Archive for ND&S Updates
Dollar Domination
February 18, 2015
The market extended last week’s rally, with the S&P up 2% and the Nasdaq advancing 3.1%. Both the Greek and the Ukraine difficulties induced mid-week volatility, but were [temporarily?] put on the back-burner by week’s end.
We expect that several unresolved financial issues will soon reappear on center stage: when [and at what pace] will the Fed start to raise rates? How much pressure will the stronger $ put on S&P earnings [currently below $120/share]? Will oil prices make new lows [as the still-rising production and inventories suggest] or stabilize at current levels [as the financial markets seem determined to effect]? Finally, will further European QE actions drive rates to even lower negative real-return levels?
What is certain is that the US economy is maintaining its forward momentum, and that the dollar bull market, as the following chart illustrates, has just gotten started:
“Writing is an act of invention” – David Carr
Back To Where We Started…
February 9, 2015
Markets rebounded nicely last week on the back of generally positive economic data. The DJIA closed at 17,824 for a weekly gain of 3.8% while the S&P 500 closed at 2055 for a gain of 3.0%… essentially wiping out January’s loss of 3.6% for the DJIA and 3.0% for the S&P 500. Bond yields moved higher as the 10 year Treasury closed the week with a yield of 1.94%. Crude prices moved higher by 7% due to increased tensions overseas and short-covering by traders. Crude closed at $51.69 per barrel. Good news out of China (lowering their reserve requirements) pushed international stocks higher as well.
61% of S&P 500 companies have reported 4th quarter earnings with 72% of those companies reporting better-than-expected earnings. So far, 4th quarter earnings have grown 4.6% on average. Friday’s January non-farm payrolls came in at 257,000… nicely ahead of an expected gain of 237,000. Along with robust jobs gains came an unexpected gain of 0.5% in wages. Lower oil and gas prices along with better jobs numbers and payroll gains should lead to healthy consumer spending as the year goes on.
Deteriorating news out of Greece will present headwinds for the markets in the week ahead. A debt downgrade along with indications that Greece will run out of money soon (thus defaulting on debt payments and not having funds to pay pensioners) will certainly weigh on markets going forward. We continue to expect increased volatility in the weeks ahead.
“If you want to see the sunshine, you have to weather the storm.” – Frank Lane
NDS Weekly Commentary 2/2/2015
February 2, 2015
Stocks reversed course last week after a choppy week of trading due to mixed earnings, dollar strength, plunging oil, and the release of the Federal Reserve minutes. The U.S. economy continues to make steady improvement despite weaker than expected 2014 GDP numbers of 2.4% (see chart below). The personal consumption data (4.6% for the 4th qtr.) in Friday’s GDP report shows that consumers are in fact spending, due to lower prices at the pump and a surge in hiring (despite low wage growth).
For the week, the S&P 500 finished lower by 2.75% while the DJIA was down 2.83%. Smaller US companies measured by the Russell 2000 fared a little better, but were still down 1.96% for the week. International markets continue to outperform their US-based counterparts as the MSCI EAFE was down 0.25% for the week. Emerging Markets did not fare as well as the MSCI EM was down 2.94% for the week (but still remains positive for the year up 0.61%). Rates continued their move lower as the 10 yr. US Treasury finished at a yield of 1.68%.
We continue to expect volatility as we are in the thick of earnings season. Congratulations to Patriot’s Nation!! As the great Bill Belichick says, “Ignore the noise”; in our case, we suggest not reading too much into the day to day movements in the market.
“We’re on to Cincinnati.” – Bill Belichick
Funds Flowing Overseas
February 23, 2015
Last week, U.S. equity markets continued their advance with both the DJIA and the S&P 500 hitting record highs. For the week, the DJIA was up 0.71% and the S&P 500 increased by 0.68%. Growth stocks continue to lead value stocks helped by healthcare and technology. This week, look for economic reports on durable goods, CPI, and the second revision to GDP for the 4th quarter. CPI is estimated to be -0.7% driven by lower gasoline prices, and GDP numbers may be revised downward to 2.1% from 2.6%.
Bond prices slipped last week as the rate on the 10 year U.S. Treasury rose to 2.13% from 2.02% the previous week. However, lower inflation numbers will probably allow the Fed to take more time before beginning to raise interest rates this year.
Last year, international diversification was a drag on equity returns, but this year it is helping with the MSCI EAFE index up 5.37% and MSCI EM up 3.11% YTD (much better than US returns). International economies have stabilized and valuations are more attractive than in the U.S.. As a result, funds have started to flow into foreign equities.
(Click chart for additional information)
“Price is what you pay, value is what you get.” – Warren Buffett