Archive for ND&S Updates
Markets Push Higher as Shutdown Continues (1.22.19)
January 22, 2019
Markets pushed higher for the week as sentiment continued to shift away from fear and pessimism that have dominated markets for the past few months. Equities have now retraced 50% of the peak-to-trough decline that began in September 2018. A definitively more dovish Fed, positive U.S./China resolution, and continuation of US earnings growth (albeit lower than 2018 …) are the likely catalysts to keep the rally alive.
For the week, the DJIA increased 3.0% while the broader-based S&P 500 was up 2.9%. Smaller US companies representing the Russell 2000 closed 2.4% higher on the week. International equities also finished the week in the green with the MSCI EAFE and MSCI EM up 1.1% and 1.7%, respectively. 10yr US Treasury yields ended the week higher at a yield of 2.79%. Oil (WTI) continued to press higher closing at $53.80 a barrel despite record production levels in the U.S.
Company earnings reports and guidance will likely drive the market in the short-term as the reporting of economic data has been disrupted by the partial US government shutdown. Fourth-quarter earnings season kicked off last week with mostly positive reports from a number of Wall Street money center banks. This week, 65 companies in the S&P 500 are scheduled to report. Fourth-quarter earnings are expected to increase 10.3% compared with the same quarter a year ago. Analysts are expecting revenues to rise 5.75% for the quarter, according to FactSet Research.
It is too soon to determine the impact of the longest partial government shutdown in history. We do know, however, that a shutdown will be a negative drag on economic growth. A resolution this week will certainly be welcomed. The impact of the shutdown combined with earnings season will keep market volatility elevated.
“If you can’t fly then run, if you can’t run then walk, if you can’t walk then crawl, but whatever you do you have to keep moving forward.” – Dr. Martin Luther King Jr.
ND&S Weekly Commentary (1.14.19) – A Solid Rebound
January 14, 2019
Markets rebounded solidly last week as positive comments from the Fed, strong economic data and increased optimism surrounding a trade deal with China buoyed investors’ spirits.
For the week, the DJIA gained 2.4% while the S&P 500 tacked-on 2.6%. The volatile NASDAQ jumped 3.5%. Developed international markets were also higher as the MSCI EAFE index increased 2.9% for the week. Emerging markets rebounded nicely as the MSCI EM index leapt 3.8%. Small company stocks, represented by the Russell 2000, surged 4.8% last week after being beaten-down last year. Fixed income, represented by the Bloomberg/Barclays Aggregate, finished the week slightly lower (-0.04%) in a quiet week for bonds. As a result, the 10 YR US Treasury closed at a yield of 2.71% (up 4 bps from the previous week’s closing yield of 2.67%). Gold prices closed at $1,287.10/oz – up 0.34% on the week. Oil prices continued their rebound as oil closed at $51.59 – higher by 7.57% on the week.
The week ahead will bring a host of economic reports – housing starts and existing home sales, retail sales, industrial production and producer prices. We expect most economic reports to be fairly positive, but investors will be focusing on the Brexit vote on Tuesday. Fourth-quarter earnings will kick off this week with bank earnings in the headlines as Citigroup reports on Monday followed by other money center banks later in the week. We expect a fair amount of volatility around company earnings over the next few weeks as the impact of trade tariffs (real and potential) will likely be felt. Of course, any developments regarding the lingering government shutdown and the trade spat with China will provide lots of drama this week.
The recent rebound in the markets is certainly a welcome start to the new year. Is the rebound simply reflexive or is it sustainable? We expect a decent year in the markets for 2019 with no signs of a recession. The year-end sell-off resulted in valuations that are decently lower than their 25-year averages. Inflation seems to be mild while employment is strong and consumer confidence is healthy … a good combination for a moderate rebound in 2019. The road ahead, however, will be a bit bumpy (as usual) … so buckle-up.
Go Pats!
“Talent sets the floor, character sets the ceiling.” – Bill Belichick
ND&S Weekly Commentary 1/7/19 – Strong Jobs Report Eases Growth Concerns
January 7, 2019
Equity markets continued their volatile ways last week. On Thursday, the DJIA fell over 600 points on news from Apple that 4th quarter iPhone sales in China were below estimates. This marked the first negative sales revision for Apple in 15 years. Then on Friday, the DJIA soared over 700 points, recovering all of the previous day’s decline, as a blowout jobs report and comments from Fed Chairman Jerome Powell that the FOMC would be patient on future rate increases. Friday’s advance pushed equities into positive territory for the week with the DJIA, S&P 500 and NASDAQ up 1.7%, 1.9% and 2.8%, respectively. International equities were also positive with the MSCI EAFE increasing 1.4% and the MSCI EM advancing a modest 0.3% on the week.
The jobs report on Friday came in well above expectations with an increase of 312,000 jobs in December, with an additional 58,000 from upward revisions to prior months. Notably, the unemployment rate did rise to 3.9%, pushed up by over 400,000 workers entering the labor force last month. This moved the labor participation rate up to 63.1% from 62.9%. Perhaps, the best part of Friday’s report was that wages showed a healthy gain of 0.4% in December and are now up 3.2% from a year ago. Gains in payrolls, more workers joining the labor force and higher real wages should support additional consumer spending and bolster somewhat slower but stable economic growth in 2019.
Interest rates fell last week as the rate on the 10 year U.S. Treasury dropped from 2.72% to 2.67% further flattening the yield curve. This week, look for economic reports on ISM non-mfg. PMI, inflation and the release of FOMC minutes from last month. In addition, US-China trade talks would resume this week at the vice-ministerial level.
“Without investment there will not be growth, and without growth there will not be employment.” -Muhtar Kent
ND&S Weekly Update – 1.28.19 – “Come Together – The Beatles Song”
January 28, 2019
Last week, the markets were very close to extending their four-week winning streak that saw them gain 11%. For the week, the Standard & Poor’s 500 declined 0.21%, while the Dow (DJIA) and the Nasdaq rose a meager 0.12% and 0.11%, respectively. International equities fared well with developed moving 0.48% and emerging 1.42%.
As leaders gathered at the World Economic Forum last week, investors contemplated and digested better-than-expected US corporate earnings and indications of slower global economic growth. China reported an estimated 6.6% GDP, its slowest annual pace since 1990. Commerce Secretary Wilbur Ross stated that the US is “miles and miles away from a trade deal with China.” President Trump has promised to increase the existing 10% tariff on over $200 billion in Chinese imports to 25%, if a deal is not reached. Monty Hall: “Let’s Make A Deal.”
Fortunately, an interim reprieve to end the government shutdown after 34 days was agreed to on Friday. However, lawmakers have until February 15th to agree to an extended deal. Economic advisors are warning that the shut-down could lead to near zero growth in the first quarter. The European Central Bank backed off from increasing interest rates, citing the “cooling off” of the European economy, as countries including Germany have lost some strength. U.S. fixed income markets were rather tame with the yield of the 10 year Treasury staying about the same at 2.77%. The government shutdown has caused delays in the reporting of economic data somewhat deferring bond investors’ trades.
Three-fourths of the ninety seven S&P 500 companies reporting have reported higher quarterly profit estimates. There’s nothing like better corporate earnings to soothe investors’ worries. Earnings will kick into high gear this week with 153 S&P 500 companies reporting quarterly results.
We desperately need improved negotiations to resolve the US-China trade conflict, the battle of Brexit and the US government shutdown. This week will be eventful with the Federal Reserve’s first policy meeting of the year, US jobs data, more trade talks and Senate meetings as well as impactful corporate reports including Apple, Microsoft, Facebook and Amazon.
“As a player, it says everything about you if you made the Hall of Fame. But then again, boy….there’s something about winning a Super Bowl” – Terry Bradshaw
GO PATS!