Archive for ND&S Updates
Earnings Season Begins
January 24, 2018
Equity markets pushed higher last week in the face of a US government shutdown which stretched through the weekend. Fourth-quarter earnings began to pick up and so far have been mostly positive versus expectations. Expectations are for earnings to increase 12% against the same quarter a year ago while revenues are expected to increase 7%.
For the week, the S&P 500 climbed 0.88% while the DJIA closed higher by 1.08%. The Russell 2000 representing US small companies inched higher by 0.36%. International equities continued their advance with the MSCI EAFE and MSCI EM rising 1.25% and 2.02%, respectively. Yields moved higher as investors continue to move out of bonds in anticipation of higher inflation and continued global growth. The 10yr US Treasury closed at its highest yield since March 2017, closing the week at 2.64%. Oil markets saw little change last week closing at $63.38 a barrel.
Economic news for the week was mostly positive – industrial production came in at 0.9% month over month exceeding estimates of 0.4%; housing starts fell short of estimates (1.275mm) declining to a seasonally adjusted annual rate of 1.192 million; jobless claims were 220,000 as labor markets continue to show strength.
This week will continue with a deluge of company announcements with 44 S&P 500 companies scheduled to report. There will also be an advance estimate of 4q17 GDP and economic reports on durable goods and home sales.
Let’s make it a good week!
“It’s not what happens to you, but how you react to it that matters.” – Epictetus
Weekly Commentary (1/15/18) – Déjà Vu All Over Again
January 16, 2018
So what’s new? Markets finished higher last week. As Yogi Berra would say – “It’s déjà vu all over again.”
For the week, the DJIA gained 2.0% while the S&P 500 finished ahead by 1.6%. Developed international markets also moved higher as the MSCI EAFE index closed up 1.2% for the week. Emerging markets also gained as the MSCI EM index finished higher by 0.6%. Fixed income, represented by the Bloomberg/Barclays Aggregate, finished the week lower by 0.2%. As a result, the 10 YR US Treasury closed at a yield of 2.55% (up 8 bp from the previous week’s closing yield of 2.47%). Gold advanced $18.05 to close at $1,337.64/oz. Oil prices advanced $2.86 to close the week at $64.30/bbl.
Investors continue to show confidence in the markets as economic news once again points to a global economic recovery. The December consumer price index (CPI) showed headline CPI up 2.1% year-over-year (y/y) with core CPI up 1.8% y/y … all generally in-line with expectations. Despite energy prices being up 6.9% y/y, inflation numbers continue to be fairly tame. Ultimately the Fed’s easy money policies will produce higher prices, but stock prices should fare well in this low inflation, reasonable growth environment. The advance in bond yields will most likely be muted until inflation and economic growth pick up materially from today’s levels.
The week ahead will see more earnings and economic releases. We expect earnings releases to continue to beat expectations (as did JP Morgan, BlackRock and several other S&P 500 companies last week). Economic news this week will include housing starts, industrial production, NY/Philly Fed manufacturing surveys and January preliminary consumer sentiment.
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.
We hope that everyone had a happy and reflective Martin Luther King Jr. Day.
“Life’s most persistent and urgent question is, ‘What are you doing for others?’”- Martin Luther King Jr.
Equities Off to a Good Start
January 8, 2018
Equity markets started the year on a strong note last week. All major indexes crossed milestones with the S&P 500 passing 2700, the DJIA 25000 and the NASDAQ rising above 7000. The strongest sectors were technology, materials and energy as economic news continued to show strength. Global manufacturing PMI came in at 54.5 – the strongest reading since mid 2016. Crude oil and other commodity prices are being supported stronger global growth. International equities also started the year on a strong note as the EAFE was up 2.45% and emerging markets rose 3.69%.
Friday’s jobs number of 148,000 new jobs came in below estimates of 180,000 with the unemployment rate holding steady at 4.1%. In spite of the weaker number, interest rates rose for the week with rate on the 10 year U.S. Treasury rising from 2.40% to 2.47%. Expectations continue to be for three rate increases by the FOMC in 2018.
This week look for economic reports on retail sales and inflation. A reading on inflation above consensus would pressure the Fed to take a more hawkish stance. Corporate earnings reports start this Friday with major banks starting to report. The expectations for S&P 500 earnings growth for 2018 have risen to 11%.
“To succeed in your mission, you must have single-minded devotion to your goal.”– A.P.J. Abdul Kalam
Many Happy Returns
January 2, 2018
What a fabulous year for the equity and fixed income markets!
Before we pat ourselves on the back for making money for our clients, let’s look at the markets and economies for last week.
The US equity markets gave back some performance during Christmas week. The DJIA slipped 0.14%, S&P500 (0.33%), and NASDAQ (0.80%). Real estate and utilities were the best performing equity sectors and were up 1.5% and 0.4%, respectively. International markets were strong with the MSCI EAFE up 0.95% and emerging markets (MSCI EM) climbing 1.71%. Interest rates took a breather with the 10 Year Treasury closing at a yield of 2.40%, down 0.08% from the previous week.
For the year, the bullish markets were sustained by broad economic growth, strong corporate earnings, consistently strong investor inflows and corporate stock buybacks. The S&P 500 returned 21.83% while international markets soared with the MSCI EAFE up 25.62% and MSCI EM climbing 37.75%.
This short week will deliver several key economic reports: ISM manufacturing and non-manufacturing indexes; minutes from the December FOMC meeting; and reports on auto sales and employment.
For 2018, we expect an increase in the subdued market volatility, slightly higher interest rates and a little more time for the markets to digest, and the economy to feel, the benefits of the sweeping tax reform. Nevertheless, with improved global economic growth and continued inflows, investors should continue favoring equities within a well diversified and balanced portfolio.
Our team at ND&S would like to wish you and your loved ones all the very best for a healthy, happy and prosperous New Year!
“Write it on your heart that every day is the best day in the year.” – Ralph Waldo Emerson
Groundhog Day
January 29, 2018
Before the opening bell on Friday, the US Gross Domestic Product (GDP) was reported at 2.6%, lower than the consensus estimate of 2.9%. The resilient market didn’t even flinch. Last week, the DJIA, Standard & Poor’s 500 and the tech heavy NASDAQ all climbed over2% to new record highs. International markets, benefitting from a weaker dollar, also performed well with EAFE up 1.5% and the MSCI Emerging Market climbing 3.3%.
The stock of the week was Intel (INTC), which was up over 9% on Friday after reporting fabulous 4th quarter earnings and guidance.
Rising interest rates remain a threat to future economic growth and stock market valuations. The yield on the 10 year US Treasury closed at 2.66% on Friday, a big jump from 2.40% where it ended last year. We continue to expect slightly higher rates as the Fed tactfully raises short-term rates and unwinds its colossal balance sheet.
This week is filled with economic news and earnings announcements. President Trump’s first State of the Union address is on Tuesday and he’ll be his supercilious self pushing his infrastructure plan and America first. On Wednesday, Janet Yellen, the Fed chairperson will bid farewell and probably hint that a March rate hike is on the way.
We continue to stress portfolio diversification with prudent asset allocation and quality holdings.
Happy Super Bowl week and GO PATS!
It’s the same thing your whole life: “Clean up your room. Stand up straight. Pick up your feet. Take it like a man. Be nice to your sister. Don’t mix beer and wine, ever.” Oh yeah: “Don’t drive on the railroad track.”
–Phil Connors