Archive for ND&S Updates

NDS Weekly Commentary (4/29/2019) – Economic Growth Surpasses Expectations

April 29, 2019 

1Q GDP surprised investors on the upside last week – growing at an annualized quarterly rate of 3.2% and surpassing consensus estimates of 2.3%. The strong reading was the result of an increase in net exports and inventories of 1.0% and 0.7%, respectively. However, final sales to domestic purchasers grew by only 1.4%. Chances are that exports and inventories will grow more slowly in the 2nd quarter cutting GDP growth to about 2%. Economists expect consumer spending to pick up this spring as retail sales were strong in March. The unemployment rate remains low, wages are rising and consumer sentiment remains strong so economic growth should continue. The most recent GDP report certainly alleviated any recession fears in the short-term.

U.S. markets responded positively for the week with S&P 500 and the NASDAQ up 1.2% and 1.9%, respectively. The best performing sectors last week were health care (+3.7%), which has been a laggard, and communications services (+2.7%). The fixed income market was also positive for the week as the rate on the 10yr U.S. Treasury dropped from 2.57% to 2.51%. Globally, equity markets were weak with developed markets off 0.2% and emerging markets down 1.3%. The international outlook seems to be improving as the ECB is providing additional monetary stimulus and Japan recently passed a fiscal stimulus package.

Corporate earnings continue to come in better than expected. So far, almost 80% of companies that have reported have beaten expectations. This week 190 companies of the S&P 500 index are scheduled to report results. In addition, look for economic reports on factory orders, productivity and March jobs that are expected to be 185,000.

“He has achieved success who has worked well, laughed often, and loved much.”Elbert Hubbard

NDS Weekly Commentary (4.22.19) – Word of the Week: REDACTED

April 22, 2019 

The shortened holiday week instilled investor’s confidence as a result of a slew of healthy first quarter earnings. Among widely held companies surpassing analyst estimates were Bank of America, Johnson & Johnson and Pepsi, which pushed the DJIA up 0.60% for the week. The broader-based S&P 500 and tech laden NASDAQ were -0.07% and 0.17%, respectively. International equities were positive for the week with the MSCI EAFE increasing 0.35% and MSCI EM up 0.34%.

Apple and Qualcomm finally settled their royalty dispute and now Apple will buy Qualcomm chips for future iPhones. Bank of America cited loan growth as a contributor to earnings. As a result, technology and financial sectors increased 1.3% and 0.7%, respectively. Energy shares slipped 0.5% on the week as crude oil prices declined to $63.74 a barrel. The health care sector was the worst performer, declining over 4% for the week. Investors are worried about the potential impact of “Medicare For All.”

On Monday, Fed officials indicated that they would be willing to leave rates steady until later this year and gave an optimistic note on the nation’s economy. James Bullard, the St. Louis Fed President said the US economy is in “great shape” and he is encouraged by the Fed’s recent policy shift of a “flat rate outlook.” China reported that the world’s second leading economy expanded 6.4% beating growth expectations of 6.3%. US retail sales jumped 1.6% in March, easily beating the consensus estimate of 0.9%.

On the political front, the redacted Mueller report was released on Thursday. Both sides of the aisle will continue to haggle over Russia’s interference in the 2016 US Presidential election, which the market fully expected. The economic releases for the week ahead include existing and new home sales, durable goods orders, gross domestic product and consumer sentiment index.

We are encouraged by last week’s corporate earnings, Fed statements and China’s economic growth. All eyes are on the US and China trade talks. There are a slew of first quarter earnings yet to be announced, with 155 companies within the S&P 500 scheduled this week. Slowing global economic and profit growth, Brexit and our inverted yield curve remain issues to contend with. It will be a challenge for companies to expand profit margins because of higher input costs and technology gains may have peaked.

We are amazed and skeptical at how quickly global recession fears have subsided and equity markets are now back within reach of their all-time highs.

Once again, to weather the uncertainties we recommend diversifying among various asset classes, maintaining quality assets with a bias towards safe income and dividend growth.

“The greatest products of architecture are less the works of individuals than of society; rather the offspring of a nation’s effort, than the inspired flash of a man of genius….”
-Victor Hugo, The Hunchback of Notre-Dame

NDS Weekly Commentary (4.15.19) – Earnings Season Kicks Into Gear

April 15, 2019 

Markets ground higher last week, aided by a Friday rally on the back of bank earnings that boosted investor optimism on the kickoff of earnings season. Before the bell on Friday, JPMorgan Chase reported both Q1 revenues and earnings ahead of expectations. However, profits overall for the S&P500 are expected to decline 4.3% in the 1st quarter from a year ago, according to FactSet. This week will be busy with 55 companies within the S&P500 scheduled to announce earnings.

On the economic front, the International Monetary Fund last week lowered its projections for global growth in 2019 by 0.2% to 3.3%. Slowing growth in China along with the spillover from the trade dispute between US and China are the reasons for the reduction. The Federal Reserve also released minutes from their March meeting, and the uncertainly over their economic outlook would likely leave the federal funds rate unchanged for the remainder of 2019. Also aiding the Fed’s dovish policy, inflation remains somewhat muted with the Consumer Price Index (CPI) increasing 0.4% in March. Over the last 12 months, the CPI increase 1.9% as reported by the U.S. Bureau of Labor Statistics.

For the week, the DJIA declined 0.03% while the S&P 500 gained 0.56%. The Nasdaq increased 0.58%. International markets also gained as the MSCI EAFE index pushed ahead 0.30% and emerging markets equities advanced 0.41%. Small company stocks, represented by the Russell 2000, nudged higher by 0.16%. Fixed income, represented by the Bloomberg/Barclays Aggregate, finished the week lower (-0.12%) as rates increased across all time periods. As a result, the 10 YR US Treasury closed at a yield of 2.56% (up ~6bps from the previous week’s closing yield of 2.5%). Gold prices closed at $1,294/oz and oil prices moved higher to finish at $63.89/barrel amid supply concerns in Libya.

Clients should be on the lookout for quarterly portfolio reports along with our 1st quarter newsletter titled Paradise Regained, a play on John Milton’s follow-on poem and our 4th quarter newsletter title to Paradise Lost.

“In this world nothing can be said to be certain, except death and taxes.” Benjamin Franklin

Weekly Commentary (04/08/19) –Markets Push Higher on Trade Optimism

April 8, 2019 

Markets were strong last week as investors pinned their hopes on a resolution to the ongoing U.S./China trade negotiations. Also helping to buoy investors’ spirits were a number of economic reports that seemed to support the notion that the U.S. economy remains in expansion mode (although economic growth is certainly slowing, as would be expected at this point of the long-running economic expansion). ISM Manufacturing index numbers were strong (55.3% vs. consensus of 54.5%) while Friday’s release of employment numbers highlighted the addition of 196,000 jobs in the month of March, exceeding expectations for a gain of 175,000 jobs. Friday’s release of the jobs data showed that unemployment held steady at 3.8% while average hourly earnings (wage inflation) increased 3.2% year-over-year. On the downside was Wednesday’s release of the March ISM Non-Manufacturing index, which showed that the service sector of the U.S. economy slowed as the index came in at 56.1%, missing expectations of 58.0%.

For the week, the DJIA increased 1.95% while the S&P 500 gained 2.09%. The volatile Nasdaq jumped 2.73%. Developed international markets also gained as the MSCI EAFE index pushed ahead 2.01% for the week. Emerging markets equities saw increased demand as the MSCI EM index advanced 2.58%. Small company stocks, represented by the Russell 2000, were the biggest gainers as the index moved higher by 2.80% for the week. Fixed income, represented by the Bloomberg/Barclays Aggregate, finished the week lower (-0.30%) as investors took profits in bonds. As a result, the 10 YR US Treasury closed at a yield of 2.50% (up ~8.4 bps from the previous week’s closing yield of 2.416%). Gold prices closed at $1,290/oz – down 0.2% on the week. Oil prices jumped higher as oil closed at $63.08 – up by 4.89% on the week.

So have U.S. markets moved a bit too far too fast? Probably. Of course, one never knows, but we would not be surprised if the markets pulled back a bit as they digest 1st quarter earnings due to be released over the next few weeks.

Enjoy the week ahead!

“Success is never final, failure is never fatal. It’s courage that counts.”John Wooden

ND&S Weekly Commentary 4.1.19 – Strong First Quarter

April 1, 2019 

U.S. equities finished the last week on an up note capping the strongest 1st quarter for the S&P 500 since 2009. For the week, the S&P 500 and the DJIA were up 1.23% and 1.67%, respectively. Buoyed by optimism on trade negotiations between the U.S. and China and a dovish pivot from the Federal Reserve, for the quarter, the S&P 500 was up 13.6% and small cap stocks rose 14.6%. Similarly, international stocks performed well, developed markets rose 10.1% and emerging markets gained 10.0%.

Fixed income markets also rallied in the 1st quarter due to accommodative global central bank policies. The rate on the 10yr U.S. Treasury fell from 2.68% at the beginning of the year to 2.41% while the 10yr German bund dropped from 0.24% to -0.07%.

Concerns over global growth are starting to be felt in the US, as last week 4th quarter U.S. GDP was revised downward from 2.6% to 2.2%. Additionally, 1st quarter U.S.GDP numbers are only expected to be about 1.3% and earnings for S&P 500 companies are estimated to decline 3.9% in the quarter. However, most economists expect growth to pick up in the 2nd quarter as incomes continue to rise and consumer sentiment stays strong. This week look for reports on retail sales, durable-goods and March jobs that are expected to rebound from February.

“April 1. This is the day upon which we are reminded of what we are on the other three hundred and sixty-four.” – Mark Twain