Archive for ND&S Updates
ON THE ONE HAND….ON THE OTHER HAND
May 19, 2014
The economic data that comes out each day often leaves you scratching your head. Is the economy picking up or is it still sluggish? The most recent estimate of GDP growth for the first quarter was just 0.1%. Most economists are looking for a substantial improvement in the second quarter of 2 ½-3.0%. Compare some of the recent positives and negatives. Positives-unemployment claims for the most recent week decreased to a seven year low of 297,000; the New York state manufacturing index spiked up to its highest level since June 2010; small business confidence rose to its highest level since 2007; Japan’s GDP boosted by an expected sales tax increase rose 5.9%; and perhaps most interesting foreign governments bought $118 billion of our treasury notes and bonds year to date which absorbs much of the tapering undertaken by the Fed. What about the negatives? Retail sales were weak, down 0.1% and the consumer confidence number slipped from 84.1 to 81.8. Perhaps the most surprising numbers were the CPI and PPI. The CPI rose 0.3% and the PPI jumped 0.6% driven heavily by food prices. Industrial production unexpectedly fell 0.6%; and many international reports were soft. So what do we make of this confusing data? This is a pattern we have seen for many months of ups and downs in the numbers. The general trend does seem stronger. Worrisome are the inflation numbers for this month, but here again the month to month changes often cancel each other out. They will bear watching over the next several months. Stay tuned.
“Success is not final, failure is not fatal: it is the courage to continue that counts.”
-Winston Churchill
Ups and Downs
May 12, 2014
05.12.14
Last week the DJIA set a fresh record high of 16583 and shares of small companies as well as biotech and internet stocks bounced back somewhat from recent weakness. Major indexes continued to fluctuate near record highs as investors weigh weak 1st quarter corporate earnings against improving economic reports. Biotech and internet stocks have fallen 25% from earlier highs and money has been shifting to safer dividend paying stocks such as utilities and telecom.
High dividend stocks are not as attractive as a few years ago when their yields were above those of U.S. Treasuries, but dividends matter. From 1970 to 2012 dividend yield accounted for two-thirds of real stock market returns in major markets according to Credit Suisse. Value has been outperforming growth year to date.
“To repeat what others have said, requires education; to challenge it, requires brains.”
-Mary Pettibone Poole
Spring Thaw, part II
May 5, 2014
05.05.14
The markets struggled mightily last week, but ended a difficult week with a ~1% advance. Economic news, especially on the domestic front, was mostly positive, while challenges came from abroad. The Ukrainian-Russian conflict, German economic stagnation and the rapidly inflating UK housing bubble are just a few of the international hot-spots.
US manufacturing continues to rebound from a deep-freeze winter as the ISM rose from 51.3 in December to 54.9 in April [2H13 averaged 56.2]. Payrolls grew by 288,000 while the unemployment rate fell to 6.3%, the lowest since September 2008. Unfortunately, the labor force shrunk by 806,000, which brought the participation rate down to 62.8%, its lowest rate since 1978. The WSJ has charted the “gains…and pains” succinctly as follows:
Overall, the US economy grew by only 0.1%, well below expectations of 1.2%. Housing, trade and investment were all drags. Consumers did rebound, but the consumption numbers were boosted by healthcare [Obamacare?] and heating expense increases. There was no money for incremental holiday cheer since so much was spent feeding the household furnace. In these situations, it is best to remember that:
“The Best Things in Life are Free” – performed in 1948 by the Ink Spots
Three Yards and a Cloud of Dust …
May 1, 2014
The Woody Hayes market continues. Equity markets continued to grind last week on the heels of decent earnings and a notable pickup in M&A deals. Despite reasonable market and economic news, most of last week’s volatility and weakness came on Friday due to rising tensions in Ukraine.
For the week, the Dow Jones Industrial Average finished at 16,361.46 to close the week lower by 0.29%. The broader-based S&P 500 closed at 1,863.40 for a slight loss of 0.08% for the week. The Nasdaq Composite closed the week at 4,075.56 for a decline of 0.49% (due to selling in biotech and technology). International markets followed U.S. markets lower as the Dow Jones Global (ex US) Index dropped 0.31% for the week (following nice gains over the past months … perhaps catching-up to U.S. equities). After last week’s give-back, market averages are somewhat mixed for the year-to-date period with the Dow Jones Industrial Average down 1.3% and the NASDAQ lower by 2.4%. The S&P 500 is eeking-out a gain of 0.8% for the same year-to-date period. The 10-year Treasury rallied slightly to close the week at a yield of 2.67% … down a bit from last week’s 2.72% yield.
Economic news released last week was fairly mixed, but there was enough data to support a slightly positive bias in the economy. Among the better-than-expected releases were FHFA house prices, Richmond Fed manufacturing, durable goods orders, University of Michigan confidence and existing home sales. New home sales, Kansas City Fed manufacturing and jobless claims were less-than-expected. Purchasing Managers’ Index news out of China was in-line with expectations, and Eurozone PMI were ahead of expectations. Earnings news out of the U.S. is reasonable with 73% of the companies in the S&P 500 reporting better-than-expected results (about one-half of the S&P 500 companies have already reported).
We continue to expect more of the same over the next few months – increased volatility and markets grinding higher and lower on mixed news. Stay the course.
Spring is here, and as Candide said “… let us cultivate our garden”.
Don’t Worry, Be Happy
May 27, 2014
Bobby Mcferrin’s 1988 song – Don’t Worry, Be Happy – seems to sum up investors’ attitudes lately. Despite a plethora of headwinds, investors are focusing only on the positives. Perhaps if we hum a few lines everything might just be alright …
Here’s a little song I wrote
You might want to sing it note for note
Don’t worry be happy
In every life we have some trouble
When you worry you make it double
Don’t worry, be happy
For the week, the Dow Jones Industrial Average finished at 16,606.27 to close the week higher by 0.70%. The broader-based S&P 500 closed at 1,900.53 for an increase of 1.21% for the week. The Nasdaq Composite jumped 2.33% to close the week at 4,185.81. International markets finished higher, but trailed U.S. market gains as the Dow Jones Global (ex US) Index advanced 0.33% for the week. After last week’s gains, market averages are now higher for the year-to-date period with the Dow Jones Industrial Average up 0.2% and the NASDAQ ahead by the same amount. The S&P 500 is showing higher year-to-date gains as it is up 2.8%. The 10-year Treasury sold-off slightly to close the week at a yield of 2.54% … up a bit from last week’s 2.52% yield.
Economic news released last week was fairly mixed, but there was enough data to support a slightly positive bias in the economy. Among the better-than-expected releases were existing and new home sales, a positive manufacturing report, and an in-line Leading Economic Index. China’s PMI numbers were above consensus as were Japan’s machine orders. Europe saw challenging news as its manufacturing PMIs were weaker-than-expected. U.S. retail sales proved to be a bit disappointing as broad-line retailers reported disappointing numbers (only to be partially offset by decent numbers out of Home Depot and Lowes).
We expect continued volatility in the markets, yet we still see market averages higher at year-end. In the meantime – enjoy the beginning of summer, and don’t make your troubles double by worrying