Archive for ND&S Updates

Slower Growth

February 24, 2014 


Last week U. S. equities edged lower ending a two week winning streak.  The DJIA dropped 0.3% for the week and the S&P 500 was down 0.1% for the week.  This week look for several more reports on the housing markets.  Last week existing home sales fell 5% and housing starts were down 16%. 

This Tuesday the Case-Shiller S&P index should show home prices rose 12% last year.  On Wednesday new home sales for January should show a third monthly decline and on Friday pending home sales could also be down for the eighth consecutive month.  Most analysts are blaming poor housing numbers on the weather but a decline in pending home sales would be troubling as they are considered to be a leading indicator and could portend a slowing in the economy. 

Keep an eye on the economic numbers as the weather gets warmer to see if the economy is still improving.

“When everything seems to be  going against you….remember that the airplane takes off against the wind not with it.”
-Henry Ford

Stormy Weather…..

February 18, 2014 


Equity markets were decently higher last week on the heels of mixed economic news. Bond prices moved slightly lower as yields pushed higher. 

For the week, the Dow Jones Industrial Average finished at 16,154.39 to close the week higher by 2.28%. The broader-based S&P 500 closed at 1,838.63 for a gain of 2.32% for the week. The Nasdaq Composite closed the week at 4,244.03 for an advance of 2.86%. International markets also moved higher as the Dow Jones Global (ex US) Index gained 2.05% for the week. Despite last week’s snap-back, market averages remain negative for the year-to-date period with the Dow Jones Industrial Average down 2.5%. The 10-year Treasury sold-off slightly to close the week at a yield of 2.75% … up a bit from last week’s 2.71% yield. 

Most economic news released last week was fairly disappointing, including misses in industrial production, initial jobless claims, retail sales and consumer confidence. Of course, the stormy weather over the past month has taken most of the blame for the swath of weak economic news. Fortunately, investors looked-through the weather-impacted data and pushed markets higher … perhaps taking their cue from Dallas Fed President Richard Fisher who opined that the Fed would continue their tapering of its asset purchase program despite the recent weak economic news. International news provided a breath of fresh air as China’s trade data surprised to the upside. Eurozone GDP was also better-than-expected. 

Fourth quarter earnings season is almost over as 77% of S&P 500 companies have reported. Here’s the breakdown of earnings: 68% reported positive surprises, 21% reported negative surprises and 11% reported in-line numbers. 

Spring is just over a month away … hang-on!

“Don’t knock the weather; nine-tenths of the people couldn’t start a conversation if it didn’t change once in a while.”
-Kim Hubbard


The Correction Takes a Breather

February 11, 2014 


Last week’s markets were whipsawed by economic uncertainty, which was eventually offset by longer-term optimism. Monday’s higher opening was quickly reversed by a very disappointing ISM Manufacturing Index update.  The result was a closing 2.3% swoon by the S&P 500. However, the rest of the week moved erratically higher, and the weekly tally was a 50 to 80 basis-point advance by the major indices [the Russell 2000 did fall by 1.3%, which is a subject for subsequent market note].

An important factor for equity traders is currently the value of the yen. The yen-based carry trade is most rewarding when the yen falls versus the dollar and stocks simultaneously advance. That is exactly what happened in the second half of last week: the dollar advanced in yen terms and the equity markets were able to move higher. [but is it causation, or just correlation?]

Note that the overall dollar index {the DXY} was slightly negative, that gold advanced, and the stronger 10-year treasury’s yield is back down to 2.68%. The new Fed chair will be testifying Tuesday [recall that new Fed appointees are inevitably tested by markets].These markets continue to be treacherous for traders.

“If you don’t know who your are, the stock market is an expensive place to find out”
– Adam Smith [aka George JW Goodman]


Shrinkage and Other Interesting Topics

February 3, 2014 

A recent story about companies buying their shares back caught our eye. As shares are repurchased earnings per share go up in corresponding fashion. The largest repurchaser was Direct TV (12.6%) followed by, surprisingly, General Motors (11.6%), Pfizer (11.4%), Halliburton (8.9%), and O’Reilly Automotive (8.7%). As an indicator these buy backs and consistently increasing dividends are two excellent things to watch. 

Managers have been cautious in the New Year and some of the concerns cited have been fear of a Chinese slowdown, followed by an emerging market economic response, and continued sluggishness in Europe. Meanwhile, the numbers here at home have been very good with GDP up over 3% and consumer confidence quite good. 

We would point out that markets are volatile (more right now), but volatility will lead to opportunity.  Having cash reserves and other short-term investments at the ready will pay off handsomely.

“There are three kinds of lies: Lies, damned lies, and statistics.”
– Leonard Courtney