Archive for ND&S Updates
Volatility Continues
September 21, 2015
Market volatility continued intra-week, with EIA inventory data boosting oil prices and the S&P500 by Wednesday’s close to a temporary weekly gain of 1.7%. However, midweek strength was surprisingly wiped out by the Federal Reserve’s lack of action Thursday afternoon, and the S&P500 closed down -0.2% at 1961. Smaller caps did somewhat better, with the Russell 2000 rising by 0.5% to 1157.79.
The Fed surprised forecasters [see above], but not the Fed futures market by not raising interest rates above the 0% to 0.25% range. This in spite of previously indicating that September was the most likely lift-off date [don’t forget that rates have been near zero for 6.7 years!]. In the past, the continued presence of the Fed’s “punch bowl” would be welcomed by the markets with at least a short-term relief rally. Not this time as the S&P500 fell by 1.6% on Friday, resulting in the -0.2% weekly loss.
The markets’ dissatisfaction stems from the Fed’s signaling a lack of confidence in the economy. In addition, the Fed’s mention of international economic difficulties seems to be a new excuse for postponing the inevitable. Finally, the markets may finally be starting to recognize that zero interest rates are deleteriously impacting markets [lack of proper price discovery, lack of arrows-in-the quiver to battle the next recession].
Current government intervention … hasn’t really solved anything. They’ve just postponed [the inevitable] – Marc Faber
Interest Rates on Tap
September 14, 2015
Last week, U.S. equity markets had their largest weekly gains in almost six months as expectations for a rate increase faded due to concerns over market volatility and slowing global economic growth. Both the DJIA and the S&P 500 were up more than 2%, while the NASDAQ increased almost 3%. International markets were also positive as the MSCI EAFE was up 2.07% while the MSCI EM increased 1.88% for the week. Interest rates were higher across the board with the 10 Yr. US Treasury closing at a rate of 2.20%.
This week, look for economic reports on retail sales, industrial production, CPI and housing starts but the big news will be from the two day FOMC meeting starting Wednesday. Of the many things discussed, one thing will certainly be whether or not the Fed will raise short-term interest rates. The chances for a rate increase according to Fed fund futures, has dropped in the last month from 45% to 23%. Regardless, it is highly likely that interest rates will increase before the end of the year. The Fed has indicated that rate increases will be very gradual and data dependent.
Enjoy the week!
“Individual commitment to a group effort – that is what makes a team work, a company work, a society work, a civilization work.” – Vince Lombardi
Weekly Roundup … Another Wild and Volatile Week
September 8, 2015
Markets finished another wild and volatile week in the red as the DJIA and S&P 500 gave back the previous week’s gains, plus some. For the week, the Dow Jones Industrial Average finished at 16,102 to close down 3.25%. The broader-based S&P 500 closed at 1,921 for a loss of 3.40% for the week. The Nasdaq Composite closed the week at 4,684 as it ceded 2.99%. International markets were broadly lower as well. The 10-year Treasury closed the week at a yield of 2.12% (down from 2.18% the prior week) on a flight-to-safety among bond buyers.
Earnings and economic data released last week were generally positive: the U.S. unemployment rate fell to 5.1% … the lowest level in over seven years, the U.S. trade deficit fell to a five month low in July as exports outpaced imports, U.S. non-farm productivity rose 3.3% in the second quarter … the strongest pace since the fourth quarter of 2013, U.S. jobless claims for the week ending 8/29 increased 12,000 to 282,000 … slightly above expectations of 275,000 (although August numbers are typically revised higher), and the ISM index fell from 52.7 in July to 51.1 in August. International economic releases were mixed, but certainly news out of China and Canada were disappointing. Business activity in the Eurozone increased in August as the Markit Composite PMI grew to 54.3, its highest level since May 2011. China reported disappointing manufacturing data as its August PMI fell to 49.7, a three year low. Lastly, Canada reported a second straight month of negative GDP growth … officially signaling a recession (Canada is the U.S.’s biggest trading partner accounting for 19% of U.S. exports).
Global stock markets remain on edge. Uncertainty regarding an imminent Fed rate hike along with concerning data out of China and Canada will likely keep volatility high. The good news is that valuations around the world have come down quite a bit (the U.S. now trades at slightly less than its historical price-to-earning multiple). Last week’s retest of the August 25th bottom failed, and we suspect that markets will try to sell-off again before beginning their push higher into the end of the year.
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 last two weeks of summer.
“A little perspective, like a little humor, goes a long way.” – Allen Klein.
Weekly Roundup … What a Ride – Markets Touch Correction Mode
September 2, 2015
Markets finished a wild and volatile week in the green as the DJIA and S&P 500 briefly touched correction territory (defined as a 10% or more decline from a previous peak) before rallying back on mostly positive economic news. For the week, the Dow Jones Industrial Average finished at 16,643 to close up 1.11%. The broader-based S&P 500 closed at 1989 for a gain of 0.91% for the week. The Nasdaq Composite closed the week at 4,828 as it advanced 2.60%. International markets were mostly unchanged as the Dow Jones Global (ex US) Index finished flat for the week. The 10-year Treasury closed the week at a yield of 2.18% (down from 2.32% the prior week). The 10-year Treasury briefly yielded less than 2% on a flight-to-safety among bond buyers.
Earnings and economic data released last week were generally positive. On Tuesday, the U.S. Department of Commerce reported that sales of new homes in July increased 5.4% – slightly below consensus; however, the supply of new homes fell to 5.2 months due to faster sales. The housing market is clearly picking up momentum … a good sign for the economy. Wednesday saw Durable Goods Orders surge 2% for July after a revised 4.1% gain in June … another positive sign for the U.S. economy. On Thursday, the Department of Labor reported better-than-expected initial jobless claims for the week ending August 22nd. Also on Thursday, the Commerce Department revised 2nd quarter GDP to up 3.7% … well ahead of the expected 3.1% revision. Friday saw Personal Income numbers rising 0.4% and consumption increasing at 0.3% … both good signs for our economy.
Global stock markets are, no doubt, on edge. Investors are concerned about slowing growth in China (the world’s second largest economy) and an imminent Fed rate hike. Equity market corrections are normal (occurring about once a year on average), and we suspect that the recent volatility will continue. It is quite likely that we will see a retest of the recent lows in the market, but economic fundamentals appear too strong to suggest a significant pullback.
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 last few weeks of summer.
“Our patience will achieve more than our force” – Edmund Burke
Mixed Bag
September 28, 2015
9/28/2015
Markets finished a volatile week ending down as optimism from Federal Reserve Chair Janet Yellon’s comments on Thursday vanished throughout the trading day on Friday. For the week, the S&P 500 finished at 1931 to close down 1.35%. The Dow Jones Industrial Average closed at 16315 for a loss of 0.37% for the week. The Nasdaq Composite closed the week at 4,686 as it ceded 2.91%. International markets were broadly lower as well. The 10-year Treasury closed the week at a yield of 2.17% up from 2.13% the prior week.
Economic data reports released last week were mixed. The National Association of Realtors reported Monday that sales of previously owned homes slumped 4.8% for the month of August, that being said, sales are still up 6.2% from the previous year. On Thursday, the U.S. Department of Commerce reported that new orders for durable goods fell 2.0%, less than an expected decline of 2.3%. Following an increase in July, the poor performance in August can be attributed to weaker demand due to a strong U.S. dollar and China’s economic troubles. On Friday, the commerce department reported the revised estimate for second-quarter GDP showed an expansion of 3.9%, up substantially from its initial reading of 2.3%. Digging deeper into the report, personal consumption grew 3.6% while residential construction grew 9.3% and non-residential construction grew 6.2%. The upward revision is a good sign that the domestic economy remains strong despite some challenges overseas.
As always, we urge investors to not get caught up in the day-to-day noise of the markets. Focus should remain on long-term goals and enjoying the gifts each day brings. Enjoy the week!
“If you dream it, you can do it.” – Walt Disney