Archive for ND&S Updates
Take A Hike
June 18, 2018
It was a busy week filled with major geopolitical events, a Federal Reserve interest rate hike along with somewhat hawkish commentary, and a judicial ruling that approved one of the largest corporate takeovers on record.
As a result of all of this hoopla, the markets were mixed last week. The S&P 500 advanced 0.07%, the DJIA was -0.84%, and the tech-heavy NASDAQ finished 0.34% higher. Both developed and emerging international equity markets were down 0.48% and 1.35%, respectively. The 10-year Treasury finished at a yield of 2.93% and is down 3.4% year to date.
As expected, on Wednesday, Federal Reserve officials raised their benchmark federal funds rate by a quarter percentage, the second rate increase this year. They suggested that there could be a total of four increases for 2018, which is one more than projected at their meeting in March. Fed Chairman, Jerome Powell, stated, “Growth is strong. Labor markets are strong. Inflation is close to target.” Supporting the Fed’s projections were the Labor Department, stating that wholesale prices climbed, and the government reporting that US retail sales also surged in May. Retail sales have risen 5.9% and 5% when gas is excluded, over the past 12 months. “The benefit of tax cuts, strong employment growth and a slow acceleration in hourly wage growth, consumption growth should remain strong into the second half of the year,” says Paul Ashworth, chief US economist at Capital Economics.
On Friday, President Trump approved a 25% tariff on $50 billion worth of Chinese goods. The move prompted China to come back with a 25% tariff on $34 billion worth of U S Goods. Both tariffs are scheduled to become effective on July 6th.
There was an historical ruling allowing AT&T to acquire Time Warner for $80 billion, rejecting the Justice Department’s attempt to block the deal over antitrust concerns. Following the decision, Comcast made a $65 billion cash offer to buy most of 21st Century Fox’s assets. A media buying frenzy is bubbling, as Comcast’s offer is likely to raise the competing $52.4 stock offer from Disney. All of the deals are opening the eyes of arbitrage investors, as well as investment bankers. Overall, mergers and acquisition activity is surging, spelling a potential extension of our longest bull market.
“Congratulations, I knew the record would stand until it was broken” ~ Yogi Berra
ND&S Weekly Commentary (6/11/18) – The Summit Showdown
June 11, 2018
Markets continue their Spring advance as equities finished another week in the green. For the week, the DJIA closed higher by 2.79%, while the broader-based S&P500 closed up 1.66%. Smaller US companies closed up 1.51% for the week. International equities were also positive as the MSCI EAFE and MSCI EM closed higher by 0.96% and 0.54% respectively. Yields moved higher across the curve causing a weekly decline of 0.22% for the US Barclays Aggregate. The 10Yr US Treasury closed at a yield of 2.93%, which is up from 2.89% a week ago.
The labor market remains tight, with the US Bureau of Labor Statistics reporting for the first time in its (JOLTS) survey history, that there were more job openings than jobless workers to fill them. Wage inflation has been somewhat muted with average hourly earnings rising just 2.7% in May. This could pressure companies at the margin as they compete for workers in a full labor market … something to be mindful of as we move forward.
Looking ahead, US and North Korean leaders will meet for their highly anticipated summit in Singapore on Tuesday with the discussion centered around the denuclearization of the Korean peninsula. This will likely be a long process but it is an unprecedented meeting nevertheless. The FOMC is set to meet this week with a 2nd rate hike in 2018 the likely outcome. With a tight labor market, 2Q GDP estimates approaching 4% and market expectations for an increase, it seems likely the FOMC will raise the Federal Funds rate at the conclusion of its meeting with two additional hikes likely later this year. In addition, the week will also include reports on CPI, Retail Sales, Industrial Production, and Consumer Sentiment.
Let’s Make it a Good Week!
“You cannot shake hands with a clenched fist.” – Indira Gandhi
Weekly Commentary (6/4/18) – U.S. Markets Grind Mostly Higher on Volatile Week
June 4, 2018
Stocks ended the holiday-shortened week mostly higher after a barrage of geopolitical tensions ultimately played second fiddle to continuing strong economic news. Political concerns in Italy and Spain kicked off the week as fears of a contagion effect in the Eurozone led investors to take a risk-off approach. Stocks rallied on Wednesday as European concerns abated. Thursday brought more volatility as the U.S. announced it would put in place steel and aluminum tariffs on the EU, Canada and Mexico. The week finished strong on a much better-than-expected jobs report on Friday.
For the week, the DJIA lost 0.38% while the S&P 500 finished higher by 0.54%. Developed international markets finished in the red as the MSCI EAFE index closed down 0.97% for the week. Emerging markets finished lower by 0.51%. Small-cap stocks, represented by the Russell 2000, jumped 1.32% on the week as small-cap stocks are more immune to trade wars. Fixed income, represented by the Bloomberg/Barclays Aggregate, finished the week up slightly. As a result, the 10 YR US Treasury closed at a yield of 2.90% (down 2.9 bps from the previous week’s closing yield of 2.93%). Gold prices pushed lower by $5.30 to close at $1,294.80/oz. Oil prices dropped 1.8% last week with oil closing at $65.81/bbl (down $1.23 for the week); prices dropped as Russia and Saudi Arabia contemplated a potential production increase (to offset Iran’s lower output due to recent sanctions).
Last week saw a number of positive economic releases – mostly better-than-expected results from the personal consumption expenditures (PCE) report, initial jobless claims for the week of May 24, ISM purchasing managers’ index (PMI), and US nonfarm payrolls for May. PCE, a measure of personal spending, jumped 0.6% month over month and nicely ahead of the 0.4% expectation. Friday’s nonfarm payroll report saw that the economy added 223,000 jobs during the month of May (ahead of an expected increase of 188,000) while unemployment ticked down to 3.8% – the lowest level since April 2000. Lastly, PMI, a measure of the economic environment for the manufacturing sector, rose 1.4% in May to 58.7% (ahead of expectations of 58.2%). Bottom line – US economic growth remains robust.
The week ahead has a few important economic releases – Durable Goods Orders, Job Openings & Trade Balance and Markit/ISM Services PMI. We expect results to be mostly in-line with expectations.
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. The weather is getting better … make an effort to get outside and smell the roses!
“Just living is not enough … one must have sunshine, freedom, and a little flower.” – Hans Christian Anderson
Weekly Commentary (6.25.18)-Tariffs Rattle the Markets
June 25, 2018
Last week, equity markets fell as escalating tariff tensions drove investors out of stocks particularly in the industrial, agricultural and auto sectors. For the week, the DJIA was off 2.03%, its worst weekly decline since March. The S&P 500 was down 0.87% and the NASDAQ was off 0.68%. International stocks were also down with the MSCI EAFE and emerging markets off 0.95% and 2.26%, respectively. Equity investors were concerned that trade wars would hinder global growth.
In the U.S., the best performing sectors YTD have been consumer discretionary, technology and energy. Energy stocks responded positively on Friday as the boost in oil production announced by OPEC turned out to be lower than previously feared. The price of oil jumped 4.6% its biggest one-day gain since 2016 and for the week crude was up 5.8%. Several energy stocks were up 2% on the day. YTD the worst performing sectors have been utilities and consumer staples although more recently consumer staple stocks have rallied as investors have become more defensive. U.S. treasuries also rallied last week with the 10 year Treasury closing at a yield of 2.90%.
This week look for economic reports on new home sales, durable goods orders and consumer sentiment. Volatility should remain elevated as markets react to the ever changing geopolitics and talks of tariffs. We would suggest investors take the long-term view and remain diversified in-line with one’s risk parameters.
“Life is 10% what happens to you and 90% how you react to it.” – Charles Swindoll