Archive for ND&S Updates
Inauguration Week in Review
January 23, 2017
Markets finished slightly down for the week as eyes were focused on Friday’s inauguration of our 45th President and corresponding protests around the country. For the week, the DJIA closed lower by 0.24% while the broader-based S&P500 finished off 0.13%. Smaller US companies representing the Russell 2000 closed the week down 1.46%. International equities representing the MSCI EAFE and MSCI EM were off 0.47% and 0.30% respectively. Treasury yields trended higher last week with the 10YR US Treasury closing at a yield of 2.48% while the Barclays US Aggregate finished the week in the red (-0.34%).
Economic data last week was relatively positive with the consumer price index (CPI) coming in a 2.1% y/y while core CPI came in at 2.2%. While the labor markets have been strong, inflation has been somewhat muted allowing the Fed to keep a lid on rates. In a speech delivered Wednesday, FOMC chairwomen Janet Yellen mentioned that “inflation is moving toward our goal”. At this point, last week’s inflation number should keep the Fed on target to raise rates a “few times” in 2017. Other reports last week included industrial production of 0.8% m/m beating estimates of 0.6%, housing starts at 1.23m beating expectations, and weekly jobless claims of 234,000 which was lower than estimates of 254,000.
Earnings season is underway with a number of companies reporting results last week. It is early but so far earnings have been somewhat favorable compared with expectations. This week, 100 companies in the S&P 500 will report earnings; among those include JNJ, GOOGL, VZ, MSFT, and CVX to name a few.
Buckle Up … as our president enters his first week in office which will likely bring a few surprises along with it. Have a great week!
“Intense feeling too often obscures the truth.” – Harry S. Truman
The Pause that Refreshes
January 18, 2017
The post-election rally took a breather last week, with the S&P falling 0.1% while the tech sector helped the Nasdaq advance by an additional 1.0%. Cyclical, growth-sensitive sectors continued to outperform, with only energy lagging the 500. The 500 is now up 1.6% YTD, while the Nasdaq has advanced by an even more impressive 3.5%.
The earnings season is underway, with several of our major banks falling short on revenue but exceeding earnings expectations. The markets chose to react positively on Friday, but these banks mostly closed off their intraday highs. Notable reports this week include CSX, Citigroup, IBM, American Express and Schlumberger.
The Fed is adding some uncertainty into the investment equation by incrementally abandoning its Fiscal Stimulus advocacy. For example, Chair Yellen said in December that fiscal policy changes are no longer needed to achieve full employment. This follows its measured December increase in its Fed Funds rate [the 2nd annual quarter-point FF increase, which may be followed by more ~ 3 more this year]. However, the new administration will probably stick with its version of fiscal stimulus [simpler, lower marginal tax changes and regulatory reforms]. Higher interest rates are the probable result.
On a positive note, Elon Musk’s SpaceX restarted its commercial launch schedule by successfully launching [and later recovering] a Falcon 9 rocket and its 11 satellite cluster of communications satellites. This follows a 14 month hiatus caused by two accidental explosions, the first mid-flight and the second during subsequent launch-pad testing. Let’s hope that this is the start of another string of 28 [or more] successful launches.
“…Watch the stars, and see yourself running with them.” – Marcus Aurelius
Trump Rally Continues
January 9, 2017
Last week, equity markets rose across the board. The S&P 500 increased by 1.76%, the DJIA and NASDAQ were up 1.07% and 2.58% respectively. In international markets, the MSCI EAFE finished up 1.78% while emerging markets rose 2.20% for the week. Domestically large cap growth stocks were the best performers up 2.4% for the week led by healthcare and technology sectors.
The bond market took a breather last week as rates in the U.S. leveled off with the 10 year Treasury finishing the week at 2.42% compared to 2.45% the prior week.
The major economic news last week was the monthly jobs report. 156,000 new jobs were added … slightly disappointing compared to estimates and below the prior month’s level. The unemployment rate ticked up to 4.7% from 4.6% as more Americans re-entered the labor force. Looking a bit deeper into the report, the 10-cent increase (2.9% gain) in hourly wages to $26 marks the strongest growth since 2009 and is a major positive development. However, the combination of steady hiring and rising wages is likely to keep the Fed on the path of increasing short term rates in 2017. This week we get a report on retail sales and earnings season kicks off with a number of banks scheduled to report.
“If you wish to reach the highest, begin at the lowest.” – Publilius Syrus
Weekly Commentary (1/3/2017) – Happy New Year!
January 3, 2017
Best wishes to all of our clients and friends for a happy, healthy and peaceful New Year! 2016 was certainly full of its ups and downs, and we suspect that 2017 will bring more of the same; so buckle-up for another enjoyable ride.
For 2016, the DJIA overcame a miserable start to the year (dropped over 1000 points in the worst-ever five-day start to a year) to finally finish the year up 13.4%. The broader based S&P 500 closed higher for the year by 9.5%. International equities struggled for most of the year (despite their low valuations) as the Dow Jones Global ex-US Index finished the year ahead by 1.8%. Bond returns were also meager as the Bloomberg/Barclays Aggregate Bond Index returned 2.65% for the year.
2016 provided yet another example of sticking with the market despite the inevitable setbacks – the worst-ever start to a year, markets being down roughly 11% through mid-February, a two-day 5% correction after the Brexit vote. Despite all of these challenges, markets rewarded patient investors. That is indeed the history of our markets – every market correction has been temporary while the market’s advance is permanent.
As always, we plan to look through the day-to-day news and focus on longer-term objectives.
Let’s make it a good year!
“Character is the ability to carry out a good resolution long after the excitement of the moment has passed.” – Cavett Robert
Going, Going, Gone!
January 30, 2017
The Dow, S&P 500 and Nasdaq all set record highs last week with the Dow closing above the historic milestone of 20,000 on Wednesday. The S&P 500 trades at 17.2 times expected earnings, which is well above its 5yr average (15.1x) and 10yr average (14.4x) according to Fact Set. The MSCI Developed International Equity Index, EAFE, was up 1.30% while the MSCI Emerging Market Index was the best performing major stock index, generating 2.55%. We should keep in mind that EM is still 32% behind its peak in dollar terms of 1,338.30 reached in 2007.
Political outcry about the Trump administration’s immigration policies and Friday’s report of tepid growth as measured by the US gross domestic product, will undoubtedly weigh on the stock market this week.
On Wednesday, the Fed will conclude its policy meeting, although another rate hike isn’t expected, their statement could provide some guidance for further increases in 2017. In addition the Fed, the manufacturing purchasing managers index (PMI) for January will also be reported on Wednesday while the monthly job report will also be released on Friday. Corporate earnings continue to move markets, with 103 US multinationals, including Apple, Facebook, UPS and Exxon Mobil reporting this week.
“I have just one superstition. Whenever I hit a homerun, I make sure I touch all four bases.” -Babe Ruth