Archive for ND&S Updates

Equity Markets Continued Their Advance

November 25, 2013 


Last week the equity markets continued their advance with the S&P 500 adding 0.4% for the week and closing above 1800 for the first time.  Earlier in the week the DJIA closed above 16,000 for the first time.  This was the 7th straight weekly gain for the DJIA the longest streak since January of 2011.  Money continued to flow into stocks with U.S. equity funds attracting $548 million in new cash for the week.

While some analysts say the stock market is overvalued and the PE ratio for the S&P500 has risen from 12.7 to 15.1 during the year that is still near the historic average.  While a correction at any time cannot be ruled out the fundamentals of earnings, inflation and Fed policy are still positive. Strategists are taking a cautious but positive outlook for next year predicting an average increase of 4.1% based on modest increases in earnings and revenues for 2014.

Teamwork is the ability to work together toward a common vision. The ability to direct individual accomplishments toward organizational objectives. It is the fuel that allows common people to attain uncommon results.

– Andrew Carnegie

“Bubble Trouble”

November 19, 2013 


The market moved from strength to strength last week, with the indices advancing an average of ~1.5%. The action started slowly since Monday was Veterans Day [the bond market was closed]. The midweek highlight was Janet Yellen’s confirmation testimony. This seems to have convinced the markets that Fed asset purchases will continue indefinitely [although she conceded that QE cannot go on forever]. The S&P is now up 26% so far this year, with the smaller stock averages up in excess of 30%. This is the best year for the S&P since 2003.

Barron’s cover story over the weekend did a good job putting this year’s advance in context: the broad market advance includes several pockets of exuberant excess [cloud, 3D printing, etc.], yet stocks are still the most attractive broad asset class. Note that the level of margin debt, investor complacency [VIX index] and cash levels are some indicators which do require close monitoring.

Market veterans advise to “never short a dull market”, but that is exactly what some experts now seem to be advising. This includes [by implication] Barron’s headline scribe: “Bubble Trouble?” and several CNBC gurus. Corrections can occur at any time, but this Bull market still has room to run.

The anniversary of JFK’s untimely demise provides us with an opportunity recall one of his many memorable quotations:

We dare not tempt them with weakness. For only when our arms are sufficient beyond doubt can we be certain beyond doubt that they will never be employed.”
 –John Fitzgerald Kennedy’s Inaugural Address



November 11, 2013 


Last week was mostly positive for US equities with the exception being the Nasdaq. The Dow Jones was up 0.9%, the S&P 500 up 0.5%, and the Nasdaq slipped 0.1%. Interest rates moved higher for the week which put pressure on the Barclays Aggregate Bond index. For the week the “Agg” dropped 0.52% and remains negative 1.9% for the year.

Over the last couple of years, we have talked about the shrinking stock market. Initial public offerings (IPOs) have been minimal and companies have been purchasing their own stocks at record rates which has led to a decline in available stock for sale. However, 2013 may be a turning point. Flows into stock mutual funds have been the strongest since 2004 with net inflows of $76 billion this year.  With market confidence up and stocks at record prices we have seen the IPO market return as U.S. companies have raised $51 billion in IPOs. That is the most since $63 billion in the same period of 2000, the year bubbles in tech stocks and IPOs both popped. Follow-on offerings by already public companies have been even larger, surpassing $155 billion this year. That is the most for the first 10-plus months of any year in Dealogic’s records, which start in 1995.

We are cognizant of this renewed confidence as an eventual concern. However, we see the equity markets as fairly valued and still a good investment for the long term.

“Confidence is contagious; so is lack of confidence”
– Vince Lombardi


November 5, 2013 


The market marked time last week, with the S&P and Dow slightly advancing while the Nasdaq declined half of one percent.  The small cap Russell 2000 continued its recent correction by falling 2% [but it is still up 29% YTD]. Company specific developments did move individual stocks: AAPL fell 2.5% as investors listened to management discuss upcoming mobile margin pressure. Conversely, Bristol-Meyers climbed 6.7% on additional study details about its experimental anticancer drug. The Wednesday release of the Fed’s latest policy directive was telling. Although it was little changed from previous Fed statements, markets seized on the Fed’s housing comments [recent slowdown] and fiscal policy [a headwind to GDP growth] to put a lid on stock prices.

In the “glass is half full” department, it is worth noting that domestic manufacturing is showing signs of life.  Wal-Mart announced that it will source some additional footwear, curtains and glassware from the US. Motorola and designer jeans are additional examples of on shore manufacturing. These shifts are occurring because of Asian wage increases, shipping rates and the benefits of rapid response. More automation by onshore manufacturers is also a factor.  Macro confirmation obtains from Chicago PMI [up to 65.9%] and BLS manufacturing jobs up ~1/2 million since 2/10. In addition, the ISM reports that manufacturing sector activity expanded in September for the 4th consecutive month.

We can all agree that investing should follow a “Buy low, sell high” methodology, but on average investors do just the opposite. Note that 12/02 and 12/08 were two excellent opportunities to buy, yet equity mutual funds experienced net outflows during both of those time periods. As Kipling observed: “If you can keep your head when all about you are losing theirs …”

The Boston Red Sox beat the St. Louis Cardinals last week to win its 3rd World Series in the last 10 years (2004-2013). In the previous 85 seasons (1919-2003), the Red Sox had won no World Series titles (source: Major League Baseball).