Archive for ND&S Updates
ND&S Weekly Commentary (5/21/18) – Inflation on the Rise
May 21, 2018
Equities finished lower for the week following concerns over the rise in the 10 – year treasury yield moving above 3%, global trade wars, continued geopolitical risks, and fears that corporate earnings growth may have peaked. For the week, the DJIA closed lower by 0.36% while the broader-based S&P 500 closed down 0.47%. Developed international markets also slipped by 0.45% and emerging markets were off 2.25%, which have been hurt by a stronger US dollar. All of this, despite S&P 500 earnings growing over 23% and revenues are surpassing 8% in the 1st quarter. The best performing sectors last week were energy up 1.80% and materials 1.77%.
So far this year, the U S small cap stocks have outperformed with the Russell 2000 index (RUT) returning 6.4% compared to just 2.2% for the S&P 500 …RUT rose 1.3% last week. U S small companies benefit from a rising dollar which has risen almost 4% over the past month. A stronger dollar, however, has hurt international markets and foreign sales especially for large US multinational companies.
US Crude (WTI) prices rose to $71.24 a barrel and have climbed 18% since January. The Organization of the Petroleum Export Countries, Venezuela, and the non-OPEC Middle East countries have slashed production and global oil supplies are now at a three year low.
We have been concerned about rising inflation and interest rates dampening consumer spending, economic growth and corporate profits. Although the 10 – year Treasury note has surpassed the 3% level, its highest level since 2011, the market has been comforted by the recent increase in corporate earnings and revenue growth. Most investors and economists are expecting three additional Fed interest rate hikes this year. The question is will the economy and markets withstand higher rates? Investors would also like to see improved trade relations with China.
Economic reports were mixed with U S housing starts declining more than expected last month, while industrial output rose for the third consecutive month. This week will shed light on the housing sector with existing and new home being reported. The Fed will once again be in the spotlight as the minutes from its May meeting will be released Wednesday and Jerome Powell, the new Federal Reserve Chairman, is scheduled to speak on Friday.
“Any man who wants to be President is either an egomaniac or crazy.” – Dwight D. Eisenhower
Weekly Commentary (5/14/18) – Markets Push Higher on Good News
May 15, 2018
Stocks pushed nicely higher last week as economic news and corporate earnings continued to impress. Surprisingly, President Trump’s announcement that the United States would withdraw from the Iran Nuclear Accord did not deter investors from pushing stocks higher. Stock prices, oil prices and gold prices all moved higher for the week
For the week, the DJIA gained 2.5% while the S&P 500 finished higher by 2.5% as well. Developed international markets also pushed ahead as the MSCI EAFE index closed up 1.6% for the week. Emerging markets added-on 2.5% for the week as the U.S. dollar was off by just $0.01. Last week’s move higher in the Dow Jones Industrial Average moved the overall DJIA into positive territory for the year-to-date period (up 1.26%). 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 2.97% (up 2 bp from the previous week’s closing yield of 2.95%). Gold prices pushed higher by $6.30 to close at $1,319.30/oz. Oil prices advanced 1.4% last week as oil closed at $70.70/bbl (up $0.98 for the week as prices rose due to the U.S.’s withdrawal from the Iran Nuclear Accord and the prospect for new sanctions on oil exports).
Last week saw a number of positive economic releases – better-than-expected results from the Producer Price Index and the Consumer Price Index (easing fears of inflation), slightly weaker-than-expected jobs report on Friday (helping to tame inflations fears, again) and an 18-year low in unemployment (3.9%). Despite the often chaotic headline news, economic fundamentals remain fairly strong.
The week ahead has a number of economic releases – Retail Sales, NY/Philly Fed business outlook, Housing starts, Industrial production and Jobless claims. First-quarter earnings reports will continue this week, and we expect earnings to be mostly better-than-expected. Strong fundamentals should continue to outweigh the negative headlines that seem to never end.
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.
“Real happiness is cheap enough, yet how dearly we pay for its counterfeit.” – Hosa Ballou
ND&S Weekly Commentary (5/7/18) – Unemployment Drops Below 4%
May 7, 2018
Markets declined last week despite a strong rebound on Friday after the April payroll release. For the week, the S&P 500 closed down 0.21% while the DJIA closed lower by 0.19%. Smaller US companies were the only bright spot for the week as the Russell 2000 closed higher by 0.62%. International equities also finished the week in the negative as the MSCI EAFE closed down 0.42% and MSCI EM was off 1.69%. Bonds were flat for the week with the 10yr US Treasury closing at a yield of 2.95%.
April U.S. non-farm payrolls rose a smaller-than-expected 164,000, but did have positive revisions to the March and February estimates. Additionally, the unemployment rate fell to 3.9% marking the lowest reading since December 2000. Despite what appears to be a tight labor market, average hourly earnings advanced by only 0.1%, suggesting inflation should continue to remain in check … hence the rally on Friday. At last weeks meeting, the FOMC left rates unchanged but acknowledged that inflation is getting closer to its 2% target. Current assumptions are that the Fed will likely raise rates at its June meeting with additional hikes later this year.
Earnings reports continued last week, including a strong report from Apple (AAPL). Earnings per share (EPS) beats have been a common occurrence this earnings season with more than ¾ of S&P 500 companies beating their analysts’ EPS expectations. With more than 80% of S&P500 companies having reported, the earnings growth rate is forecasted to be over 24% year-over-year, the highest since 2010.
The week ahead will have another round of company reports. In addition, there are economic releases on inflation and consumer sentiment. Let’s make it a good week!
“With the new day comes new strength and new thoughts.” – Eleanor Roosevelt
NDS Weekly Commentary 5.29.18 – More Volatility
May 29, 2018
U.S. stocks advanced last week in spite of falling oil prices and worries about a North Korea summit. For the week, the S&P 500, the DJIA and NASDAQ rose 0.33%, 0.18% and 1.09% respectively. International markets were weak over concerns about possible slowing growth in the Eurozone as the manufacturing PMI in Europe has fallen from a peak in December of 60.6 to 55.5 in May. In addition, concerns have risen over a possible withdrawal of Italy from the Eurozone because of recent election results. Last week, the MSCI EAFE fell 1.51% and MSCI EM were off a slight .01%. Oil prices in the U.S. dropped 4.9% for the week as Saudi Arabia and Russia indicated that they might be willing to relax production caps; as a result the energy sector was the worst performer for the week declining 4.5%. The best performing sectors were utilities and real estate.
Fixed income rallied as investors sought shelter from geopolitical tensions and FOMC minutes released last week indicated that the Fed would remain on a gradual pace of interest rate increases. The rate on the 10 year U.S. Treasury note fell from 3.06% to 2.93%.
This week look for economic reports on manufacturing PMI, pending home sales and the monthly jobs report for May which is estimated to improve to 188,000 from 164,000 in April.
Another Memorial Day has come and gone. The official start of summer is here, and the charcoals from cookouts and barbecues are still warm. But let us never forget the real meaning of Memorial Day – to honor those who have gone before us and paid the ultimate price to ensure our freedom and to secure the blessings of liberty.
“We do not know one promise these men made, one pledge they gave, one word they spoke; but we do know they summed up and perfected, by one supreme act, the highest virtues of men and citizens. For love of country they accepted death. And thus resolved all doubts, and made immortal their patriotism and their virtue.”
– James Garfield
May 30, 1868 Arlington National Cemetery