Archive for ND&S Updates

ND&S Weekly Commentary 3.25.19 – Fed Guidance Throws Market for Loop

March 25, 2019 

Markets sold off sharply into the close Friday to close the week in the red. The DJIA closed lower by 1.34%, while the broader-based S&P 500 moved lower by 0.75%. Smaller US companies gave back the most closing down 3.05% on the week. International stocks were mixed with the MSCI EAFE declining 0.33% and emerging increasing a modest 0.24%. Yields had a strong move lower following the Fed’s dovish guidance. The 10yr Treasury yield closed the week at a yield of 2.44%, down from 2.59% the week prior. Gold increased to $1312/oz.

The Federal Reserve dialed back their rate hike outlook and surprised the market by projecting zero interest rate increases in 2019, down from the committee’s December projection of two. Futures markets are beginning to price-in a cut in rates later this year. Additionally, the committee announced that it would end its balance sheet run-off in September with its primary goal of owning only treasuries. In an effort to stimulate the economy during the financial crisis, the Fed purchased mortgage-back securities (which are more risky than US Treasuries) to prop up the US housing market. The Fed’s projections for economic growth and inflation were trimmed to 2.1% and 1.8%, respectively.

Weak manufacturing data fueled growth worries last week. Factory activity in Europe fell deeper into contraction territory, slipping to 47.6. Sentiment weakened in the US as well with the flash manufacturing reading falling to 52.5 in March. An index reading below 50 is considered to be contraction. This week, look for economic reports on housing, consumer confidence, and inflation.

Let’s make it a great week!

“Excellence is the gradual result of always striving to do better.” – Pat Riley

ND&S Weekly Market Commentary (3.18.19) – Markets Continue March Higher

March 18, 2019 

Equity markets roared back last week after suffering their worst week of 2019. For the week, the DJIA increased 1.10%, despite pressure on shares of Boeing after the tragic loss of 157 lives in another Boeing 737 Max 8 crash in Ethiopia, prompting countries to respond by grounding the new series of planes around the world. The broader-based S&P 500 jumped 2.95% and the tech-heavy NASDAQ increased 3.81%. International markets also experienced a strong week with the MSCI EAFE increasing 2.81% and emerging markets closing higher by 2.67%. Mixed economic data for the week pushed yields lower on US Treasuries. The yield of the 10yr Treasury closed at 2.59%, down from 2.62% the week prior. Gold prices rebounded to about $1,300oz. while WTI crude pushed above $58 a barrel.

The week began with Monday’s release of both retail sales and food-services which increased 0.2% in January, beating estimates. However, December’s estimate was revised lower showing a 1.6% decline. On Tuesday, the consumer price index (CPI) was released showing an increase of 0.2% in February, matching expectations. Over 12 months, the CPI increased 1.5% giving the Fed plenty of reason to proceed with caution ahead of this week’s FOMC meeting. On Thursday, data was released showing that new home sales in January decreased 6.9% m/m coming in below estimates. On Friday, industrial production ticked up 0.1% in February missing expectations for a 0.4% increase.

The British Parliament undertook a series of votes last week to clear the path toward a “Brexit” deal, which is scheduled to happen on March 29th. Lawmakers rejected the latest agreement potentially setting the stage for a withdrawal without an agreement. The political theater will continue this week with a third vote on the withdrawal agreement, this ahead of the European summit later in the week. Eurozone industrial production rose a stronger-than-expected 1.4%. Manufacturing activity tends to be more sensitive to the economic cycle than services.

Investors will be looking ahead to this week’s meeting of Federal Reserve policy makers. The FOMC is expected to leave rates unchanged when they conclude their two-day meeting on Wednesday. Most expectations are for the Fed to hike rates once in 2019 and once more in 2020, while maintaining their “wait and see” stance adopted in January.

Don’t forget to watch March Madness … a nice diversion from the day-to-day noise of the markets and headline news!

“It’s not how big you are, it’s how big you play.”John Wooden

Weekly Commentary (03/11/19) –Markets Retreat on Global Growth Concerns

March 11, 2019 

Markets were weak last week as investors focused on continuing signs of slowing global growth. China reduced its target GDP for 2019 from 6.5% to a range of 6.0% to 6.5%. Most investors attributed China’s slowdown to ongoing trade tensions with the U.S., but investors should remember that China is transitioning to a consumption-based economy that will necessarily lead to structurally lower growth.

For the week, the DJIA gave back 2.17% while the S&P 500 lost 2.12%. The volatile Nasdaq declined 2.43%. Developed international markets retreated as the MSCI EAFE index dropped 1.91% for the week. Emerging markets also lost ground as the MSCI EM index retreated 1.99%. Small company stocks, represented by the Russell 2000, were the biggest losers as the index dropped 4.23% for the week. Fixed income, represented by the Bloomberg/Barclays Aggregate, finished the week higher (+0.68%) as investors seeking safety flocked to U.S. bonds. As a result, the 10 YR US Treasury closed at a yield of 2.62% (down 14 bps from the previous week’s closing yield of 2.76%). Gold prices closed at $1,297/oz – up 0.05% on the week. Oil prices inched higher as oil closed at $56.07 – up by 0.48% on the week.

Perhaps the U.S. markets have moved a bit too far too fast. We would not be surprised by continued volatility, but underlying economic conditions in the U.S. remain reasonable. We have likely seen peak GDP and earnings growth for the time being, but domestic valuations are still in-line with historic metrics. International economic conditions are slowly deteriorating, but valuations have come down quite a bit to reflect softening conditions.

It is our intention to look through the day-to-day noise of the markets and focus on fundamentals.

Enjoy the week ahead, and let’s hope that Punxsutawney Phil was right … maybe spring will be right around the corner.

“Spring is nature’s way of saying, ‘Let’s Pary!’ “ – Robin Williams

ND&S Weekly 3.5.19 – GDP Report – Better Than Expected

March 5, 2019 

The initial estimate for 4Q18 GDP was reported last week and showed the U.S. economy grew 2.6%, beating analyst expectations. For 2018 as a whole, the economy grew at a solid 2.9% rate up from 2017’s 2.2% pace. Consumption and business fixed investment were the main contributors at 1.8% and 0.9%, respectively, aided by the tax cuts. Housing’s contribution was close to zero reflecting the dampening effect of higher mortgage rates.

Stock markets continued to advance last week with the S&P 500 up 0.46%, the DJIA up 0.07% and the NASDAQ 0.93%. Internationally, the MSCI EAFE advanced 0.58% while emerging markets declined 0.65%. The best performing S&P 500 sectors last week were energy, technology and financials. Bond prices slipped last week as the rate on the 10-year U.S. treasury rose from 2.65% to 2.76%.

This week, look for economic reports on productivity, housing starts and February jobs numbers. Expectations are for 185,000 new jobs versus 304,000 reported in January. For 2019, we look for a slowing in GDP growth to a pace of 2.0%- 2.5%. Expectations for the first quarter have been revised lower to reflect the negative impact due to the government shutdown.

“Snow brings a special quality with it – the power to stop life as you know it dead in its tracks.” – Nancy Hatch Woodward