Today is President Barack Obama’s final day in office, and the stock market has responded in a dramatic way. Combined with a still-strengthening dollar and a hike in federal interest rates the Dow Jones, S&P, and Nasdaq each fell more than half a percent. Our exposure to oil limited our exposure somewhat (oil prices rose today on positive OPEC news) but every other position we hold fell today. We obviously can’t expect this trend to continue – economic news is generally positive. Jobless claims fell this week, new housing construction is up, and the energy outlook remains positive for 2017 as an increasing number of OPEC nations are confirmed to have followed the cartel decision back in November.
In energy – natural gas prices rose slightly this week after last week’s slip on the underwhelming ‘polar vortex’ in the upper midwest. Northeastern spot prices have been incredibly volatile over the last few weeks due to a lack of pipeline capacity to meet regional needs in Boston. Since this isn’t traded in direct futures we’re researching companies that will allow us exposure to future events like this in that region (ideally local distributors and pipeline/transportation partnerships serving mostly that region).
Our portfolio was still badly affected by today’s market. Had we been able to predict such a dramatic reaction to the upcoming inauguration we might have closed a few of our ETF holdings with exposure to the general S&P 500, but we don’t anticipate much further decline (possibly some tomorrow, but we aren’t sure) so this is a good day to acquire more shares of stocks and securities that slipped throughout trading today. Closer to market close we’ll make further decisions regarding new positions.
Finally, in unrelated news – Carbon emissions from power generation fell below carbon emissions from transportation for all of 2016. This hasn’t happened since 1970, though carbon emissions from power generation have been trending down since 2007. This comes largely from a continuing decline in coal based generation. (link –EIA.gov)
UPDATE – – We have chosen to add Dolby Laboratories to our portfolio after they fell in trading today. They are expected to release their Q1 earnings next week on Wednesday with a 31% increase from this time last year. Even if the most modest estimates turn out to be true this issue has a fair value at $55. S&P IQ analysts project a current fair value estimate of $52 using a P/E ratio of 20x (less than the general sector at 26x). We acquired these shares at $48.88 and expect to exit in the short term at a target price of $52 on moderate earnings and $58 on strong earnings, depending on the outcome next week. We’ll publish more on the interesting structure of this stock in tomorrow’s report. Note (we anticipate the possibility of up to a 0.5% slide in this stock tomorrow if the inauguration continues to have a negative impact on the market, but followed by a smooth recovery into next week).