Dollar Strength

March 23, 2015

Last week, both stock and bond markets advanced. For the week, the S&P 500 was up 2.67% closing at 2,108, while the DJIA was up 2.18% finishing at 18,128. International markets fared a little better as the MSCI EAFE finished up 4.02%, while the MSCI EM was up 3.21% for the week. The 10 year U.S. Treasury closed the week at a yield of 1.93% which was down from 2.13% the week prior. The most important economic news this week came from Wednesday’s Fed Meeting. As expected, the Fed removed the word “patience” from its post-meeting statement while also lowering its longer term unemployment rate projection to 5.1%. While this might allow more leeway in delaying a Fed Funds rate hike, we still believe we will see a rate increase at some point in 2015.

The dollar has appreciated 12% against the euro so far this year and 5.3% against the WSJ Dollar Index (as shown in the chart below). The strength in the dollar is negatively affecting the earnings of U.S. companies that generate a large proportion of their earnings from overseas. As a result, analysts are starting to reduce profit forecasts for the S&P 500. Last September, analysts were projecting profits to increase by 9.5% in the first quarter and 11.6% for the full year. Now they are expecting first quarter profits to fall by 4.9% and only increase by 2.1% for the year.

Dollar Chart

“Develop success from failures. Discouragement and failure are two of the surest steppingstones to success.” – Dale Carnegie

March Madness …

March 16, 2015

March madness is upon us – excitement, victory, and heartbreak … not unlike the markets!

Markets were quite volatile last week as they dropped for the third week in a row as pallid economic data and declining oil prices rattled investors. A slew of less-than-expected economic data hit the markets last week: U.S. retail sales fell for the third straight month, the Produce Price Index (PPI) fell 0.5% in February against an expected gain of 0.3%, Consumer Sentiment came in at 91.2 against an expected reading of 95, mortgage applications fell in early March, and oil prices plummeted to a nearly 6-year low. Perhaps the weather impacted a number of these data points, but it is tough to be encouraged by the overall tone of announcements. But all is not lost … a few positives from the markets and economy last week include initial jobless claims of 289,000 in early March along with relatively strong earnings reports. Most S&P 500 companies have reported quarterly earnings, and 68% of companies have reported better-than-expected results.

For the week, the Dow Jones Industrial Average finished at 17,749 to close down 0.56%. The broader-based S&P 500 closed at 2,053 for a loss of 0.80% for the week. The Nasdaq Composite closed the week at 4,872 for a drop of 1.10%. International markets fared even worse as the Dow Jones Global (ex US) Index dropped 2.06% for the week. The 10-year Treasury closed the week at a yield of 2.13% (down from 2.24% the prior week) as bond prices rose due to falling oil prices, troubles in the Eurozone and abnormally low yields overseas.

Chart 3.16

As always, we urge investors not to get caught up in the day-to-day noise of the markets. Instead, focus on long-term goals, and enjoy the gift of each day. Spring is almost here …

Happy St. Patrick’s Day!

“Failure to prepare is preparing to fail.”  –  John Wooden

What Is Your Investment Philosophy?

March 10, 2015

Would you say you are a trader? I am venturing to guess … “Probably not”. Are you a long-term investor? You would probably say … “Yes, I am”. Some espouse the belief that they invest for the long-term, but get caught up in day to day information that might affect their investments. The old salt about the three principals of investing are patience, patience, and patience. But do you believe that? All of us can get caught up in our emotions of fear and greed when it comes to our own money. When the market is doing nicely (what were you thinking on October 9th 2007?), do you want to put more money into stocks or buy some speculative high flyers? When “Mr. Market” falls over 10% (which history tells us is long overdue…) or is in the midst of a recession will you be scared and want to sell some or even panic and sell all your holdings? These feelings are certainly universal, but try not to get carried away by the feelings of the moment.

We believe strongly in a true long-term approach. It is imperative to know what you are investing in, but don’t be swayed into a rash decision by current news stories.  When you saw the Dow Jones index down 279 points on Friday, what was your reaction? Were you scared, did you think it could be an opportunity, or did you look at it as just another day?  Your answer is critical to your success.  On the other hand, you might want to let your financial advisor deal with the feelings of fear and greed.  No, this is not a plug!

To be sure, there is good and bad news (and a lot of noise in today’s era of 24hr News Channels and Twitter…) that affect us all, i.e. the horrors of the Middle East, oil prices, new pharmaceutical drugs that could make a stock soar, etc..  Heck, today (March 9th) marks the 6 year anniversary of when the world finished “ending” (S&P 500 bottomed at 677 on March 9th, 2009 foretelling the end of the “Great Recession”).  As you can see in the chart below, the market sold off sharply in 2008, but now has been up six consecutive years.  How do these facts affect your thinking?  Much of the time it should not lead to a buy or sell decision.

Enjoy your spring!

Bear Market

“Investing should be more like watching paint dry or watching grass grow. If you want excitement, take $800 and go to Las Vegas.”Paul Samuelson

Markets Take A T.O.

March 2, 2015

Markets returns were mixed last week, with strong earnings and guidance from some well established U.S. companies [Lowe’s (L), Home Depot (HD), Macy’s (M) to name a few] offsetting weaker economic news and lower oil. On Tuesday and Wednesday, Fed Chair Janet Yellen delivered her semiannual economic and policy report to Congress. The Fed will continue to be patient for an interest rate increase while also expressing confidence in the economic strength and employment recovery. On Friday, according to the Commerce Department (see chart below), 4th Qtr. GDP was revised to 2.2% which was weaker than the 2.6% estimate last month. For 2014 as a whole, GDP expanded 2.4%, slightly better than 2.2% average during the 2010-2013 recovery.

GDP Chart

For the week, the S&P 500 finished at 2,105, down -0.24% after three straight weeks of positive performance while the DJIA finished up .02% to close at 18,133. International markets continued their upward trend as the MSCI EAFE returned 1.09% and MSCI EM gained 0.61% for the week. Interest rates finished mostly lower for the week as the yield on a 10yr Treasury is now 1.99%. Oil (WTI) finished at $49.60 a barrel which was down 3.1% for week.

While the Fed continues to contemplate a rate increase… when its does occur, it will be sure to bring with it market volatility and uncertainty. Historically speaking, equities have performed well at the start of rate hikes. We recommend investors continue to be globally diversified in-line with one’s long term objectives.

“Nothing so needs reforming as other people’s habits.” – Mark Twain

Funds Flowing Overseas

February 23, 2015

Last week, U.S. equity markets continued their advance with both the DJIA and the S&P 500 hitting record highs.  For the week, the DJIA was up 0.71% and the S&P 500 increased by 0.68%.  Growth stocks continue to lead value stocks helped by healthcare and technology.  This week, look for economic reports on durable goods, CPI, and the second revision to GDP for the 4th quarter. CPI is estimated to be -0.7% driven by lower gasoline prices, and GDP numbers may be revised downward to 2.1% from 2.6%.

Bond prices slipped last week as the rate on the 10 year U.S. Treasury rose to 2.13% from 2.02% the previous week.  However, lower inflation numbers will probably allow the Fed to take more time before beginning to raise interest rates this year.

Last year, international diversification was a drag on equity returns, but this year it is helping with the MSCI EAFE index up 5.37% and MSCI EM up 3.11% YTD (much better than US returns).  International economies have stabilized and valuations are more attractive than in the U.S.. As a result, funds have started to flow into foreign equities.

Flow Chart

(Click chart for additional information)

“Price is what you pay, value is what you get.”  –  Warren Buffett

Dollar Domination

February 18, 2015

The market extended last week’s rally, with the S&P up 2% and the Nasdaq advancing 3.1%.  Both the Greek and the Ukraine difficulties induced mid-week volatility, but were [temporarily?] put on the back-burner by week’s end.

We expect that several unresolved financial issues will soon reappear on center stage: when [and at what pace] will the Fed start to raise rates?  How much pressure will the stronger $ put on S&P earnings [currently below $120/share]?  Will oil prices make new lows [as the still-rising production and inventories suggest] or stabilize at current levels [as the financial markets seem determined to effect]?  Finally, will further European QE actions drive rates to even lower negative real-return levels?

What is certain is that the US economy is maintaining its forward momentum, and that the dollar bull market, as the following chart illustrates, has just gotten started:

2.18.15 Dollar Chart

“Writing is an act of invention”David Carr

Back To Where We Started…

February 9, 2015

Markets rebounded nicely last week on the back of generally positive economic data.  The DJIA closed at 17,824 for a weekly gain of 3.8% while the S&P 500 closed at 2055 for a gain of 3.0%… essentially wiping out January’s loss of 3.6% for the DJIA and 3.0% for the S&P 500.  Bond yields moved higher as the 10 year Treasury closed the week with a yield of 1.94%.  Crude prices moved higher by 7% due to increased tensions overseas and short-covering by traders.  Crude closed at $51.69 per barrel.  Good news out of China (lowering their reserve requirements) pushed international stocks higher as well.

61% of S&P 500 companies have reported 4th quarter earnings with 72% of those companies reporting better-than-expected earnings.  So far, 4th quarter earnings have grown 4.6% on average.  Friday’s January non-farm payrolls came in at 257,000… nicely ahead of an expected gain of 237,000.  Along with robust jobs gains came an unexpected gain of 0.5% in wages.  Lower oil and gas prices along with better jobs numbers and payroll gains should lead to healthy consumer spending as the year goes on.

Deteriorating news out of Greece will present headwinds for the markets in the week ahead.  A debt downgrade along with indications that Greece will run out of money soon (thus defaulting on debt payments and not having funds to pay pensioners) will certainly weigh on markets going forward.  We continue to expect increased volatility in the weeks ahead.

“If you want to see the sunshine, you have to weather the storm.”Frank Lane

NDS Weekly Commentary 2/2/2015

February 2, 2015

Stocks reversed course last week after a choppy week of trading due to mixed earnings, dollar strength, plunging oil, and the release of the Federal Reserve minutes.  The U.S. economy continues to make steady improvement despite weaker than expected 2014 GDP numbers of 2.4% (see chart below).  The personal consumption data (4.6% for the 4th qtr.) in Friday’s GDP report shows that consumers are in fact spending, due to lower prices at the pump and a surge in hiring (despite low wage growth).

GDP chart WSJ 1.31.15
For the week, the S&P 500 finished lower by 2.75% while the DJIA was down 2.83%. Smaller US companies measured by the Russell 2000 fared a little better, but were still down 1.96% for the week.  International markets continue to outperform their US-based counterparts as the MSCI EAFE was down 0.25% for the week.  Emerging Markets did not fare as well as the MSCI EM was down 2.94% for the week (but still remains positive for the year up 0.61%).  Rates continued their move lower as the 10 yr. US Treasury finished at a yield of 1.68%.

We continue to expect volatility as we are in the thick of earnings season.  Congratulations to Patriot’s Nation!!  As the great Bill Belichick says, “Ignore the noise”; in our case, we suggest not reading too much into the day to day movements in the market.

“We’re on to Cincinnati.” – Bill Belichick

“Don’t fight the Fed” Part II…?

January 26, 2015

It was an eventful week in the markets with corporate earnings, huge swings in currencies due to central bank activities, and continued pressure on oil (-7% for the week) dominating the headlines.  Although we are in the early innings of earnings season (15% of S&P 500 companies have reported so far), 74% of companies have beat, 11% are in line, and 16% missed expectations.  The most impactful news came from European Central Bank’s (ECB) President Mario Draghi, as he announced a quantitative-easing program (“Q.E. for the E.U.”) with monthly bond purchases of €60m for a total commitment of €1.2t.  As a result, the (€)Euro is now trading at level relative to the ($)Dollar not seen since 2003($1.12/€1).

Equity markets finished with its first positive week of 2015 with the DJIA gaining 0.96%, while the broader-based S&P500 gaining 1.62%.  International markets fared a bit better as the MSCI EAFE finished up 2.64% and MSCI EM finished up 3.50% for the week.  Rates continued to trend lower with the 10yr US Treasury closing at a yield of 1.79% despite expectations of the Fed raising rates at some point in 2015.

As we move forward into 2015, we see the U.S. economy continuing to muddle along, albeit at a modest 3.0% rate.  U.S. multinationals may start to feel negative effects on earnings from a stronger dollar.  On the other side of the pond, valuations in Europe are reasonable, with the weaker Euro and lower oil prices providing a nice tail wind for European equities.  In addition to that, dividend yields on European equities are quite attractive.  We suggest investors continue to maintain a globally diversified portfolio consistent with one’s long term objectives.

Euro Chart

“Wherever you go, no matter what the weather, always bring your own sunshine.”Anthony J. D’Angelo

Wither Interest Rates?

January 20, 2015

Last week equity markets declined as retail sales disappointed and major bank earnings came in below estimates. The S&P 500 was down 1.2% for the week. YTD the best performing sectors are utilities and healthcare and the worst performers are financials and energy. Bonds continued to surprise as the U.S. 10 year Treasury finished the week with its largest 3 week decline in yield since 2011 ending the week at 1.81%. Lower yields have been driven by a flight to safety by investors and concerns about global growth.

Also, last week the CPI was reported to have fallen 0.4% for the month of December largely due to lower gasoline prices. From a year ago the CPI was only up 0.8%. For January the CPI may come in below year earlier levels. Lower inflation may cause the Fed to hold off on its plan to increase interest rates. Many forecasters have predicted that the Fed would raise short term rates in in June but lower CPI readings may cause the Fed to hold off.

01.20.14 ycharts_chart

 

“A day of worry is more exhausting than a week of work.”
-John Lubbock