Sunday, March 26, 2017

TLH Market Review - 3/25/2017

This week was definitely one that investors have not become accustomed too in 2017. Despite it being the 4th weekly decline in a row this week was reminiscent of 2008 to some.  I wouldn't necessarily agree with that. We just ended one of the longest streaks in history for the S&P 500 going without a 1% drop. The last time the S&P 500 declined by 1% was October 11, 2016.  What's also interesting is we saw the yield on 10 Year US Treasuries decline a few basis points to 2.41% on the week so investors weren't running for the perceived safety of government debt.


The volatility was something that caught many off guard no doubt, but I would welcome any pullback. It would be healthy for the market. Yes pullbacks are healthy features of bull markets.  I'd welcome a good 5-8% downdraft as an opportunity to buy some well run companies at cheaper prices. This weeks 1.4% loss was the largest so far this year, and I'd expect choppiness for at least another month.

Investors were left scratching their heads at first is this weeks decline was led by bank stocks. The SPDR Bank ETF(KBE) fell from $44+ to just under $41 at one point this week. This sector is widely followed since when financials do well it's associated with a stronger economy. After all banks make money by having a solid spread to lend money at. And of course when more people are taking out loans it's generally because the economy is doing well. That's of course because people will borrow money if they feel confident they can make more money and pay back their debts.  It's worth noting that an eye should be kept on the sector at this point. The yield curve isn't doing much help right now as it flattens(not good for bank profits right now)Any further weakness in this sector could be a harbinger of issues elsewhere within society and the economy.  Despite banks recent performance financials have been unable to break their pre-recession highs which is noteworthy.




Economic data was light this week. Durable Goods orders came in with a 1.7% print, and excluding transportation a 0.4% gain. New home sales were stronger than expected at 592k, but existing home sales fell short 5.48 million.

Portfolio

Not much news out of the portfolio. We received some news out of Danone(DANOY) and WhiteWave(WWAV) that the proposed merger is still expected to close pending some regulatory approvals. Considering the quietness over the whole deal it's just a matter of when. I still find it ironic the company was split off from Dean Foods(DF), a dairy company, only to go right on over to another one despite the companies growing non-dairy focus. Such is capitalism I guess.

Some names have held up well so far this week like Church & Dwight(CHD), and Diageo(DEO). Others have shown very little movement overall, or kept pace with the markets pullback.  Some tobacco names have taken it on the chin. Altria(MO) and Vector Group(VGR) come to mind. I'm not particularly worried. They had a nice run at the beginning of the year. VGR is the most concerning of the whole group considering it's double sensitivity to interest rates.

That's all and enjoy what's left of the weekend!

The Long Haul Investor

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