from $3.27 just a year ago.
Consumers should continue to see prices at the pump fall. So why did WTI Oil prices fall roughly 38% per barrel since June? Well, most reports point to OPEC deciding not to drop production last week. This large of a drop in price does seem rather unusual, given the most aggressive estimates would have seen barely a 3% drop in OPEC production. This potentially small drop in supply would have been more than replaced in a year or less by non-OPEC nations. The market may have overreacted; however this will end up being a net-benefit for the country, as the U.S. still imports more energy than it exports. Obviously, the energy sector has reacted adversely to this, while discretionary and retail stocks have benefited the most.
Our Outlook:
Given the harshness of the decline, it seems logical for Oil to stabilize and not continue its precipitous fall. However, if the sector continues to ramp up supply, it is feasible for it to fall further. As previously expected, the US Dollar and the Euro have already begun stabilizing. If commodities do continue to tumble, it would be expected to occur at a much slower rate. Precious metals have seemed to stabilize, along with agricultural commodities like wheat. Oil, however, has continued falling. Interest rates have continued moving lower, which has benefited bonds as a whole. The path of least resistance still seems lower for interest rates, at least in the near-term. Today’s average 30 year fixed rate mortgage has dropped to 3.93%, while the rate for a 15 year fixed rate mortgage is at 3.05%. (Bankrate.com)
Our stock models continue to be managed and should remain fully invested as they make up our only exposure to equities at the present time. In the allocation models, fixed income and commodity funds have been emphasized, with no stock/equity mutual funds currently held in the portfolios across all risk levels. Stock valuations continue to be seen as excessive for the market in general, which is why individual company names are being preferred at present. As valuations continue to become stretched further, it will raise more long-term concerns for stocks, which will be monitored and addressed on a regular basis. At this point in time, it still does not appear prudent to be any more defensive. But, the time will likely come in which taking a more defensive posture will make sense, and measures will then be taken to help protect portfolios.
We hope you all had a wonderful Thanksgiving Holiday and were able to spend some quality time with family and friends. We appreciate the privilege of serving each of you and look forward to working together in the years to come.
God Bless,
Your TEAM at F.I.G. Financial Advisory Services, Inc.
1 The Dow Jones Industrial Average is an unmanaged index of 30 major companies which cannot be invested into directly. Past performance does not guarantee future results.
3 The S&P 500 Index is an unmanaged index of 500 larger companies which cannot be invested into directly. Past performance does not guarantee future results.
4 New York Mercantile Exchange front-month contract; Prices can and do vary; past performance does not guarantee future results.
5 London Bullion Market Association; gold fixing pricing at 3 p.m. London time; 2012/2013 year-end price fixing at 10:30 a.m. London time; Prices can and do vary; past performance does not guarantee future results.
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Looming Risks Overlooked