Archive for ND&S Updates
DON’T GIVE UP ON TECH!
October 23, 2012
10.22.12
Surprising to many, the technology sector has been the weakest sector in the S&P for the last six month period – down 2.5%. It is still up 13.3% for the 52 weeks but still is one of the weaker sectors. There are the general uncertainties that dampen capital spending like the Euro crisis, the state of the Chinese economy and the looming fiscal cliff in the U.S. Tech investment is close to a 15 year low as a share of total investment.
Because of this weakness, some measure of pent-up demand has been created. It is most pronounced in communications equipment and the hardware sectors, reflecting the PC slump. Remember that Tech investment generally lags during the initial phase of an economic expansion, but then outperforms as the expansion matures.
Adding it all up, the soft patch in tech should prove transitory. Favored groups include software, communications equipment and storage. Participation in the group should broaden as uncertainty recedes. We believe this is a timely point to be looking closely at technology.
“Once a new technology rolls over you, if you’re not part of the steamroller, you’re part of the road.”
– Stewart Brand
Weekly Commentary: Consumer Expectations
October 15, 2012
10.15.12
Equities were negative last week with the DJIA down 2.1% and the S&P 500 down 2.2% as investors moved to the sidelines ahead of the 3rd quarter earnings season. Note that year-to-date the DJIA is up 9.1% and the S&P 500 is up 13.6%.
The U.S. economy continues to slowly move along. However, the U.S. consumer seems to be gaining confidence. The October consumer sentiment index posted a surprising 4.8 point upward move to 83.1. Much of the gain came from the expectations component which jumped 6 points to 79.5, the best reading of this economic recovery. Expectations are the orange line on the chart below.
Strong expectations exhibit confidence in future income prospects which bodes well for consumer spending. We’ll look to this week’s retail sales release for more data on the consumer.
As discussed in our most recent quarterly newsletter, “Helicopter Ben & The Wall of Worry”, we continue to focus on the upcoming fiscal cliff and its tax implications.
“New taxes should be a last resort, not an option.”
-Christopher Myers
Ongoing Wall of Worry
October 9, 2012
10.09.12
Another week, another market advance. The S&P and the Dow both advanced ~1.4% while the Nasdaq was up a more modest 0.6%, held back by AAPL’s post iPhone5 correction. In addition to the ongoing wall of worry, economic and political factors noticeably impacted last week’s market action.
Oil ended a volatile week on the downside, falling by 2.5% to $89.87/bbl. However, during the week oil fluctuated wildly, buffeted by inventory and output data, weak economic reports out of Europe and China, and rising friction between Syria and Turkey. Natural gas was a partial offset, rising 2.4% to 3.40/MBtu.
Employment data got a lot of attention, since the decline in the jobless data from 8.1% to 7.8% provided an unexpectedly positive sound bite. However, private payroll gains were 20% less than expected, part-time workers who can’t find full-time work rose 8%. Finally, there are still 2.5 million people who would like to have a job if only the economy was better.
Finally, the Wednesday night presidential debate produced an unexpected “win” for Governor Romney. This was positive for the overall market, although there are winners and losers. Energy stocks, especially clean coal issues, benefited, while the prospect for repeal and replacement of ObamaCare weighed on hospital stocks.
Investor focus will shift to the micro level this week, as earnings reporting season begins. Alcoa will kick off the action will a post-close report on Tuesday.
“I predict future happiness for Americans if they can prevent the government from wasting the labors of the people under the pretense of taking care of them.”
– Thomas Jefferson
Down But Up … the Week and the Quarter
October 1, 2012
10.01.12
Markets were down for the final week of the quarter as news out of Europe spooked investors and US economic data were mixed. For the week, the Dow closed lower by 1% while the S&P 500 declined 1.3%. Global equities were lower by 2%.
Not surprisingly, US economic data for the week was mixed as the Chicago manufacturing index fell well short of expectations and US Durable Goods Orders fell to their lowest level in 3 years. Consumer Confidence and US home sales were better-than-expected.
Despite a disappointing week for US and global equities, the 3rd quarter results were just fine thanks to a coordinated easing effort by central banks around the world. For the quarter, the Dow finished higher by 3.9% while the S&P 500 was up 5.6% … who would’ve thunk it just a few months ago?
The year-to-date rally in the stock seems to be one of the most disrespected rallies that we’ve seen in some time. Economic news is quite soft, and geopolitical realities are anything but comforting. Yet the markets continue their march higher …
The old adage – don’t fight the Fed – is certainly holding true. We suspect that there will be bumps in the road over the next few months, but a massive amount of cash on the sidelines along with unusually low interest rates will likely move the markets higher towards year-end. Investors should continue to stay well diversified and vigilant.
Be careful of complacency –
But in all my experience, I have never been in any accident … of any sort worth speaking about. I have seen but one vessel in distress in all my years at sea. I never saw a wreck and never have been wrecked nor was I ever in a predicament that threatened to end in disaster of any sort.
E.J. Smith, 1907, Captain, RMS Titanic
Slow Recovery Continues
October 30, 2012
10.30.12
Last week’s revised 3rd quarter GDP was reported at 2.0% up from the initial report of 1.7% and also up from the 2nd quarter rate of 1.3%. Growth in the quarter was still too weak to stimulate significant hiring. The improvement in the 3rd quarter has been driven by consumer spending and an improvement in housing which has added to growth for the last six quarters. Consumer spending rose at an annual rate of 2% up from 1.5% in the 2nd quarter. Also last week the University of Michigan consumer confidence survey increased to its highest level in 5 years.
However, business spending has been weakening as companies worry about the recession in Europe, slow growth in China and India and the “fiscal cliff” in the U.S. and have been reluctant to hire. On Friday the October jobs report is due and estimates look for 120,000 new jobs. This is the last jobs report before the election.
On the good news side, starting in November, since 1950 the DJIA has climbed an average of 7.5% through April 30 compared to an average gain of 0.4% for the 6 months of May through October.