Archive for ND&S Updates

Will the Fed Raise Rates?

May 30, 2017 

Equities advanced across the board last week, with the S&P 500, the DJIA and the NASDAQ up 1.5%, 1.4% and 2.1% respectively. Developed international stocks were up by a modest 0.22%, with emerging market equities producing the best results having advanced 2.2%. Growth stocks continued to outperform value stocks last week with the Russell 1000 Growth up 1.9% vs. only 0.9% for value. The best performing industry group was utilities up 2.6% as inflation expectations moderated. The worst performing sector was energy, as oil prices declined 1.7% for the week. Investors were disappointed that OPEC did not take more aggressive measures to cut production.

In economic news the second revision to U.S. 1st quarter GDP growth was reported as 1.2% vs an initial reading of 0.7%. Most economists expect growth to improve in the second and third quarters. This Friday’s employment report is estimated to show 185,000 new jobs. The report could have an influence on whether or not the FOMC raises rates at their meeting in June … the Fed has indicated two additional hikes in 2017 so June seems likely at this point baring an unforeseen jobs report.

Despite stronger than anticipated Q1 reported earnings, investors are concerned with US equity valuations. At the end of 2011, the S&P 500 traded at 13x trailing 12 month earnings. The S&P 500 is currently trading at 24x trailing 12 month earnings. We remain cautiously optimistic and suggest investors stay globally diversified with interest rate sensitivity in mind.

“The patriot’s blood is the seed of Freedom’s tree.” – Thomas Campbell

Volatility Returns – Weekly Commentary 5.22.17

May 22, 2017 

Stocks lost ground last week following the appointment of a special counsel to probe potential Russian interference with the presidential campaign and the Trump administration (among other things). News released on Tuesday evening that President Trump allegedly asked former FBI Director James Comey to drop the investigation of former national security advisor Michael Flynn led to a market sell-off on Wednesday. Markets rebounded at the end of the week as investors focused on an economy that is generally improving and in decent shape.

For the week, both the DJIA and the S&P 500 finished lower by 0.32%. Developed international markets bucked the trend and finished higher by 1.02% for the week. Emerging markets gave back 0.63% for the week on increased nervousness surrounding government corruption charges in Brazil. Fixed income, represented by the Bloomberg/Barclays Aggregate, finished the week ahead by 0.48% following a flight-to-safety into U.S. treasuries. As a result, the 10 YR US Treasury closed at a yield of 2.23% (down 10 bps from the previous week’s closing yield of 2.33%). Gold jumped $26.50 to close at $1,252.70/oz. Oil prices ticked higher (up $2.49) on the week to close at $50.33/bbl on increased speculation that recent OPEC production cuts would be extended.

In economic news released last week, April housing starts were a bit soft while industrial production was better than expected. Initial jobless claims reported last week were slightly higher than expected, but unemployment remained at a low 4.4%. The Conference Board US Leading Index rose 0.3%, slightly below consensus.

S&P 500 earnings look to have grown by 13.9% in the first quarter as 73.3% of companies reporting beat expectations. Revenue growth in the first quarter appears to be up 7.4%, ahead of expectations for a 7.13% increase. So far, so good …

As always, we plan to look through the day-to-day news and focus on longer-term objectives.

Let’s make it a good week! 

“Give light and people will find the way.”   –   Ella Baker

The Resilient Investor

May 15, 2017 

Last week, the CBOE Volatility Index (VIX), Wall Street’s fear gauge reached a 24 year low, indicating little investor concern for market volatility in near-term. Money flows into equities have continued as complacency has seemed to set in. The S&P 500 closed the week  -0.3%, the DJIA -0.5% and the NASDAQ up 0.3%. International developed equities rose 0.3% while emerging market equities continues to outperform, up 2.5% and now 16.8% year-to-date.

Confidence in Trump’s economic policies continues for deregulation, tax reform, repatriation of corporate profits held overseas and infrastructure spending. The market digested the hyped political news of Trump’s firing of FBI Director James Comey.  The election of Emmanuel Macron as France’s President, a strong supporter of the EU, removed some geopolitical uncertainty.

First quarter’s strong corporate earnings and revenue growth have been much better than expected. S&P 500 companies are estimated to increase earnings 14.7% and revenues 8% versus last year’s first quarter according to The US economy has its ups and downs … capital spending is on the rise, banks are preparing to lend and employment is very strong … on the other hand, auto sales are weakening, 1st quarter GDP was dismal and legislation changes are in a ping pong match.

We expect continued economic growth especially in Europe and feel that the corporate earnings recession is over.

“When you can’t make them see the light, make them feel the heat.” – Ronald Reagan

ND&S Weekly Commentary – 5/8/17

May 8, 2017 

Global equities continued their upward trend last week surviving another week of earnings, slumping commodity prices, and geopolitical concerns. For the week, the DJIA closed higher by 0.33% while the broader-based S&P500 finished up 0.66% notching a new closing high. International equities closed the week higher despite the French Election overhang with both the MSCI EAFE and MSCI EM up 1.86% and 0.08% respectively. Yields moved higher across the board as the Fed’s current policy of “gradual rate hikes” remains in place at the conclusion of last week’s FOMC meeting. The yield on the 10yr Treasury closed the week at 2.36% … up from 2.29% the week prior. Oil was under pressure last week dipping to new lows for the year on oversupply concerns. This may prove worrisome down the road with West Texas Intermediate crude closing the week at $45.50/barrel.

First quarter earnings are in full swing and have been relatively positive compared to estimates. With roughly 70% of S&P 500 constituents having reported earnings, earnings are expected to increase by 14.2% y/y while revenues are expected to increase 7.2%. Forty-one companies in the S&P 500 will report this week with health care and consumer discretionary stocks coming under the lens.

Geopolitical risk should take a breather as French voters have spoken with the election of Emmanuel Macron in Sunday’s runoff. The election was seen as a vote for France’s future as a European Union member.

Economic reports this week include retail sales, import prices, CPI, PPI, and consumer sentiment. Enjoy The Week

“Hope is independent of the apparatus of logic.” – Norman Cousins


France Reduces Euro Uncertainty

May 1, 2017 

Equity markets responded euphorically last week to the Sunday French election, which chose Emmanuel Macron as the leading, EU-defending candidate. The May 7th run-off will feature Macron against Marine Le Pen, the EU-skeptical populist.  Positive earnings reports from the likes of DD, CAT and MCD added to the euphoria on Tuesday, enabling the S&P to end the week with a 1.5% advance. This occurred in spite of midweek emergence of possible DC tax-cut gridlock and international tension from North Korea. The Nasdaq registered an even better 1.9% increase.

Rising equity markets [up 11.6% since 11/08] has resulted in higher valuations. The S&P’s forward PE ratio has risen from 16.4x to 18.1x over the same time period. This is very close to a 13 year high. Robert Shiller’s CAPE ratio suggests that the market “hasn’t been this overvalued except for a couple times in history—around 1929, around 2000″:

Cape 5.1

However, Jeremy Siegel is still bullish, citing low interest rates, the anomalous lack of any profits during the second half of 2008 thru March of 2009, and the increasingly conservative GAAP earnings. Moreover, he points out that returns available elsewhere in the asset markets should also be taken into consideration.

These Bull and Bear debates rarely have a clear-cut “winner”. However both agree that although valuation is a poor tool for trying to determine market turning points, it may offer rebalancing opportunities.

“Any man who is bearish on the United States will go broke” – J P Morgan