Archive for ND&S Updates
Wither Interest Rates?
January 20, 2015
Last week equity markets declined as retail sales disappointed and major bank earnings came in below estimates. The S&P 500 was down 1.2% for the week. YTD the best performing sectors are utilities and healthcare and the worst performers are financials and energy. Bonds continued to surprise as the U.S. 10 year Treasury finished the week with its largest 3 week decline in yield since 2011 ending the week at 1.81%. Lower yields have been driven by a flight to safety by investors and concerns about global growth.
Also, last week the CPI was reported to have fallen 0.4% for the month of December largely due to lower gasoline prices. From a year ago the CPI was only up 0.8%. For January the CPI may come in below year earlier levels. Lower inflation may cause the Fed to hold off on its plan to increase interest rates. Many forecasters have predicted that the Fed would raise short term rates in in June but lower CPI readings may cause the Fed to hold off.
“A day of worry is more exhausting than a week of work.”
-John Lubbock
… “Must” Come Down
January 12, 2015
The market ended the first full week of the New Year on the downside, with the S&P 500 down 0.7% and the small-cap R2000 down by 1.1%. On the international front, the Dow Jones es-US index is down 1.8% YTD. The week was volatile, with concerns about the sustainability of Greek Eurozone membership [and its willingness to sustain “austerity”] offset by Bloomberg’s assertion that Germany will help facilitate Greek debt restructuring. Midweek Fed uncertainty emerged as Charles Evans argued for continued ease [what-me-worry?] while William Dudley [supported by the WSJ’s John Hilsenrath] argued that an influx of capital [seeking dollar denominated investments] argues for an earlier rate increase [to avoid a surge in prices and/or another {housing?} bubble creation].
The situation got even more interesting on Friday, when Payroll numbers of 252,000 beat expectations by 7,000, and the unemployment rate fell to 5.7%. But average hourly wages counter-intuitively shrank by 0.2%, resulting in no change in aggregate income in the month of December. This by itself suggests that overall consumption growth will continue to be limited.
Of course, the ongoing energy price decline is significantly helping consumer’s disposable income [when will gasoline fall below $2.00/gal in New England?]. The challenge here will be for voters to keep their politicians from picking their pockets by raising the gasoline taxes [which we do not expect].
“… I’m sure that we’re never going to see $100 [again] …” – Prince Alwaleed bin Talal
What Goes Up…
January 5, 2015
Not every week is an up week for the markets. Equity markets finished the holiday shortened week lower on fairly light volume. Economic data was a bit weaker-than-expected as the ISM manufacturing index declined to 55.5 from 58.7 (the lowest level in six months). Pending homes sales rose 0.8% in November, but growth remains less-than-robust especially given the decent jobs market and overall GDP growth. Oil prices continued their downward slide as supply remains quite healthy due to sub-par global growth/demand. OPEC seems intent on maintaining current production levels … an attempt to slow down US oil production and to keep political pressure on Russia. The big economic news this week will be Friday’s labor report … a gain of 240,000 jobs is expected for December.
For the week, the Dow Jones Industrial Average finished at 17,833 to close down 1.2%. The broader-based S&P 500 closed at 2,058 for a loss of 1.5% for the week. The Nasdaq Composite closed the week at 4,727 for a drop of 1.7%. International markets fared a bit better as the Dow Jones Global (ex US) Index dropped 0.9% for the week. The 10-year Treasury closed the week at a yield of 2.12% (down from 2.25% the prior week) as bond prices rose due to falling oil prices, troubles in the Eurozone and abnormally low yields overseas.
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 gift of each day. Happy New Year!
“As cool as the other side of the pillow.” – Stuart Scott
“Don’t fight the Fed” Part II…?
January 26, 2015
It was an eventful week in the markets with corporate earnings, huge swings in currencies due to central bank activities, and continued pressure on oil (-7% for the week) dominating the headlines. Although we are in the early innings of earnings season (15% of S&P 500 companies have reported so far), 74% of companies have beat, 11% are in line, and 16% missed expectations. The most impactful news came from European Central Bank’s (ECB) President Mario Draghi, as he announced a quantitative-easing program (“Q.E. for the E.U.”) with monthly bond purchases of €60m for a total commitment of €1.2t. As a result, the (€)Euro is now trading at level relative to the ($)Dollar not seen since 2003($1.12/€1).
Equity markets finished with its first positive week of 2015 with the DJIA gaining 0.96%, while the broader-based S&P500 gaining 1.62%. International markets fared a bit better as the MSCI EAFE finished up 2.64% and MSCI EM finished up 3.50% for the week. Rates continued to trend lower with the 10yr US Treasury closing at a yield of 1.79% despite expectations of the Fed raising rates at some point in 2015.
As we move forward into 2015, we see the U.S. economy continuing to muddle along, albeit at a modest 3.0% rate. U.S. multinationals may start to feel negative effects on earnings from a stronger dollar. On the other side of the pond, valuations in Europe are reasonable, with the weaker Euro and lower oil prices providing a nice tail wind for European equities. In addition to that, dividend yields on European equities are quite attractive. We suggest investors continue to maintain a globally diversified portfolio consistent with one’s long term objectives.
“Wherever you go, no matter what the weather, always bring your own sunshine.” – Anthony J. D’Angelo