Hi readers, welcome back. It has been a busy and long week/end of the month. Thus it’s getting harder to write on a frequent a consistent basis.
Today I have a new post that is basically an update, of my previous post with the 1Q2018 investment outlook for Stocks, Bonds, Oil, Gold and Real Estate.
Stock Market Outlook
Following the weak first 3 months of 2018, the S&P500 made a recovery. Year-to-date the SPY, for example, is now positive 2.4%. Problem? The volatility has been really strong with 16.4% in the last 6 months.
This behavior confirmed what I wrote in previous outlooks:
“I found it hard to see a sudden crash in the market that isn’t followed by a short-term recovery. The reason is that there is still a lot of money out there. Thus investors will see this more as opportunities and less like a moment to definitely exit.”
For now, nothing on the horizon seems to turn upside down this outlook.
Events That Could Change This
The inflation rate in the US increased to 2.8 percent in May of 2018 from 2.5 percent in April. Things keep speeding up, as we now have the highest inflation rate since February of 2012, mainly due to rising prices for gasoline and shelter. Below average based on the past 90 years of data (about 3% since 1928).
With a higher inflation could come a higher interest rate from the FED that could change returns for investors. The current American interest rate FED (base rate) is 2.000%.
President of the US continues to impose tariffs to other countries. Economic partners around the world continue to fight back imposing tariffs to the US. It’s now obvious to everyone that this will not end well. With more tariffs, the global economy will slow down. If that happens you will see negative repercussions on the stock markets.
Mark my words.
Bond Market Outlook
Last 3 months the AGG didn’t move much, with a -0.2% return and a 2.8% volatility. Again this type of bonds, high quality, and liquid bonds, serve as a factor of stability for the overall portfolio. It had a very inferior volatility when compared with the SPY.
The AGG maintain the exact same volatility in this 3 months as the previous 3 months. If interest rates keep increasing I don’t anticipate any great returns for this asset class.
On the other hand WisdomTree Emerging Markets Local Debt (4-5yr) – ELD – had a really rough 3 months with a -11.2% and with an 8% volatility. An environment with increasing rates will probably hurt bonds with less rating quality or from regions with political/economic difficulties.
The United States 10-Year Bond Yield breached the 3% level but has now returned to 2.8%. I continue to maintain my outlook that if inflation rises the Yield will breach and keep above 3%.
Real Estate Market Outlook
Fixed 30-year mortgage rates in the United States is now 4.8%. It only increased slightly from the 4.7% 3 months ago. Hard to say the short-term future, but I still believe that the 30-year mortgage rate will continue to climb even further.
The VNQ had a positive return of 8.6% with an 11.7% volatility. A true comeback from the -7.8% from the first 3 months from 2018.
Using dollar cost averaging, i.e., buying a fixed dollar amount of shares throughout a given period of time, didn’t go well this time, because if you have invested all 3 months ago you probably would have a better return than letting your money in cash-equivalent investments. But for me continues to be the most comfortable way to invest. Always adjust your investment vehicles and way to enter to your risk tolerance.
OIL and GOLD
The ETF OIL was delisted, so from now on, I’ll use other ETF to see the trend of OIL. Namely the United States Brent Oil Fund (BNO).
The BNO had a positive return of 15.7% with a volatility of 24.6% (last 3 months). Oil continues its upward trend, but as an investment, I still have my doubts. The volatility is huge, and anyone who wants to invest in this asset has to be ready for a roller coaster. Permanently.
Although a growing number of people think that oil could easily go beyond the $100 per barrel (read this) I found that hard to believe. Today there are more alternatives always pressing the price of oil, specifically the Shale Oil and new energy alternatives such as wind and solar.
For SPDR Gold Shares (GLD) in the last 3 months have been a nightmare. With a negative return of -7.7% and a volatility of 8.1%, the shining stone is proving to be one of the worst investments in 2018.
As I’ve written before GLD can be useful in a diversified portfolio, for example, the “Harry Browne Permanent Portfolio” where you invest 25% in 4 asset classes such as stocks, bonds, cash, and gold.
Nothing on this post (and blog) should be consider investment advice. Or any kind of advice. This is only for information a discussion purposes.