Archive for ND&S Updates

The Great Unwind

September 25, 2017 

Equity markets finished modestly higher last week, as the FOMC reaffirmed it will begin the process of reducing its oversized $4.5 trillion balance sheet (see chart below). For the week, the DJIA closed higher by 0.36% while the broader-based S&P 500 increased 0.09%. The market’s advance broadened out a bit as evidenced by the Nasdaq finishing the week down 0.33%, while smaller US companies represented by the Russell 2000 increased 1.35%. Developed international equities closed the week higher by 0.70% while emerging market equities were flat. Treasury yields moved higher across the board with the 10yr Treasury closing the week at a yield of 2.26%. Oil (WTI) closed above $50.00/barrel.

The Federal Reserve’s decision following last week’s two-day meeting was widely anticipated. It will begin by rolling off $10 billion every month and will increase the cap by $10 billion a quarter until the total reaches $50b a month. The committee continues to expect more rate hikes with one later this year (Dec?) and three more in 2018. The Fed also shaved 20bps off its long-run rate projection of 3.0%. The committee cited continuing strength in the labor markets and moderate growth as deciding factors to embark on its “balance sheet normalization program”.

Fed bal

“Quick decisions are unsafe decisions” – Sophocles

Onward and Upward

September 19, 2017 

The stock market registered another solid advance last week, with the S&P up 1.6% [+11.7% YTD] and the Nasdaq up 1.4% [+19.8% YTD]. This was in response to Irma’s less-than-expected damage estimates and in spite of Friday’s latest North Korea missile launch [the chances of a “kinetic response” are increasing!]. After hitting a 10-month low last week, the 10 year treasury yield rose to 2.2%.

Total August CPI increased 0.4% [consensus 0.3%], while core CPI rose 0.2% as expected.

Inflation 9.19.17

This raised the market’s expectations of a Dec FF rate increase to 58%, up from a previous 31%. The Fed will consider inflation and its outsized balance sheet [the Great Unwinding] during this week’s Tuesday-Wednesday FOMC meeting.

Finally, the Equifax hack [announced 9/7/17] has potentially exposed 143 million people to financial information theft over the summer. The federal investigation is still underway, but exposed individuals should take immediate action. Freeze your credit at each of the three credit bureaus. Begin monitoring your credit reports [experts suggest setting up a staggered report-request pattern so that every four months one of the three bureaus would provide a {free} credit report]. Consumer Reports offers additional suggestions for even better protection.

“A stitch in time saves nine”Francis Baily

ND&S Weekly Commentary (9/11/17)

September 12, 2017 

Last week, U.S. equity markets declined driven by concerns over severe weather and continuing tensions with North Korea. For the week, the S&P 500, the DJIA and the Nasdaq declined -0.58, -0.82 and -1.16% respectively. Shares of financial companies had their worst week in months as banks and insurance stocks were hit over concerns for lower interest rates and hurricanes damage. The financial sector declined 2.8% for the week. The best performing sectors were health care and energy.

International stocks and fixed income provided positive returns for the week as the EAFE index was up 0.83% boosted by the ECB’s upgrade to its forecast for Eurozone growth and emerging markets advanced .04%.

The rush into safe haven U.S. government bonds drove the yield on the 10 year U.S. Treasury Note down to 2.06% (it was 2.45% at the start of the year) and the U.S. Aggregate index was up 0.46% for the week. This week look for economic reports on retail sales, industrial production and inflation (with reports on CPI and PPI).

“One cannot and must not try to erase the past merely because it does not fit the present.” – Golda Meir


Weekly Commentary (09/05/17) – No Summer of Discontent

September 5, 2017 

Summer is over and the markets forgot to sell off. Positive economic news and market momentum have trumped investors’ concerns about geopolitical risks … at least for the moment.

For the week, the DJIA rose 0.88% while the S&P 500 finished higher by 1.43%. Developed international markets finished the week ahead by 0.57% while their year-to-date performance remains stellar as the MSCI EAFE index is up a healthy 18%. Emerging markets continued their advance as the MSCI EM index finished higher by 0.65% for the week. Fixed income, represented by the Bloomberg/Barclays Aggregate, finished the week barely up by 0.07% as bonds yields were relatively flat for the week. As a result, the 10 YR US Treasury closed at a yield of 2.16% (down 1 bp from the previous week’s closing yield of 2.17%). Gold rose $33.88 to close at $1,325/oz on increased fears due to more North Korea missile testing . Oil prices were essentially flat as they closed the week at $47.29/bbl. Cheap oil prices continue to be a boon to businesses and consumers.

In economic news released last week, nonfarm payrolls disappointed (as they normally do in August) as they rose 156,000 … missing estimates of 180,000; US second quarter GDP was revised higher to 3% from an earlier estimate of 2.6%; and ISM manufacturing rose to 58.8% from 56.3%. Despite a somewhat-expected soft nonfarm payrolls report, most economic news was encouraging and continues to point to a gradually improving economic backdrop.

The week ahead looks to be pretty quiet on the economic front as jobless claims, international trade balance numbers and non-manufacturing PMIs are set to be released.

The week ahead on the geopolitical front remains another story. North Korea will, no doubt, dominate headline news as their missile testing and firing continues. Markets will most likely experience increased volatility this week as a result of North Korea’s saber rattling. The S&P 500 has gone 10 months without a correction of at least 3% (the third longest streak since WWII), and we would not be surprised if the markets pullback. Nonetheless, the positive economic backdrop will likely limit any market pullbacks.

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!

“Opportunity is missed by most people because it is dressed in overalls and looks like work.”Thomas A. Edison