Archive for ND&S Updates
ND&S Weekly Commentary (2/20/18) … Bounce Back
February 20, 2018
Equity markets rebounded last week posting their best weekly return since 2013 … although we point out the week prior, the market’s decline was one of the worst in several years. History shows that sharp moves in the markets are typically clustered together and why market-timing is ultimately a fruitless endeavor.
For the week, the DJIA returned 4.36% while the broader-based S&P 500 closed higher by 4.37%. International equities also marched higher with the MSCI EAFE and MSCI EM up 4.28% and 5.04%, respectively. However, with equities bouncing back so fast, we are maintaining a bit of caution as history shows markets typically make a retest of the previous lows before moving structurally higher. For long-term investors, the bull market for equities remains intact.
Yields continued their move higher last week with the 10yr US Treasury trading as high as 2.94% before settling at 2.87%. The Barclay’s Aggregate (the most common bond proxy) is down over 2% on a total return basis YTD, but we are tempted to extend our duration at these levels. Inflation expectations have been the main cause for rising rates and the brief equity selloff which started on January 26th. The release of the Consumer Price Index (CPI) showed inflation rising 0.5% in January, exceeding expectations and now ahead 2.1% on an annual basis. So-called “core” inflation, which excludes food and energy, rose 0.3% in January and is up 1.8% y/y. The rise in inflation is bittersweet, on one hand it means the economy is strong and growing, but on the other hand consumer costs are on the rise. Despite the tough environment for bonds, it is important to remember that bonds will provide safety if equity markets disappoint.
Economic news in the week ahead will be fairly light due to the holiday-shortened week. 68 companies in the S&P 500 will report earnings this week. Key releases include Walmart (WMT), Home Depot (HD), Medtronic (MDT) and a number of utility companies. The release of the January FOMC meeting minutes will be on Wednesday. Current policy calls for 3 federal funds rate increases in 2018.
“Leave nothing for tomorrow which can be done today.” – Abraham Lincoln
Weekly Commentary (2/12/18) – Volatility Returns … Just a Correction
February 12, 2018
Ouch! Last week saw stocks give up their 2018 gains … and then some. Markets have now officially ‘corrected’ as the S&P 500 was down 10.2% from the all-time closing high set on January 26th to the close on February 8th. After experiencing the least volatile year on record in 2017, investors are now experiencing a return to volatility in the markets. While never enjoyable, market pullbacks and corrections are quite normal. It is worthwhile to remember that the average intra-year decline for equity markets over the past 30 years has been roughly 14%. The good news is that the economy remains quite strong and earnings growth for 2018 is fairly robust. Lastly, valuations have come down as the forward price-to-earnings multiple is now close to 16X (down from 17.8X at year-end).
For the week, the DJIA lost 5.08% while the S&P 500 finished lower by 5.10%. Developed international markets gave back even more as the MSCI EAFE index closed down 6.19% for the week. Emerging markets were down the most as the MSCI EM index sank 7.14% for the week. Despite the unwelcomed pullback last week, the DJIA and S&P 500 are down just 2% on a year-to-date basis. Fixed income, represented by the Bloomberg/Barclays Aggregate, finished the week relatively flat. As a result, the 10 YR US Treasury closed at a yield of 2.83% (down 1 bp from the previous week’s closing yield of 2.84%). Gold declined $20.60 to close at $1,313.10/oz. Oil prices dropped $6.25 to close the week at $59.20/bbl.
The weeks ahead will most likely test investors’ patience as the markets attempt to find their footing. Past corrections have often led to a retest of the previous lows, and we suspect that last week’s lows will hold and markets will finish the year higher.
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.
“You get recessions, you have stock market declines. If you don’t understand that’s going to happen, then you’re not ready, you won’t do well in the markets.” – Peter Lynch
Good News Bad News
February 5, 2018
The U.S. equity markets capped their worst week in roughly two years on Friday, with the S&P 500 falling 2.1% and the DJIA down 2.5%. For the week, the indexes were down 3.9% and 4.1% respectively. International equities were only slightly better for the week as the MSCI EAFE closed lower by 2.74% and MSCI EM down 3.29%. Outside of some disappointing company specific earnings, positive economic news was the cause for concern.
The monthly jobs report on Friday was better-than-expected with 200,000 new jobs created and average hourly wages for private sector workers rose 2.9% in January, notching their largest year-over-year increase since June 2009. However, the news reinforced expectations of rising inflation and a growing market consensus that the Federal Reserve may raise short term interest rates more than 3 times this year. For the week, the rate on the 10 year U.S. Treasury rose from 2.66% to 2.84%.
Generally speaking, economic news continues to be good and corporate earnings continue to rise. With nearly half of S&P 500 companies reporting fourth quarter earnings, 80% have exceeded analysts’ revenue expectations and global economic growth looks stronger than it has been in years. Although markets seem overdue for a correction, there does not seem to be any signs of a recession. We believe any pullback will be likely short-lived. Stay the Course.
“Before anything else, preparation is the key to success.” – Alexander Graham Bell
Rates on the Rise
February 26, 2018
Markets were volatile last week as investor focus was on the latest Federal Open Market Committee minutes released on Wednesday. The 10yr US Treasury hit a multi-year high (2.94%) after the release before ending the week at a yield of 2.88%. The FOMC acknowledged the strengthening growth outlook in the US with forecasts receiving a boost from tax cuts. They also indicated that the equity market’s recent correction earlier this month is unlikely to affect future hikes this year.
For the week, the S&P 500 closed higher by 0.58%, while the DJIA increased 0.36%. International equities were mixed with developed international closing down 0.44% and emerging markets up 1.42%. Oil pushed higher last week following news that inventories declined when expectations were for an increase. WTI closed at $63.55 a barrel.
Earnings season is coming to a close as 90% of S&P 500 constituents have reported Q4. Earnings have been positive relative to estimates with over 70% beating earnings estimates. Earnings have grown 16.3% year-over-year while revenues are up 7.9%.
Let’s make it a good week!
“I didn’t lose the gold. I won the silver.” – Michelle Kwan