Archive for ND&S Updates
ND&S Weekly Commentary 10.22.18 – Play Ball!
October 22, 2018
Market volatility continued last week as gains from Tuesday’s big rally were washed away as the week progressed. For the week, the DJIA closed higher by 0.45% while the broader-based S&P 500 finished up a modest 0.05%. Smaller companies representing the Russell 2000 closed lower by 0.29%. International equities also finished in the red with the MSCI EAFE and MSCI EM down .06% and .88%, respectively. Treasury yields pushed higher across the board as anticipation of additional Fed action grew. The 10yr US Treasury closed the week at a yield of 3.20%, up from 3.15% the week prior.
The equity markets and economy appear to be experiencing a bit of indigestion over the past few weeks. Economic data for the week, again, was a little soft. Retail sales rose 0.1% in September, less than an expected 0.5% increase. Industrial production rose 0.3% in September coming in slightly ahead of estimates. Housing starts fell 5.3% month over month to a seasonally adjusted 1.201M missing estimates. Housing starts is one of economist’s favorite leading indicators as it can offer a timely glimpse into the health of an economy. This week’s economic releases include reports on durable goods orders, manufacturing, consumer sentiment, and the 1st estimate of 3Q GDP.
Earnings season is well underway, and so far has been relatively positive versus expectations. 75% of companies have posted above expected earnings per share with y/y growth having increased to 24%. Revenues are up 7.6%, which is slightly below expectations and warrant monitoring. This week, 202 companies in the S&P 500 are scheduled to report. We will be watching earnings reports closely this week especially Amazon AMZN, Alphabet GOOGL, Verizon VZ, and Merck MRK to name a few.
We anticipate volatility to remain present through the remainder of earnings season and through the mid-term elections. For clients, be on the lookout for Q3 reports and our 3rd Quarter newsletter titled Fed Up.
Let’s Go Red Sox!
“Baseball is the only field of endeavor where a man can succeed three times out of ten and be considered a good performer.” – Ted Williams
ND&S Weekly Commentary (10/15/18) – Earnings Reports Begins
October 15, 2018
Equity markets declined for a second week as the S&P 500 fell for six consecutive sessions before a rally on Friday. It was its longest losing streak in nearly two years. For the week, the S&P 500 was off 4.07% and the DJIA and the NASDAQ were down 4.17% and 3.74%, respectively. International markets also declined with developed markets down 3.9% and emerging markets were off 2.0%. A combination of factors led to these declines including fears of inflation, a slowing Chinese economy, tariffs, FOMC rate hikes and elevated equity valuations. However, in spite of these concerns the outlook for the U.S. economy and corporate earnings is still positive. Inflation rose a modest 0.1% in September, which came in below expectations for a 0.2% increase. Year-over-year CPI is now 2.3%, which is a deceleration from August’s 2.7% reading. Third-quarter earnings are officially underway with positive reports on Friday from (C) Citigroup and (JPM) J.P. Morgan. This week, corporate earnings announcements continue with 68 companies in the S&P 500 scheduled to report.
Fixed income markets rose as investors looked for a safe haven during last week’s volatility. As a result, the rate on the 10 year U.S. Treasury closed the week at a yield of 3.15%, down from 3.23% the week prior. This week look for economic reports on retail sales and existing home sales.
Investors should resist the urge to try to time the market and instead ensure that portfolios are well balanced and diversified.
“Greatness is a road leading towards the unknown.” – Charles de Gaulle
Rates Continue to Rise
October 8, 2018
What a wild week on Wall Street!
As a result of rising interest rates, the US Stock Market fell sharply to close out the week after notching record highs on Tuesday and Wednesday. The S&P 500 closed lower by 0.95% for the week while the DJIA finished flat. In addition, a Bloomberg News article claims China hacked and infiltrated several top US Companies. This resulted in a selloff in tech firms (which also makes up a large portion of the S&P 500) and further complicates trade negotiations with China. The tech-heavy NASDAQ struggled closing the week down 3.18%. The international equity markets continued to suffer from the combination of a stronger US dollar, slowing global trade, high emerging market debt levels and China’s slowing growth rate. The MSCI EAFE declined 2.34% while the emerging market index lost 4.48% for the week.
The yield on the 10yr Treasury closed the week at 3.24% compared with 3.06% the week prior. This marks its highest level since 2011. There are concerns that inflation will continue creeping higher which will force the Fed to continue to respond with rate increases. There will be reports on inflation in the week ahead.
The unemployment rate declined to 3.7% in September, marking the lowest level since December 1969. Hurricane Florence contributed to a slightly less-than-expected addition of jobs … the US economy added 134,000 in September slightly below expectations of 185,000. Wage growth, a possible precursor of inflation, grew 2.8% from last year. Also worth noting: Amazon announced last week it would raise the minimum wage they pay their employees to $15hr. This will likely pressure other employers to take similar actions in an effort to compete for talent in a tight labor market.
There is still good news about dividend growth. So far this year, nearly 400 companies in the S&P 500 raised their dividends $117.2 billion, a 6.9% increase from a year ago.
We expect volatility to continue with the upcoming mid-term election, rising interest rate fears, and 3rd quarter earnings season. Earnings season kicks off this week with (C) Citigroup and (JPM) JP Morgan scheduled to report. We are expecting another strong quarter of earnings growth although it could be a slight decline from the two previous quarters of 24% year-over-year growth. Initial estimates according to FactSet are for earnings growth of 19.2%. Stay Diversified!
“Patriotism is supporting our country all the time, and your government when it deserves it.” – Mark Twain
NDS Weekly Commentary 10.1.18 – Fed Continues to Raise Rates
October 1, 2018
Markets closed the third quarter on a sour note with global equities declining modestly for the week. The DJIA closed lower by 1.07% while the broader-based S&P 500 was off 0.51%. International equities also closed the week in the red with developed international and emerging markets off 0.85% and 0.25%, respectively. Treasury yields closed slightly lower on the week, as the 10yr US Treasury yield closed at 3.05%. Gold continued to hover around $1200/oz. while oil prices jumped as investors questioned the impact of possible sanctions against Iran.
The FOMC two-day policy meeting concluded Wednesday with the committee voting unanimously to raise the benchmark rate by 25bps. This marks the third rate hike in 2018 with another likely increase in December. The Federal Reserve Chairman Jerome Powell reaffirmed the Fed’s outlook for gradual hikes while describing the US economy as strong. Noteworthy in the Fed’s comments was the removal of the word “accommodative” when referring to future actions … increasing the odds of a rate hike in December.
In the week ahead, look for economic releases on manufacturing, trade, car sales, and employment. It appears that progress is being made on a revised NAFTA agreement with Mexico and Canada. Most news coverage will continue to be focused on the nomination of Judge Kavanaugh to the Supreme Court; however, this will continue to have very little effect on the market as investors continue focusing on positive company earnings and strong economic fundamentals. As always, we suggest ignoring the day-to-day noise of the markets and get out and enjoy the beautiful colors that Fall brings.
“Autumn’s the mellow time.” – William Allingham
ND & S Weekly Commentary 10.30.18 HAPPY HALLOWEEN!
October 30, 2018
The numerous issues affecting the financial markets continues to grow. Last week all three major U.S. equity indexes were on track to end the month of October with their worst month in eight years, for the week the S&P 500, the DJIA and the NASDAQ were off 3.93%, 2.97% and 3.78% respectively. The worst performing sectors in the S&P were energy, industrials and financials. Worries about corporate revenues peaking and slowdowns in China and Europe spilling over into the U.S. sent markets lower. International markets also declined with the EAFE and emerging markets down 3.87% and 3.27%. Investors sought shelter in fixed income as U.S. Treasuries rallied and the rate on the 10 year fell from 3.20% to 3.08%. Overall earnings season has been decent but investors’ reactions have been critical. Though a few names reporting , like Intel, exceeded expectations, all eyes were on revenue growth and guidance and many stocks frightened the market like Caterpillar, Texas Instruments and 3M with less than expected third quarter results.
On the positive side, 3rd quarter GDP in the U.S. was reported last week to have grown at 3.5% slightly above expectations of 3.2%. Despite this deceleration from 4.2% in GDP growth is still robust. Housing was a weak spot, but consumer and government spending increased at a strong pace. October has typically been a scary month with a seasonal tailwind heading into year-end. We expect market volatility to continue and feel more comfortable with more reasonable valuations, attractive dividend yields, and solid US economic growth.
Investors should maintain their asset allocations consider opportunities to rebalance moving tactically towards defensive positioning.
“Double, double toil and trouble: Fire burn and caldron bubble.” From Shakespeare’s Macbeth.