Archive for ND&S Updates
March Madness
March 21, 2016
Equities continued their march higher for a fifth straight week as the S&P 500 and DJIA climbed out of the red in terms of year-to-date performance. For the week, the DJIA closed at 17602 for a weekly gain of 2.26%. The broader-based S&P 500 closed at 2050 to finish up 1.37% for the week. International markets were also strong as the MSCI EAFE and MSCI EM finished the week up 1.02% and 3.28% respectively. Treasury yields closed the week lower across the broad; the dollar weakened vs most other currencies following the Fed’s decision to maintain interest rates; oil continued its rally with West Texas Intermediate (WTI) and global Brent closing above $40/barrel.
Major economic news for the week included: Commerce Department reported Tuesday that retail sales dipped 0.1% in February beating expectations; the producer price index (PPI) fell 0.2% in February in-line with expectations; on Wednesday, the Consumer Price Index (CPI) fell 0.2% in February and is now up 1% for the last twelve months. The most important economic news for the week came Wednesday as the Federal Reserve announced it held benchmark rates constant and lowered its forecasts for both year-end 2016 and year-end 2017. Specifically, the statement noted that economic activity has been increasing at a moderate pace on the back of increased household spending. The Fed left open the timing of future rate hikes and now expects two rate hikes in 2016 instead of four.
Despite more dovish guidance from the Fed, markets should continue to remain volatile as diverging monetary policies, oil volatility, and the political rhetoric remain. As always, don’t look too much into the day-to-day noise of the markets and keep your eye towards the long-term.
“In politics stupidity is not a handicap.” – Napoleon Bonaparte
Getting Closer to Break-even
March 14, 2016
In the absence of any significant domestic economic headwinds, stocks were able to advance for the 4th consecutive week. The S&P 500 advanced 1.1% to 2022.18, regaining the level of its 200-day moving average of 2019.9, but still down 1.1% YTD.
Thursday’s European Central Bank policy meeting [temporarily] fulfilled all of the bulls’ hopes. The new stimulus included expanding quantitative easing by 33% [to €80 B/mo!] and added corporate bonds to its asset purchase program. Unfortunately, [or fortunately, depending on your position and time-frame] the euphoria was short-lived, since Mario Draghi suggested that rates were unlikely to be pushed any lower.
This week’s calendar is much more active, with retail sales, inflation, industrial production, employment energy and sentiment all vying for attention. Nonetheless, central banks will likely still hog the spotlight, with the Fed releasing its latest policy statement on Wednesday. The markets are not expecting any change in rates this month but are looking for additional FF increases this year. The Fed’s “dot plots” will confirm [or not] this likelihood.
“Monetary policy does not work like a scalpel but more like a sledgehammer” – Liaquat Ahamed
Earnings Continue to Lag
March 7, 2016
Stocks advanced for the 3rd consecutive week on improving sentiment. For the week, the DJIA increased 2.24% while the broader-based S&P500 was up 2.71%. Smaller US companies and international equities were even stronger with the Russell 2000 advancing 4.34% and the MSCI EAFE and MSCI EM up 4.67% and 6.92% respectively.
Fixed income markets lost ground for the week as the yield on the 10yr U.S. Treasury backed up to 1.88% from 1.76%. The European Central Bank (ECB) is set to meet on Thursday and there is widely held expectations that Mario Draghi and his colleagues could cut the bank’s deposit rate and push rates in Europe even further into negative territory. Analysts’ expectations for the Fed which meet later this month are to hold off on any increase in March.
U.S. corporate earnings continue to fall largely as the result of negative earnings in the energy and materials sectors. According to the Wall Street Journal, with nearly all companies reporting for the 4th quarter, S&P 500 4th quarter earnings have declined 3.4% marking the 3rd consecutive year-over-year quarterly earnings decline. Analysts’ outlook for 1st quarter 2016 is also bleak with analysts anticipating earnings to fall by 8% from the prior year … which has been adjusting down from a 0.3% increase at the start of the year.
Meanwhile, stay the course!
“If you have to forecast, forecast often.” – Edgar Fiedler
Stocks Give Back Ground …
March 28, 2016
Equity markets snapped their five-week winning streak as domestic and worldwide markets gave back ground mostly as a result of comments from Fed President James Bullard and the horrific attacks in Brussels (and later in Pakistan). Bullard commented on Wednesday that an April interest rate hike is possible should economic conditions continue to improve. Other Fed members seemed to back away from Bullard’s comments as the week went on. We would note that the fed-funds futures market indicates the odds of an April hike at close to zero while the odds of a July hike remain less than 50%. Interestingly, oil also broke its five-week rally with crude prices falling 4% to $39.46 per barrel … perhaps just a coincidence
For the week, the DJIA finished lower by 0.49% while the broader-based S&P500 closed down 0.67%. International markets also were down with the MSCI EAFE closing down 2.7%. Fixed income, represented by the Barclays Aggregate, finished essentially flat for the week. As a result, the 10 YR US Treasury closed at a yield of 1.90%.
Economic conditions appear to be slowly improving. Improving employment data, low inflation, low rates, slowly improving manufacturing and reasonable consumer confidence should keep markets mostly range-bound for the short-term. First quarter corporate earnings, due out over the next month, will likely be challenged, but markets have mostly discounted this news.
Lastly, our hearts and prayers go out to the victims and their family members of the tragic attacks in Brussels and Pakistan … enough is enough.