Archive for ND&S Updates
Dollar Strength
March 23, 2015
Last week, both stock and bond markets advanced. For the week, the S&P 500 was up 2.67% closing at 2,108, while the DJIA was up 2.18% finishing at 18,128. International markets fared a little better as the MSCI EAFE finished up 4.02%, while the MSCI EM was up 3.21% for the week. The 10 year U.S. Treasury closed the week at a yield of 1.93% which was down from 2.13% the week prior. The most important economic news this week came from Wednesday’s Fed Meeting. As expected, the Fed removed the word “patience” from its post-meeting statement while also lowering its longer term unemployment rate projection to 5.1%. While this might allow more leeway in delaying a Fed Funds rate hike, we still believe we will see a rate increase at some point in 2015.
The dollar has appreciated 12% against the euro so far this year and 5.3% against the WSJ Dollar Index (as shown in the chart below). The strength in the dollar is negatively affecting the earnings of U.S. companies that generate a large proportion of their earnings from overseas. As a result, analysts are starting to reduce profit forecasts for the S&P 500. Last September, analysts were projecting profits to increase by 9.5% in the first quarter and 11.6% for the full year. Now they are expecting first quarter profits to fall by 4.9% and only increase by 2.1% for the year.
“Develop success from failures. Discouragement and failure are two of the surest steppingstones to success.” – Dale Carnegie
March Madness …
March 16, 2015
March madness is upon us – excitement, victory, and heartbreak … not unlike the markets!
Markets were quite volatile last week as they dropped for the third week in a row as pallid economic data and declining oil prices rattled investors. A slew of less-than-expected economic data hit the markets last week: U.S. retail sales fell for the third straight month, the Produce Price Index (PPI) fell 0.5% in February against an expected gain of 0.3%, Consumer Sentiment came in at 91.2 against an expected reading of 95, mortgage applications fell in early March, and oil prices plummeted to a nearly 6-year low. Perhaps the weather impacted a number of these data points, but it is tough to be encouraged by the overall tone of announcements. But all is not lost … a few positives from the markets and economy last week include initial jobless claims of 289,000 in early March along with relatively strong earnings reports. Most S&P 500 companies have reported quarterly earnings, and 68% of companies have reported better-than-expected results.
For the week, the Dow Jones Industrial Average finished at 17,749 to close down 0.56%. The broader-based S&P 500 closed at 2,053 for a loss of 0.80% for the week. The Nasdaq Composite closed the week at 4,872 for a drop of 1.10%. International markets fared even worse as the Dow Jones Global (ex US) Index dropped 2.06% for the week. The 10-year Treasury closed the week at a yield of 2.13% (down from 2.24% 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. Spring is almost here …
Happy St. Patrick’s Day!
“Failure to prepare is preparing to fail.” – John Wooden
What Is Your Investment Philosophy?
March 10, 2015
Would you say you are a trader? I am venturing to guess … “Probably not”. Are you a long-term investor? You would probably say … “Yes, I am”. Some espouse the belief that they invest for the long-term, but get caught up in day to day information that might affect their investments. The old salt about the three principals of investing are patience, patience, and patience. But do you believe that? All of us can get caught up in our emotions of fear and greed when it comes to our own money. When the market is doing nicely (what were you thinking on October 9th 2007?), do you want to put more money into stocks or buy some speculative high flyers? When “Mr. Market” falls over 10% (which history tells us is long overdue…) or is in the midst of a recession will you be scared and want to sell some or even panic and sell all your holdings? These feelings are certainly universal, but try not to get carried away by the feelings of the moment.
We believe strongly in a true long-term approach. It is imperative to know what you are investing in, but don’t be swayed into a rash decision by current news stories. When you saw the Dow Jones index down 279 points on Friday, what was your reaction? Were you scared, did you think it could be an opportunity, or did you look at it as just another day? Your answer is critical to your success. On the other hand, you might want to let your financial advisor deal with the feelings of fear and greed. No, this is not a plug!
To be sure, there is good and bad news (and a lot of noise in today’s era of 24hr News Channels and Twitter…) that affect us all, i.e. the horrors of the Middle East, oil prices, new pharmaceutical drugs that could make a stock soar, etc.. Heck, today (March 9th) marks the 6 year anniversary of when the world finished “ending” (S&P 500 bottomed at 677 on March 9th, 2009 foretelling the end of the “Great Recession”). As you can see in the chart below, the market sold off sharply in 2008, but now has been up six consecutive years. How do these facts affect your thinking? Much of the time it should not lead to a buy or sell decision.
Enjoy your spring!
“Investing should be more like watching paint dry or watching grass grow. If you want excitement, take $800 and go to Las Vegas.” – Paul Samuelson
Markets Take A T.O.
March 2, 2015
Markets returns were mixed last week, with strong earnings and guidance from some well established U.S. companies [Lowe’s (L), Home Depot (HD), Macy’s (M) to name a few] offsetting weaker economic news and lower oil. On Tuesday and Wednesday, Fed Chair Janet Yellen delivered her semiannual economic and policy report to Congress. The Fed will continue to be patient for an interest rate increase while also expressing confidence in the economic strength and employment recovery. On Friday, according to the Commerce Department (see chart below), 4th Qtr. GDP was revised to 2.2% which was weaker than the 2.6% estimate last month. For 2014 as a whole, GDP expanded 2.4%, slightly better than 2.2% average during the 2010-2013 recovery.
For the week, the S&P 500 finished at 2,105, down -0.24% after three straight weeks of positive performance while the DJIA finished up .02% to close at 18,133. International markets continued their upward trend as the MSCI EAFE returned 1.09% and MSCI EM gained 0.61% for the week. Interest rates finished mostly lower for the week as the yield on a 10yr Treasury is now 1.99%. Oil (WTI) finished at $49.60 a barrel which was down 3.1% for week.
While the Fed continues to contemplate a rate increase… when its does occur, it will be sure to bring with it market volatility and uncertainty. Historically speaking, equities have performed well at the start of rate hikes. We recommend investors continue to be globally diversified in-line with one’s long term objectives.
“Nothing so needs reforming as other people’s habits.” – Mark Twain
Two steps forward, one step back
March 31, 2015
The market’s intermittent upward movement was temporarily interrupted by last week’s 2.2% S&P 500 decline. This resulted in a so far meager 0.1% YTD increase which has been softened by the 3.3% year-to-date increase in the Nasdaq. From a technical perspective, the S&P 500 is below its 50-day moving average, while the Nasdaq is holding above its 50-day line.
The markets are dealing with a number of uncertainties: Flight 9525’s tragic demise, Greek finances, Middle East turmoil which includes a Saudi Arabian coalition bombing rebels in Yemen [what happened to US diplomacy’s shining “success”?], and the ongoing scramble to reach a nuclear pact with Iran. This constantly changing potpourri will continue to foment market volatility.
Finally, the passing of Lee Kuan Yew deserves special mention. He seemingly willed his post-colonial city state from poverty to prominence. He did not embrace Western political principals, but combined autocracy with meritocracy, the rule of law, and intolerance for corruption. The result is an economic miracle: Singapore boasts the world’s second largest port, a celebrated airline with 15 million visitors a year and a per capita income of over $50,000 [the highest in Asia].
“Behind every successful man stands a surprised mother-in-law.” – Voltaire