Archive for ND&S Updates

up, up and away my beautiful, my beautiful …

February 27, 2017 

Major indexes notched another record as equities ground higher despite hitting some turbulence on Friday. For the week, the DJIA closed higher by 0.99% notching its 11th straight closing high … the longest such streak since in 1987. The broader-based S&P 500 closed at 2367, posting a weekly gain of 0.73%. Smaller US companies didn’t fare as well with the Russell 2000 edging lower by 0.36%. International equities were mixed with developed international down 0.13% and emerging markets finishing higher by 0.51%. Treasury yields moved lower across the board with the 10Yr US Treasury closing at a yield of 2.31%.

Investors have bought into the Trump administration’s promises of lower regulations (especially for banks), tax reform and infrastructure spending. Additionally, fourth-quarter company earnings are winding down and most have been better-than-expected. Earnings growth is 5.2% year over year; 66% of companies have beat expectations, 22% missing the mark, and 12% reporting in-line. Valuations are stretched with the S&P 500 selling above 25x trailing 12mth earnings which is close to twice its median level.

Housing continues to chug along as existing home sales were up to 5.69 million units in January, marking the highest level since February 2007. Inventory has not been able to keep up with demand sending prices higher even as mortgage rates have surged in the past 6 months … underpinning this is the Fed’s desire to increase its benchmark Federal Funds rate. On Wednesday, the Federal Reserve released its minutes from January’s meeting noting that they could raise rates “fairly soon” while also mentioning that potential spending and reduced taxation proposed by the Trump administration could force the FOMC to act more aggressively to combat inflation. Federal Funds futures contracts are pricing in about a 22% probability of a hike at March’s meeting.

This week, look for reports on durable goods and light vehicle sales, consumer confidence, Markit US Manufacturing PMI, ISM Services index, and the 2nd estimate of fourth-quarter 2016 GDP. The talk of the town will be on Tuesday; Trump is scheduled to address Congress for the first time and will likely highlight his tax plan and repealing of the ACA. Enjoy the week!

“A good hand and a good heart are always a formidable combination.” – Nelson Mandela

Onward and Upward

February 23, 2017 

The markets continue to climb a wall of worry, with the S&P up 1.5% last week and 5% YTD. Fed Chair Janet Yellen testified before Congress midweek, and it is now clear that interest rates will likely be rising this year by 50-75 basis points. The markets are handling this prospect well, no doubt assuming that economic growth will be increasing simultaneously.

The new administration has promised less regulation [Dodd-Frank, ACA {repeal and replace?}, EPA, etc.], marginal tax cuts and reinvigorated domestic manufacturing [bully pulpit and protectionism?]. Some of these promises are starting to come into focus, and so far they are mostly on the positive side of the register. Markets appear to be pricing in a lot of economic progress … lets hope Congress cooperates.

The Telecommunications Industry’s so-called “Net Neutrality” burden, for example, is sure to be repealed. Ajit Pai as the new FCC chairman will reverse the classification of internet-service providers as common carriers [the anachronistic 20th century telephone regulatory scheme that stifled innovation for so many years]. This will, among other things, restore incentives for the ISPs [current and prospective] to maintain and upgrade internet infrastructure [wired and wireless].

The week ahead continues with earnings reports … so far so good. Bottom-line: the economy is improving and stocks are moving higher despite some lofty valuations.

“You must be the change you wish to see in the world” – Mahatma Gandhi

Earnings Boost

February 14, 2017 

Equities continued to rally on the strength of corporate earnings and the prospect of tax cuts to be proposed shortly by President Trump. So far, 360 companies in the S&P 500 having reported fourth quarter earnings which are set to rise 5% from the year-earlier period, according to FactSet. Expectations had been for earnings to increase 3.2%. For the week, the DJIA was up 1.13%, the S&P 500 rose 0.87% and the NASDAQ 1.24%. International stocks were mixed the EAFE index was down slightly (-0.02%) but emerging markets continued their strong performance by advancing 1.25% and are the best performing equity group up 7.93% YTD. Fixed income also was positive as the yield on the 10 year US Treasury fell from 2.49% to 2.41%.

This week, look for reports on inflation, retail sales and housing starts but the big news this week may come as Fed Chairwoman Janet Yellen testifies before Congress on Tuesday and Wednesday. Investors will be looking for hints as to when the FOMC will raise rates.

“If you fell down yesterday, stand up today.”  –  H.G. Wells

How Sweet It Is

February 7, 2017 

Markets closed the week roughly flat as a flurry of earnings, political hoopla, and macro-economic data gave investors much to ponder. While earnings have been mostly positive, the new administration’s unconventional approach and geopolitical events are certainly in the background. Last week’s economic reports included: Pending home sales rose 1.6% for December beating estimates of 1.1%; ISM Manufacturing Indexes came in at a reading of 56.0 in January; The Federal Reserve left the Federal Funds rate unchanged at a range of 0.5% to 0.75%; The U.S. economy added 227,000 jobs in January which beat expectations of 175,000 while the unemployment rate came in at 4.8%.

A Friday rally couldn’t save the DJIA from closing the week in the red (-0.09%) while the broader-based S&P 500 closed up a meager 0.16%. The Russell 2000 closed the week up 0.54% while international equities also moved higher. For the week, the MSCI EAFE closed up 0.04% while the MSCI EM finished up 0.33%. Treasury yields were volatile in reaction to the Fed statement and last week’s job report but ultimately finished the week roughly where they started with the 10yr Treasury closing the week at a yield of 2.49%.

For the week ahead, look for reports on Trade Balance on Tuesday, Job openings on Thursday, and a reading on Consumer sentiment on Friday. 101 companies that make up the S&P 500 will report earnings this week.


“… a lot has transpired over the last two years … and I don’t think that needs any explanation. But I want to say to our fans, to our brilliant coaching staff, our amazing players who were so spectacular: this is unequivocally the sweetest!” – Robert Kraft