Archive for ND&S Updates
Fed Raises Rates
March 20, 2017
Both equity and fixed income markets advanced last week. International equity markets were the best performers with the EAFE index up 2.1% and emerging markets advancing 4.3%. In the U.S., the S&P 500, the DJIA and the NASDAQ were up 0.29%, .01% and 0.7%, respectively. Growth stocks continued to slightly outperform value for the week. Year-to-date large cap growth stocks are up 9.1% vs. value up only 4.3%. Fixed income markets also finished the week higher as the yield on the 10 year U.S. Treasury Note dropped from 2.58% to 2.50%.
As expected, the FOMC raised its target for short term interest rates by .25% last week. Indications from the Fed, however, were less enthusiastic regarding the economy than the financial markets have been. The Fed continues to expect “gradual” rate hike movement through the end of the year with two more rate hikes expected. Their median forecast for economic growth this year is 2.1% – unchanged from December. As a result, interest sensitive stocks were the best performers in the S&P 500 last week with real estate stocks up 1.9% and utilities and telecom up 1.3%.
This is a light week for economic news with reports on housing and durable goods expected. Welcome to Spring!
“Spring is nature’s way of saying: Let’s Party!” – Robin Williams
March Madness is Here!
March 13, 2017
So March Madness is finally here … basketball, crazy weather, Fed meeting, daylight savings time, political intrigue, daily tweets … you name it; March promises to be full of surprises. Markets, however, have been generally behaving themselves, at least so far.
Last week saw a number of positive economic releases. On Monday, the Commerce Department reported that new orders for manufactured goods increased 1.2% in January (ahead of expectations for a 1% increase). On Friday, the Labor Department reported a 235,000 increase in jobs in the month of February while consensus was an increase of 200,000 jobs. Average hourly earnings rose 2.8% year-over-year … a sign that the labor market is beginning to tighten. Unemployment dipped in February to 4.7%.
For the week, the DJIA and the S&P 500 each finished lower by 0.40%. Developed international markets were stronger as the EAFE Index advanced 0.42% for the week while emerging markets gave back 0.50%. Fixed income, represented by the Bloomberg/Barclays Aggregate, finished the week down 0.56%. As a result, the 10 YR US Treasury closed at a yield of 2.58% (up 9 bps from the previous week’s closing yield of 2.49%). Gold dropped $24.80 to close at $1,200.70/oz. Oil prices were also lower (down $4.84) on the week to close at $48.49/bbl.
Expect a fairly volatile week ahead as recent hawkish comments from various Fed officials point to a rate hike this week (the Fed will make an announcement on Wednesday). Figuring out where the market finishes this week is like picking the right bracket for March Madness … nearly impossible.
As always, we plan to look through the day-to-day news and focus on longer-term objectives.
“Don’t let making a living prevent you from making a life.” – John Wooden
The Momentum Continues
March 6, 2017
The positive momentum continued in major indexes last week. Wednesday’s rally saw major indexes cross some psychological barriers with the DJIA closing above 21,000 and the S&P500 brushing 2,400 intra-day … these barriers are meaningless in the long-run but gives talking-heads something to get excited about. The advance was in response to our Commander In Chief striking a “presidential” tone in his address to Congress on Tuesday night as well as several Federal Reserve officials speaking last week and giving a positive outlook for the economy.
The DJIA closed the week at 21,006 for a weekly gain of 0.94%. The broader-based S&P 500 finished up 0.71% while smaller US companies representing the Russell 2000 closed the week flat. International equities were mixed as the MSCI EAFE was up 0.47% while the MSCI EM moved lower by 1.28%. Bonds were extremely volatile as prices sold off as expectations of a March rate hike increased. The yield of the 10yr Treasury closed at 2.49% which is up from 2.31% the week prior.
Markets were pricing in a 27% probability of a hike in the federal funds rate at March’s FOMC meeting as recently as Feb 24th. The week began with roughly a 50% probability of a hike while ending the week almost a near certainty. Fed Chair Janet Yellen, Vice Chair Stanley Fischer and New York president William Dudley seem to be in agreement as their comments were consistent and the case for raising rates is “a lot more compelling”.
The VIX remains surprisingly subdued (11.50) as investors seem to be getting more complacent. Experience shows us that volatility can spike without notice or warning. As always, we recommend investors stick diligently to their strategic allocations and resist the temptation to market time.
“Plans are nothing; planning is everything.” – Dwight D. Eisenhower
The “Belthway Swamp” Wins a Round
March 28, 2017
Concern over the Trump economic agenda pressured stocks last week, with the S&P 500 declining by 1.4%, the largest weekly decline since the election. The Russell 2000 also fell by -2.6%, thus turning negative for the year by -0.1% [note that the 500 is still up 4.7% YTD].
The prospects for the “Ryan health care” bill [to replace the ACA] dimmed as the week went on, finally getting cancelled [postponed?] Friday afternoon. The markets’ responses included weaker economic growth assumptions, lower interest rates and a flatter yield curve. Equity markets cut prices in every sector except utilities [+1.3%] and Real Estate [+0.8%], with the Financials dropping by -3.8% [see nearby bar chart].
Finally, it is important to note that asset allocation portfolios, in spite of their many benefits [reduced volatility, lower risk, often higher income] will under-perform the S&P 500 from time to time. This has been the case lately. According to JP Morgan, an asset-allocation portfolio has under-performed the 500 by an annualized 8.8% over the last 5 years [ending 2/28/17]. However, using history as our guide, such under-performance will be followed by out-performance [by ~4.4%] over subsequent 5-year periods.
Source: Barclays, Bloomberg, MSCI, NAREIT, Russell, Standard and Poor’s, FactSet, J.P. Morgan Asset Mgt. (link)
“Good habits are the basic tools that will determine whether you are a tortoise or hare in life!” ― Lucas Remmerswaal