Archive for ND&S Updates

New Fed Chair Likely

October 30, 2017 

Large Cap US equities continued their advance last week on the heels of better-than-expected company earnings and a positive GDP reading. With a little less than half of the S&P500 constituents having reported, the blended estimate of aggregate y/y earnings growth is 5.3%. The revenue projection for the quarter is 4.8%. The US economy grew at a faster-than-forecast pace of 3.0% in the third quarter, easily beating economists’ estimates of 2.5%. Hurricanes Harvey and Irma were expected to have a negative impact of growth.

For the week, the DJIA increased 0.45% while the broader-based S&P 500 climbed 0.23%. Growth oriented equities provided the boost as a number of mega-cap technology stocks reported strong earnings including AMZN, GOOG, and MFST. Small Cap US companies representing the Russel 2000 finished the week slightly down. International equities also finished the week in the red with the MSCI EAFE 0.34% lower and emerging markets down 0.84%. Yields again pushed higher with the 10YR Treasury closing at a yield of 2.42% … which is up from 2.38% the week prior. Yields should remain volatile as the nomination of the next Fed chair is expected any day.

As mentioned above, the nomination of the next Fed chair (and possibly vice chair as well) is expected any day. The nomination appears to be down to four candidates (there are some reports than current chair Janet Yellen is no longer in the running). Stanford University economist John Taylor and Former Governor and Hoover Institute Fellow Kevin Warsh are perceived to be on the more hawkish end of the spectrum and their nomination could pressure rates in the short-term; while Fed Governor Jerome Powell and current chair Janet Yellen are seen as more dovish and a continuation of current policy. None of the candidates to this point are likely to make a knee-jerk direction change to current policy but their perceived biases could increase market volatility in the short-term.

“Out of difficulties grow miracles.”Jean de la Bruyere

ND&S Weekly Commentary (10/23/2017) – Chaos, Calm & The Markets …

October 23, 2017 

It is said that markets climb a wall of worry. Hurricanes, floods, fires, mass shootings and threat of nuclear war haven’t deterred investors from pushing market averages higher. As Alfred E. Neuman would say, “What, me worry?

For the week, the DJIA rose 2.04% while the S&P 500 finished higher by 0.88%. Developed international markets finished the week a bit lower as the MSCI EAFE index closed down 0.31%. Emerging markets lost ground as well with the MSCI EM index finishing lower by 0.54% for the week. Fixed income, represented by the Bloomberg/Barclays Aggregate, finished the week in the negative territory (down 0.45%). As a result, the 10 YR US Treasury closed at a yield of 2.39% (up 11 bp from the previous week’s closing yield of 2.28%). Gold declined $24.10 to close at $1,277/oz. Oil prices were essentially flat as they closed the week at $51.47/bbl. Cheap oil prices continue to be a boon to businesses and consumers.

Markets got a boost last week as the Senate passed a $4 trillion budget resolution that increased the odds of tax reform (eventually …). In economic news released last week, the US Empire State Manufacturing Survey jumped to 30.2 – easily beating consensus of 20.4 and finishing at its highest level since 2014. US initial jobless claims were also better-than-expected.

The week ahead will see more earnings reports with Alphabet, Microsoft, Amazon, Exxon and others reporting. Third quarter earnings have been largely ahead of expectations so far. Several economic reports are due out this week – flash PMI composite, durable goods orders, new home sales, international trade and the first estimate of 3rd quarter GDP. Meanwhile, saber rattling out of North Korea has been fairly quiet lately … let’s hope it stays that way!

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!

“There is nothing permanent except change.” – Heraclitus


Markets Continue to Advance

October 16, 2017 

Last week, equity markets advanced against a backdrop of improving global growth and expectations for improving corporate earnings. The S&P 500, DJIA and the NASDAQ were up 0.17%, 0.43% and 0.24% respectively. International equities advanced the most for the week with the MSCI EAFE up 1.63% while emerging markets up 2.08%. Financial stocks declined last week 0.9% despite of earnings reports that mostly exceeded expectations but are still being pressured by lower interest rates. Health care stocks also declined 0.6% for the week as the Trump administration ended payments to insurers under the Affordable Care Act.

On the fixed income front, U.S. bond prices rose and the yield on the 10 year U.S. Treasury Note dropped from 2.37% to 2.28% for the week largely because of a lower-than-expected core CPI reading … it was unchanged at 1.7% y/y. Still, most economists expect the FOMC to increase short term-rates at the December meeting. Futures markets are pricing an 85% probability for an increase in December.

This week look for a continuing flood of corporate earnings with 59 companies in the S&P500 reporting. In addition, there will be reports on industrial production, housing starts and existing home sales.

“Greatness is a road leading towards the unknown.”Charles de Gaulle


ND&S Weekly Market Commentary 10.09.17

October 9, 2017 

Markets extended their gains last week notching a series of new records for the headline indices before retreating on Friday. Solid economic data along with hopes of a tax reform package provided equities a boost and pressured bonds further.

For the week, the DJIA moved higher by 1.70% while the broader-based S&P 500 finished up 1.25%. Smaller US companies representing the Russell 2000 were also positive for the week as it gained 1.32%. International equities were mixed with the MSCI EAFE down .06% and MSCI EM up 2.00% for the week. Bond prices were again under pressure as yields moved higher last week. The 10yr US Treasury closed the week at 2.37% which is up from 2.06% one month ago. WTI slipped last week to $49.50/barrel.

Economic data for the week was generally positive. On Monday, the ISM reported the manufacturing index continued to expand with a reading of 60.8 handily beating expectations. This marks the fastest rate of growth for American manufacturers since 2004. The nonmanufacturing reading came in at a healthy 59.8, a reading not seen since 2005. On Wednesday, we saw a better-than-expected payrolls number showing an increase in 135,000 jobs beating expectations. On Thursday, the Commerce Department reported a 1.2% m/m increase in August factory orders which was ahead of estimates (durable and non-durable goods). Finally on Friday, the Labor Department reported the economy lost 33,000 jobs in September, missing expectations of an 80k increase. The negative report was largely shrugged off by the markets as most economists viewed it as a bad reading due to the devastation caused by hurricanes Harvey and Irma. We believe the reading is not a reflection of the overall long-term trend in employment.

Earnings season will kick into gear this week with most reports coming from the financial sector. In total, 10 S&P 500 companies will be reporting which include BAC, WFC, and JPM. In addition to earnings, we will have the release of FOMC minutes and reports on inflation, consumer sentiment, and retail sales.

“Following the light of the sun, we left the Old World.” – Christopher Columbus

The Long Awaited Tax Plan

October 2, 2017 

Last week, Wall Street celebrated the Trump administration’s tax plan with the prospects for lower corporate taxes and less tax on repatriating profits back to the US. Major indices closed the week at new all time highs: the DJIA gained 0.2%, the S&P 500 was up 0.7% and the NASDAQ advanced 1.1% for the week. The recent increase in the dollar sent the MSCI EAFE index down 0.3%. However, small US stocks cheered the dollar rally, with the Russell 2000 index gaining 2.8% for the week — a record high.

The month of September historically has been the worst month of the year for the stock market, yet the DJIA was up 2.1%, the S&P 1.9% and the NASDAQ 1%. For the third quarter, the NASDAQ rose 5.8%, with its fifth straight positive quarter, the DJIA surged 4.8% while the S&P gained 4%.

The Feds hawkish comments and better-than-expected GDP numbers caused Treasury yields to continue to rise with the 10yr US Treasury settling at 2.34%.

US crude oil prices rose 2% to $51.67 a barrel which is a five month high as oil stocks responded nicely to the news. New home sales fell to an eight month low in August and pending home sales came in at close to its two year low. Without question, the devastation of the hurricanes is affecting our economic outlook.

This week the Institute for Supply Management index (PMI) will be reported on Monday, vehicle sales will come Tuesday and on Friday, the labor Department will announce its September employment report.

We are pleased and yet concerned about the second longest “Bull Market” in history. The forward price to earnings (P/E) ratio for the S&P 500 is 19 times with earning estimates of $131.38, while historically the long-term average P/E ratio is closer to 15 times. In addition, a marginal decline of non-financial companies buying back their own stock could raise some alarm. These larger US companies are in pretty solid financial shape with $2.3 trillion in liquidity. We hope more will begin to spend on infrastructure expansion and accretive mergers and acquisitions.

“Love is the most important thing in the world, but baseball is pretty good, too.” –Yogi Berra