Archive for ND&S Updates
Weekly Roundup … “Fed-up”
December 21, 2015
Markets finished lower last week as volatility continued to weigh on investors’ minds and psyches. For the week, the Dow Jones Industrial Average finished at 17,128.55 to close down 0.79%. The broader-based S&P 500 closed at 2,005.55 for a loss of 0.34% for the week. The Nasdaq Composite closed the week at 4,923.08 as it shed 0.21%. International markets eked-out small gains as the DJ Global ex U.S. index advanced 0.36%. The 10-year Treasury closed the week at a yield of 2.197% (up from a close of 2.139% the prior week) as bonds pared year-to-date gains.
Big news during the week was the decision by the Federal Reserve to raise the key fed funds rate by 25 basis points. The Fed’s first rate increase since 2008 was not enough to push markets higher as falling crude prices sent markets lower. Junk bonds struggled last week as a major mutual fund halted redemptions in their junk bond fund due to a lack of liquidity for their bonds … no doubt an unsettling step for an open-end mutual fund.
Volatility continues to exhaust investors. The Dow Jones Industrial average has see-sawed plus or minus 1% on 70 different occasions so far this year … the most since 2011. With the uncertainty about the Fed and a rate hike behind us, attention has focused on what seems to be a never-ending slide in oil prices. Oil prices will ultimately find their bottom, earnings will be reasonable, junk bonds will settle-down, and the world will likely not end anytime soon … so we continue to look through the noise of the markets to position investors for the gains that lie ahead.
Best wishes to our clients and friend a happy and peaceful holiday season!
“Love the giver more than the gift.” – Brigham Young
December Rate Increase? Probably, But Not a Given
December 14, 2015
There seems to be an almost unanimous opinion from economists that the Fed will raise the Fed funds rate this week. We are not entirely convinced. The problem for the Fed is that their target for inflation of 2% has not happened, while their target for unemployment of 5% has been reached (a conundrum). Their perception of how strong the economy actually is then becomes critical. The negatives on the economy are the weakness in exports caused by the strong Dollar and the sluggishness showing in domestic manufacturing activity, while the consumer seems relatively upbeat about spending. Another potential negative popped up this week in the junk bond market as concerns about credit quality and liquidity led to one junk bond fund deciding to close up shop. One new positive is the perception that the Chinese economy showed more life in its most recent reports, allaying fears somewhat that China would be a negative for the rest of the world.
It’s not so easy then – positives and negatives for the Fed to assess. Given the uncertainty surrounding the health of the economy, it now makes it harder for the Fed to do their first rate hike. One consoling factor for investors is that the first rate hike doesn’t necessarily lead to a weaker stock market, so we have more time to analyze just how healthy our economy is. This is not an easy decision for the Fed to take, but their telegraphing that they want to do the December move and then not following through would be a bit of an embarrassment for them.
Our conclusion then is what we always recommend-don’t be swept up by current media discussion. Instead, stick by your strategy that you have established for your investments. Enjoy the holiday season and have some eggnog.
Policy Divergence Appears Likely
December 7, 2015
The U.S. equity market finished a back-and-forth week slightly positive after a rash of monetary policy guidance set the mood for markets. For the week, the S&P 500 finished at 2092 for a gain of 0.12%. The DJIA fared a little better closing up 0.36% for the week. Small Cap US companies didn’t fare as well as the Russell 2000 finished down 1.56% for the week. International markets also closed lower as the MSCI EAFE was down 0.81% and MSCI EM was 1.69% lower. Treasury yields moved higher after a volatile trading week as investors began to process a diverging monetary policy landscape.
On Thursday, Mario Draghi, head of the ECB (European Central Bank), announced a further rate cut and an extension of its bond-buying program. Although this fell short of extremely dovish expectations, the ECB committed to extending its easing program through March 2017 while the Federal Reserve is on the verge of beginning its first rate hike cycle since 6/30/2004. In her public testimony to Congress on Thursday, Janet Yellen effectively committed to a December rate hike pending the results of last Friday morning’s DOL employment report. According to the report, the US nonfarm payrolls added 211,000 jobs in the month of November, a positive revision to October (298,000 jobs added from 271,000), and the unemployment rate holding steady at 5%.
So where does this leave us now? Equity markets should remain volatile due to the pending December rate hike and year-end tax-loss selling. As always, we recommend investors stay globally diversified in-line with their risk tolerances. As we enter a rising rate cycle in the US, the benefits of diversification should begin to pay off as rates remain stable overseas.
“The best preparation tomorrow is doing your best today.” – H. Jackson Brown, Jr.
Happy New Year!
December 28, 2015
Last week, equity markets rebounded as the S&P 500 was up 2.8% and the DJIA increased 2.47% largely driven by a 4.6% increase in energy stocks. For the week, value outperformed growth on the strength in energy and material stocks; YTD growth stocks continue to outperform by +6.4% to -2.9%. International markets were also positive with the MSCI EAFE and MSCI EM up 1.29% and 0.71% respectively. In economic news, 3rd quarter GDP was revised down slightly to 2.0% while home sales fell 10.5% in November.
Economic news will be light during the holiday-shortened week with Consumer Confidence on Tuesday and the Chicago PMI on Thursday. No members of the S&P 500 will report earnings.
Our team at Newman Dignan & Sheerar would like to wish to everyone a happy and healthy New Year!
“No act of kindness, no matter how small, is ever wasted.” – Aesop