Archive for ND&S Updates
Whole Foods
June 19, 2017
The S&P 500 rose 0.1% last week, as markets struggled with the latest Fed interest rate increase. The NASDAQ fell 0.9% as large tech stocks resumed their slide with the exception of Amazon, which spiked on news that they are pursuing a takeover of Whole Foods Market. International equity markets were also sluggish as the MSCI EAFE index was virtually flat while the Emerging Market Index declined 1.4%. Treasury yields trended lower in spite of the Fed Hike with the 10 Year Treasury closing at a yield of 2.16%. Oil closed the week below $45 a barrel as the price fell for the fourth straight week.
In economic news, US retail sales in May experienced their largest decline in sixteen months. New home construction weakened for a third straight month and consumer confidence also was down the most since October. The big news item was the Fed’s decision to increase the federal funds rate by a quarter of one percent. In addition, they announced their intentions of a “taper-up” strategy to reduce their holdings of treasuries and mortgage backed securities, which was not unexpected. We are concerned, however, about the growth of the US economy. For instance, the nation’s gross domestic product grew a meager 1.2% annual rate in the first quarter. Job growth, the last three months, averaged only 121,000 jobs a month, much less than economists’ benchmark of 150,000 new jobs each month.
Grocery store shares, including Walmart, were hurt last week after Amazon announced on Friday it will acquire Whole Foods for $13.7 billion. It’s amazing that Amazon began as an on-line bookstore. The brick and mortar retail store cliff continues!
With the Fed decision behind us, summertime should settle the markets down and, hopefully, Washington’s turmoil as well.
“If you want to cook dinner, at least they ought to let you shop for the groceries.”
-Bill Parcells
ND&S Weekly Recap: Not Your Average Thursday
June 12, 2017
With financial journalists doing their best to hype whatever news they can, “Super Thursday” came and went with markets taking it in stride. The day started with ECB President Mario Draghi’s press conference, and as expected, no changes were made from current policy as he foresees interest rates “remaining at present levels for an extended time”. He did drop a reference to future rate cuts for the region. At 10am, an estimated 19.5 million viewers (not including viewing parties at bars, restaurants, and coffee shops or through online streaming) from around the US tuned into the highly anticipated testimony from former FBI Director James Comey. Comey spent 3 hours on the stand fielding questions before the Senate Intelligent Committee on the FBI investigation into former National Security Advisor Michael Flynn, as well as details into his relationship with President Trump and former Presidents. Rounding out Thursday, the big surprise came from the British election as the Conservative Party lead by Prime Minister Theresa May, failed in their attempt to obtain a majority in the House of Commons. The lack of a majority could complicate a BREXIT negotiation.
For the week, the S&P 500 closed down 0.27% while the DJIA increased by 0.33%. The Russell 2000 had a nice week as financials, which encompass a big percentage of the index, finished the week up 1.18%. International markets were volatile last week with all of the geopolitical news. The MSCI EAFE closed down by 1.16% while emerging markets closed the week higher by 0.36%. Rates moved higher across the board in anticipation of a rate hike from this week’s FOMC Meeting. The 10yr Treasury closed at a yield of 2.21%.
There is plenty on the economic calendar this week. There will be reports on Producer Price Index (PPI), Consumer Price Index (CPI), retail sales, and housing starts. The biggest news for the week will likely come from the Fed, as the FOMC gathers for their June meeting. Investors are pricing in a 98% probability of a rate hike, which will be their 4th hike since beginning in December 2016. Following the meeting which concludes Wednesday, much of the focus will be on their economic outlook moving forward and clues to monetary policy for the remainder of the year.
“A man should always consider how much he has more than he wants.” – Joseph Addison
Unemployment Rate Hits 16-Year Low
June 5, 2017
Global Equities continued their advance last week …. The DJIA increased 0.69% while the broader-based S&P 500 increased by 1.01%. Smaller US companies representing the Russel 2000 had a good week closing higher by 1.71% as the advance in US Equities broadened out. International equities were mixed as the MSCI EAFE closed higher by 1.74% while the MSCI EM finished down 0.12%. Yields moved lower across the board on a weaker-than-expected employment report. The 10Yr Treasury closed at a yield of 2.15% which is down from 2.25% the prior week. Oil was under pressure again as WTI Crude closed at $47.35 a barrel (down from $48.95 a week ago). Volatility, as measured by the VIX, remained low closing the week at 9.9.
The May Jobs report saw the economy add 138,000 new jobs, missing estimates of 184,000. In addition to the weak report for May, March and April data were revised lower. The unemployment rate dipped again to 4.3% and is now at its lowest level since March 2001. Although the employment data came in weaker than expected, the numbers should be strong enough for the Fed to raise rates at their upcoming June meeting. Additional economic reports last week included: personal income up 0.4% m/m, beating expectations; PCE Index increased 0.2% in April and is up 1.5%, slightly below the Fed’s target of 2.0% where it has generally run during the current expansion; ISM Manufacturing PMI rose to 54.9 beating estimates which called for a decline.
Geopolitics returns to the forefront this week as we anticipate some volatility around the UK terrorist attack and the upcoming election which will be held Thursday. Opinion polls have been all over the place showing Conservatives with a slight lead over the Labour Party. Also Thursday, the European Central Bank will discuss their monetary policy with rates likely to stay the same. Let’s Make It A Good Week!
“Success is getting what you want. Happiness is wanting what you get.” – Dale Carnegie
Stay the Course
June 26, 2017
For the week, both the DJIA and the S&P 500 finished slightly higher – the DJIA inched higher by 0.05% while the S&P 500 advanced 0.22%. Developed international markets finished down by just 0.17%. Emerging markets continued their strong advance as the MSCI EM index finished higher by 0.99% for the week. Fixed income, represented by the Bloomberg/Barclays Aggregate, finished the week ahead by 0.17% as bonds yields moved lower amid muted inflation expectations. As a result, the 10 YR US Treasury closed at a yield of 2.15% (down 1 bp from the previous week’s closing yield of 2.16%). Gold rose $2.20 to close at $1,256.20/oz. Oil prices dropped (down up $1.96) on the week to close at $43.01/bbl on increased supply and tepid demand. Oil prices are officially in bear market territory as prices have fallen greater than 25% from this year’s $58.30 high reached on the first trading day of the year. Cheap oil prices are a boon to businesses and consumers. Cheaper oil prices and tame inflation could temper the Fed’s enthusiasm for raising rates later this year … we’ll see.
In economic news released last week, existing and new homes sales both exceeded expectations. The current low unemployment rate along with low interest rates is supportive of a healthy housing market. Supply continues to be somewhat constrained with just 4.2 months of inventory at today’s sales pace.
The week ahead looks to be pretty quiet. Economic news this week includes durable goods orders, June consumer confidence, personal income data, and the final tally of first quarter GDP.
As always, we plan to look through the day-to-day news and focus on longer-term objectives. Investors should stay the course and stick close to their long-term asset allocation targets.
Let’s make it a good week and enjoy the summer!
“The individual investor should act consistently as an investor and not as a speculator” – Ben Graham