Archive for ND&S Updates
ND&S Weekly 5.20.19 – Stay Calm
May 20, 2019
The equity markets were a bouncing ball last week as continuing trade tensions weighed down the Dow Jones Industrials (DJIA) for a fourth straight week of losses, its longest losing streak in three years. The DJIA shed 0.61%, the S&P 500 declined 0.69% and the NASDAQ gave up 1.22%. US small caps suffered with the Russell 2000 losing 2.32%. Emerging market stocks fell 3.55% while developed international equities squeezed out a 0.23% gain.
The increasingly rancorous trade conflict has made investors nervous about the two economic powers damaging global supply lines and putting the brakes on an already slowing global economy. However, there was a positive trade development with the US lifting tariffs on Canadian and Mexican steel and aluminum.
It is important to note that corporate earnings fuel stock prices. With first-quarter earnings season almost over, 460 constituents of the S&P 500 companies have reported and 75% of them beat analyst expectations. The impact of trade conflicts will be on center stage again as large retailers, Home Depot, Nordstrom, Kohls, and Target report this week. According to the American Apparel and Footwear Association, 41% of apparel and 72% of footwear produced is manufactured in China.
Economists, analysts, and market pundits are recalibrating their data. Investors, meanwhile, have sought safe-haven assets as US Treasury yields fell, money market inflows surged and utility and telecommunication stocks rose. Overall yields on US Treasuries fell to their lowest levels in over a year. The benchmark 10 year US Treasury yield closed the week at 2.39%, down from 2.47% the week prior.
Though we expect President Trump tweeting about trade and China’s bellicosity to continue, Wall Street consensus is that there will be a trade deal with China. In another escalation with China last week, the US put Chinese hardware company Huawei and 26 of its affiliates on an export blacklist causing a number of US tech giants to halt business with them. The US and others have accused Huawei of committing espionage on behalf of the Chinese government. Hopefully, President Trump and Xi Jinping can settle things at the end of next month at the meeting of the Group of 20 nations. There are other geopolitical risks to take into account including, escalating tensions with Iran, Venezuela’s instability, Europe’s parliamentary elections and North Korean missile launches.
Economic news in the week ahead include reports on new and existing home sales, manufacturing PMIs, and durable goods orders. Despite all of the headline news we strongly feel that investors should remain diversified, not chase the momentum up or down and try to stay calm.
“A pessimist sees the difficulty in every opportunity; an optimist sees the opportunity in every difficulty.” – Winston Churchill
ND&S Weekly Commentary (5/13/19) – Trade Tensions Escalate
May 13, 2019
Markets had a rocky week as trade war concerns weighed heavily on investor sentiment. As is it appeared a trade agreement was close, China allegedly walked back on some of their prior commitments resulting in President Trump’s decision to increase tariffs on $200 billion worth of Chinese imports from 10% to 25%. China vowed to take “appropriate countermeasures” which will likely result in additional levies against US exports to China. The trade uncertainty will likely remain a headwind for the market in the near-term as investor expectations adjust to the reality that there might not be an agreement.
For the week, the DJIA lost 1.96% while the S&P 500 gave back 2.10%. The volatile Nasdaq declined 2.96%. Developed international markets were also weak as the MSCI EAFE index dropped 2.59% for the week. Emerging markets lost ground as well with the MSCI EM index ceding 4.51%. Small company stocks, represented by the Russell 2000, were beaten-down by 2.52% for the week. Fixed income, represented by the Bloomberg/Barclays Aggregate, finished the week higher (+0.31%) in a flight to safety. As a result, the 10 YR US Treasury closed at a yield of 2.47% (down 7 bps from the previous week’s closing yield of 2.54%). Gold prices closed at $1,287/oz. Oil prices were flat on the week as oil closed at $61.66.
With 90% of the constituents of the S&P500 having reported for Q1 2019, blended earnings show a less than 1% decline with the same quarter a year ago. Revenues are expected to rise 5.3% year over year, according to FactSet. This week, 13 companies of the S&P 500 index are scheduled to report results.
There will be economic releases on retails sales, manufacturing, housing starts, and consumer confidence in the week ahead. However, most investor focus will be on the US-China trade front as negotiations remain ongoing.
“There are no secrets to success. It is the result of preparation, hard work, and learning from failure.” – Colin Powell
Weekly Commentary (05/06/2019) – Jobless Rate Hits 50-year High
May 6, 2019
Markets were mostly positive last week as investors cheered better than expected 1st quarter earnings and bullish jobless news. 1st quarter earnings reports are nearly complete and have been mostly solid. In addition to solid earnings, the U.S. Labor Department reported that the economy added 263,000 jobs in April – far exceeding an expected gain of 190,000 jobs. The unemployment rate fell to 3.6%, the lowest level in nearly 50 years. Average hourly earnings rose $0.06 to $27.77, or 3.2%, for all nonfarm payrolls. More encouraging news was found in Monday’s release of inflation data as the Core PCE price index (personal consumption expenditures – a measure of personal spending) rose 1.6% in March. With inflation fairly tame, it is unlikely the Fed will need to raise rates this year.
For the week, the DJIA fell 0.14% while the S&P 500 gained 0.22%. The volatile Nasdaq jumped 0.23%. Developed international markets also gained as the MSCI EAFE index pushed ahead 0.33% for the week. Emerging markets equities saw increased demand as the MSCI EM index advanced 0.48%. Small company stocks, represented by the Russell 2000, were the biggest gainers as the index moved higher by 1.42% for the week. Fixed income, represented by the Bloomberg/Barclays Aggregate, finished the week lower (-0.06%) as investors took profits in bonds. As a result, the 10 YR US Treasury closed at a yield of 2.54% (up ~3.0 bps from the previous week’s closing yield of 2.51%). Gold prices closed at $1,279.20/oz – down 0.49% on the week. Oil prices dropped as oil closed at $61.94 – down by 2.15% on the week.
So much good news is now reflected in the markets. Next up is a resolution, or not, regarding the trade issue with China. Any setback in negotiations with China will likely have a short-term negative effect on the markets. With the underlying strength of the economy, however, any setback will eventually be met with buying. We remain cautiously optimistic.
Enjoy the week ahead!
“Life is 10% what happens to you and 90% how you react to it.” – Charles R. Swindoll
NDS Weekly 5.28.19 – Trade Concerns Continue
May 28, 2019
Equity prices declined for the 5th consecutive week as concerns about trade and tariffs continued to worry the markets. In the U.S., the DJIA, S&P 500 and NASDAQ declined 0.63%, 1.14% and 2.3%, respectively. The best performing sectors last week were utilities, health care and real estate as investors sought shelter in dividend paying stocks. International stocks also declined with the MSCI EAFE down 0.5% and MSCI EM off 0.9%. Investors continued a flight to safety trend as bonds continued to rally. As a result, the rate on the 10 year U.S. Treasury note dropped from 2.39% to 2.32% last week.
In economic news last week, durable goods orders dropped 2.1% in April which missed expectations for a 2.0% decline. Additionally, March’s reading was revised lower to a 1.7% advance painting a weaker picture for U.S. factory demand. New and existing homes sales for April came in at 5.19mm and 673k as both missed analysts’ estimates. JPMorgan last week also reduced its 2nd quarter estimate for GDP growth.
This week economic news is on the light side as only reports on consumer sentiment, personal spending and a 3rd revision to 1st quarter GDP are expected. Dividend paying stocks and non-cyclicals such as consumer staples will probably offer some protection if trade uncertainties continue to make equity markets volatile.
Another Memorial Day has come and gone. The official start of summer is here, and the charcoals from cookouts and barbecues are still warm. But let us never forget the real meaning of Memorial Day – to honor those who have gone before us and paid the ultimate price to ensure our freedom and to secure the blessings of liberty.
“We do not know one promise these men made, one pledge they gave, one word they spoke; but we do know they summed up and perfected, by one supreme act, the highest virtues of men and citizens. For love of country they accepted death. And thus resolved all doubts, and made immortal their patriotism and their virtue.”
– James Garfield
May 30, 1868 Arlington National Cemetery