Archive for ND&S Updates
Weekly Commentary (11.19.18) – Rudderless Markets
November 19, 2018
Most equity markets were rudderless last week (once again) as the battle between bulls and bears continues. The 3Q’18 earnings season is coming to a close with 95.3% of companies having already reported. So far, S&P 500 earnings per share have grown 32.9% year-over-year in the third quarter … excellent results! Bears are pointing to the fact that global and S&P 500 earnings have likely peaked. We agree, but earnings for next year still look quite reasonable with S&P 500 earnings expected to grow roughly 10%. Despite excellent news on the economic front, continuing concerns over trade wars, Fed action (a December rate hike is already in the cards along 3 rate hikes for next year), political bickering in Washington and ongoing geopolitical tensions have kept the mood on Wall Street quite dour.
For the week, the DJIA lost 2.15% while the S&P 500 gave back 1.54%. The volatile Nasdaq declined 2.09% after some profit-taking in technology stocks. Developed international markets were also weak as the MSCI EAFE index dropped 1.42% for the week. Emerging markets were the only bright spot as the MSCI EM index gained 1.05% (finally). Small company stocks, represented by the Russell 2000, gave back 1.37% for the week. Fixed income, represented by the Bloomberg/Barclays Aggregate, finished the week higher in a flight to safety. As a result, the 10 YR US Treasury closed at a yield of 3.08% (down ~11 bps from the previous week’s closing yield of 3.19%). Gold prices closed at $1,221/oz – up 1.2% on the week. Oil prices continued their sell-off during the week as oil closed at $56.46 – down 3.73% for the week (good for consumers and businesses …).
The week ahead will bring a host of economic reports – housing starts and existing home sales, durable goods, consumer sentiment and flash PMI. We expect the reports to be mostly positive, but investors will be focusing on any comments from the Fed and speculation about the upcoming G-20 meeting and a possible resolution of a deal with China.
Volatility is here. 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.
Most importantly, we wish to extend to all a very Happy Thanksgiving!
“An attitude of gratitude brings great things.” – Yogi Bhajan
ND&S Weekly Market Update (11.12.18) – U.S. Markets Bounce Back
November 12, 2018
U.S. markets responded positively to midterm election results that were in-line with expectations, with Democrats taking control of the House and Republicans retaining control of the Senate. For the week, the DJIA, S&P 500 and NASDAQ rose 3.0%, 2.2% and 0.7%, respectively. The best performing sectors last week were healthcare, real estate, utilities and consumer staples as investors favored those sectors that generate stable earnings and larger dividends. With 91% of S&P 500 companies having reported earnings for the 3rd quarter, 77% have beaten earnings expectations, but only 49% have exceeded on revenues. It appears that the market is penalizing earnings misses more than revenue misses. International equities did not fare as well for the week, as developed markets only advanced 0.2% and emerging markets declined -2.0%.
As expected, the FOMC did not hike rates at its November meeting. However, they noted in their minutes that unemployment has declined since the September meeting, which suggests that the Fed is still on track to hike rates one more time in December. For the week, the yield on the 10 year U.S. Treasury fell to 3.19% from 3.22% the week prior.
The week ahead will include reports on inflation, industrial production, and retail sales. For the balance of the year, U.S. economic and profit fundamentals continue to look solid suggesting that investors should allow economics to guide their investment decisions in the near-term.
On this Veterans Day, we thank all those who have honorably served our great nation. We are especially grateful for all those service members who never returned home as we are reminded of the inscription on the Tomb of the Unknown Soldier – “Here rests in honored glory an American soldier known but to God”
ND&S Weekly Commentary 11.5.18 – Spooky October is Over!
November 5, 2018
Last week investors breathed a sigh of relief as markets rebounded. October was a scary month as stocks fell 6.9%, which was their worst monthly performance since September 2011. Thankfully, stocks finished higher helped by a solid jobs report, positive earnings, and the signs of progress in China trade negotiations.
All major equity markets performed well with both the Dow Jones Industrial Average and S & P 500 returning 2.4%. Smaller stocks did very well, as the Russell 2000 gained 4.35%. The NASDAQ was up 2.7% despite a 7% decline in Apple shares, which suffered, as a result of the company’s lower revenues and guidance. International equities were the real winners. Developed International (EAFE) gained 3.4% while emerging equities (EM) returned 6.1%.
On Friday, the Labor Department reported that employers added 250,000 jobs in October, beating all consensus estimates. The unemployment rate remained at 3.7% and wages increased 3.1%. Economists have been watching data closely for signs of inflationary pressures. Interest rates, which rise as bond prices fall, climbed after the solid job report. The 10-Year Treasury rose to 3.21%, its highest over the last few weeks.
Oil prices plummeted 7% to $62.86 a barrel. Earlier last month, concern over Iranian sanctions and a reduction in crude supply drove the price of oil to $86 a barrel.
The third quarter earnings season is winding down with the 76 companies, in the S & P 500 reporting this week. Major economic news will include services PMI today, the Federal Reserve’s minutes, and consumer sentiment on Friday. Tomorrow, impactful and melodramatic mid-term elections will stir the political pot for a while so be prepared for more volatility. We strongly recommend investors be patient and stay the course. Please do not abandon goals and objectives based on emotional responses to market volatility and headline news.
“We live in a world where we need to share responsibility. It’s easy to say, “its not my child, not my community, not my world, not my problem.” Then there are those who see the need and responding consider those people my heroes”—Mr. Rogers
ND&S Weekly Commentary (11.26.18) – Markets Serve Up Cold Turkey
November 26, 2018
Markets were under pressure last week over global growth concerns. The U.S. trade relations with China and potential for increased tariffs beginning next year are weighing heavily on investors’ minds. In addition, the Federal Reserve is expected to raise rates at their December meeting while multiple rate increases are expected for next year. Any improvement on trade relations and/or some dovish fed comments will improve investors’ outlook.
For the holiday-shortened week, the DJIA declined 4.4% while the broader-based S&P 500 retreated 3.8%. International equities fared a bit better on the week, but were also negative. Developed International represented by the MSCI EAFE declined 1.1% and emerging markets were off 1.7%. Recently, bonds have offered a place for investors to hide but are still negative on the year. The 10yr US Treasury yield started the year at 2.40% and closed last week at 3.05%. We continue to favor shorter duration fixed income as the yield spreads are tight (i.e. 2yr treasury yield is 2.81% … a 24bps spread to the 10yr) while uncertainties over rates continue.
Economic data during the week was a bit light; housing starts increased 1.5% m/m slightly missing expectations … durable goods orders declined 4.4% in October missing expectations. The positive spin is these lower than expected results may give the Fed some pause and temper its guidance. In the week ahead, there will be reports on consumer confidence, new home sales, inflation and the 2nd release of 3Q18 GDP.
At ND&S, we view the recent “correction” (measured by a decline of at least 10%) in equities as a normal market reaction … unpleasant as it may seem. Markets also corrected in February of this year and normally experience one about every year. Stocks in cyclical sectors consisting of technology, consumer discretionary and energy have triggered the most recent declines. However, stocks that are classified as “defensive” have held up much better and in some cases appreciated. The economy appears strong and we are encouraged by strengthening consumer spending as evidenced by Black Friday online sales increasing 23.6%, according to Adobe Analytics, and confidence readings remaining near peak levels. Unemployment continues to hover around 3.7%, lowest since the late 1960s. In addition, wage growth is up 3.1% from a year ago. In times like this, we are reminded of a quote from Byron Wein: “Disasters have a way of not happening”