Archive for ND&S Updates

Summer Doldrums

August 27, 2013 


An erratic and tentative market ended the week higher, thus avoiding a third weekly decline.  The S&P advanced 46BP on the week to 1663.50, while the 10 year treasury yielding 2.816%.

The stock market’s NT direction is muddy. One noted commentator is warning investors in Saturday’s WSJ that stocks might fall by ~30%. But, only three days earlier [in Wed’s  “Smart Money”]  he had pointed out that market timers with the best LT performance are steadfastly bullish, while those timers with the worst record are the ones who are turning bearish.  As a result of observing those actions, he concluded that stocks are headed higher!

Economic numbers are also mixed. Midweek unemployment claims were lackluster, but existing-home sales [5.4M] were better than the 5.1M forecast. Wed’s Fed minutes focused on the low participation rate, and high incidence of part-time workers [new health care insurance regs?]. Manufacturing PMI from both China and the Eurozone were positive, supporting cyclical equities. But new home sales hit an air-pocket in July, falling 13% to 394K from a downwardly revised 455K in June.  This was the largest drop since May 2010.

As a result, investors are becoming stock pickers, emphasizing company-specific news. [“Correlations are declining”].  Hewlett-Packard fell 12.5% [its largest daily decline in two years!] after reporting a disappointing quarter, while Microsoft advanced by 7.3% on the news that Steve Ballmer would “resigning” as soon as a replacement could be found.

PS:  the volatility continued Monday afternoon with a ~56BP decline following John Kerry’s impassioned condemnation of Syria’s chemical-weapons usage.

“By prevailing over all obstacles and distractions, one may unfailingly arrive at his chosen goal or destination.”
– Christopher Columbus

Today’s History
1966 Sir Francis Chichester begins 1st solo ocean voyage around the world

Glass Half Full

August 19, 2013 


While economic data is always subject to differing interpretation, we find much of this week’s data to be positive. The front page story today in the WSJ notes the progress in the U.S. manufacturing sector. Our newfound manufacturing competitiveness is producing a shrinking manufacturing trade deficit. Lower energy costs and sluggish wages contributed to our competitiveness. The Boston consulting group thinks that 2.5-5.0 million jobs could be created by 2020. In some cases we may actually become the low-cost global manufacturer.

Note that there is still plenty of room for improvement. From 2000 to 2011 our share of global exports shrank from 19% to 11%. During that period, our exports to China grew 19%, though still accounting for only 1/5 of China’s imports. China no longer relies solely on its labor-cost advantages. It is rapidly improving its effectiveness to manufacture higher-tech items. We will need more skilled workers to compete in that scenario.

Finally, we note that this is the peak of our summer vacation season.. Take advantage of the peaceful surroundings and enjoy.

“I will prepare and some day my chance will come.”
– Abraham Lincoln

Summertime Slowdown

August 12, 2013 


Markets retreated last week from their recent all-time highs to finish the week down roughly 1%.  Investors reacted to comments from the Fed that the central bank was closer to tapering their bond buying than previously thought … or maybe most investors were simply on vacation.

For the week, the Dow Jones Industrial Average finished at 15,425 to close down by 1.35%.  The broader-based  S&P 500 closed at 1,691 for a loss of 0.98% for the week.  The Nasdaq Composite closed the week at 3,660 for a decline of 0.70%.  International markets fared better than the U.S. as the Dow Jones Global (ex US) Index gained 0.22% for the week (we see international equities outpacing U.S. equities for the next few quarters).  The 10-year Treasury closed the week at a yield of 2.58% … down from last week’s 2.61% yield (bonds could rally temporarily should the equity markets take a breather over the next month or so).

Europe and China reported decent economic news last week.  Europe’s purchasing manager’s index and retail sales were better-than-expected, and Germany’s factory orders surprised on the upside … perhaps Europe is at the beginning of a long bottoming process.  News out of China was equally impressive as industrial production, fixed investment and trade data were encouraging.  Cyclical stocks finished the week nicely higher on the news out of China and Europe.

We expect a quite week ahead as the earnings season winds-down.  It looks like S&P 500 2nd quarter earnings will finalize around +4.5%.  Unfortunately, non-financial earnings may be negative for the first time since 2009.  Bottom line – expect a bit of a pullback in the markets on light volume … this is very normal for the late summer.

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 last few weeks of summer.

“Rome was not built in one day.”
– John Heywood

The Future Remains

August 5, 2013 


The monthly jobs report too center stage last week, with expectations were for an increase of 183,000 jobs. However, the economy added only 162,000 jobs, and average hourly earnings were slightly lower.

On the plus side the unemployment rate fell to 7.4% from 7.6% but part of that was due to a drop in the number of people in the labor force. This report was just weak enough so that investors were hopeful that the Fed might consider not scaling back on their bond buying program tentatively scheduled to begin in September.

Most economic forecasts call for a pickup of growth in the second half. But if the economy continues to be sluggish, and consumer spending is also disappointing, the Fed may feel obliged to postpone its tentative taper.

“Just remember – when you think all is lost, the future remains.”
– Dr. Robert H. Goddard