The US capital markets had a rough week this week. The major indices were all down, with the Dow Jones Industrial Average leading the way at an over 3% loss for the week. The weekly loss puts in the Dow index in the red for 2018 at (0.7%) year to date.
In economic news, inflation numbers came out this week mostly as expected, which shows modest inflation. The consumer price index showed 1.5% inflation over the last 12 months. Inflation was also the discussion as it pertained to the Fed. Minutes from recent meetings were released, and the Fed is very focused on inflation and how it is doing compared to their 2% target. The big uncertainty hampering the markets is a possible 4 rate hikes in 2018, instead of the consensus view of 3 to start the year.
The political front seemed to little effect the markets this week, although there is always drama (Kushner and some foreign loans, as well as his security clearance down graded; Putin boasting of impossible to stop nuclear weapons).
Given a possible 4 rate hikes from the Fed this year, as well as the fact that they have a ways to go to finish their interest rate raising, I like the financial sector right now. I think bank stocks will outperform the general markets, as most of them are lenders who will now be able to charge higher interest rates and they are slower to increase depositor interest rates, allowing for a bigger spread - these things will boost their top line and profitability. Being underweight on bonds funds (not an issue if you buy specific issues and hold to maturity) is also a good idea, as rising interest rates mean a higher effective yield on bonds, causing those holding to have downward pressure on the present value of their bonds. If you still want bond exposure, sticking to short duration bond funds is a safer option.
Good luck,
BrianI