Archive for ND&S Updates
NDS Weekly Commentary (6.17.19) – Equities Grind Higher
June 17, 2019
Last week the markets were rather tame in quiet trading. All eyes will be on the Federal Reserve’s comments following Wednesday’s meeting. The recent tepid economic data is seen as a positive step for the Fed to signal a dovish stance and possibly lower the Federal Funds rate. Recent tensions in the Middle East, together with ongoing tariff battles, have weighed heavily on investors’ minds.
The S&P 500 gained 0.53% and the tech-heavy NASDAQ rose 0.73%. International equities were mixed with the MSCI EAFE Index down 0.26% and emerging markets up 0.90%. Holding up the markets were a lower than expected inflation outlook, increasing merger and acquisition (M&A) activity, and a surge of initial public offerings. Additionally, the recent strength of the US stock market can be attributed to investors rotating into utilities, consumer staples, and real estate. These sectors are all trading above their 50 day moving average, according to FactSet data.
The yield on the 10-year Treasury note remained at 2.09%. Market pundits and economists are at a loss as to why inflation remains low when the economy is growing with historic low unemployment. It will be very interesting to hear the Feds economic analysis and posture.
Investors are worried about the prolonged trade tensions between the U.S. and China and their effect on the global economy. China, the world’s second leading economy, showed further signs of weakness. The National Bureau of statistics reported that China’s industrial production slowed in May to its lowest level in 17 years.
Prices of oil have declined 12% in the last four weeks, another indicator of slower global economic growth. The uncertainty of global financial markets and slower growth together with rising tensions in the Middle East have rallied gold prices.
We strongly feel that a well-diversified portfolio with quality holdings in equities and fixed income will provide solid returns. Hopefully, trade tensions will ease and the Fed will assuage investors’ concerns.
“It does not matter how slowly you go as long as you do not stop.” – Confucius
ND&S Weekly Market Commentary (6/10/19) – Stocks Roar Back
June 10, 2019
Markets surged more than 4% last week despite many current challenges and uncertainties. Storylines last week included antitrust probes of some of the largest companies that comprise the market, global service and manufacturing PMIs which show a slowing economy and the ongoing challenges with China on the trade front. It appears that a resolution with Mexico has been reached so at least one issue is now on the back burner. However, disappointing employment figures for May fanned expectations of loosening monetary policy.
For the week, the DJIA gained 4.77% while the S&P 500 tacked-on 4.46% notching their best week of 2019. The volatile NASDAQ jumped 3.91%. Developed international markets were also higher as the MSCI EAFE index increased 3.24% for the week. Emerging markets increased 1.04% on the week but should benefit more if we have some trade resolutions with China. Small company stocks, represented by the Russell 2000, jumped 3.36% last week. Fixed income, represented by the Bloomberg/Barclays Aggregate, also finished the week higher as speeches from Fed Officials were quite dovish last week. As a result, the 10 YR US Treasury closed at a yield of 2.09% (down 5 bps from the previous week’s closing yield of 2.14%). Gold prices increased to $1341/oz. and oil prices contracted to close at $53.94/b.
One thing that has perplexed professional investors and forecasters is the sharp decline in yields. Hopefully the bond market isn’t foretelling economic weakness in the back half of the year … This WSJ chart illustrates just how wrong economists were in their January survey. Based on the results, not one economist predicted the 10yr US treasury would fall below 2.5%. The consensus was that rates would be flat to slightly higher at year-end but so far this year they have been anything but that. The big drop in rates has certainly helped core bond funds and high-duration assets as the Bloomberg/Barclays Aggregate is up 5.17% year-to-date.
There are certainly some small signs of slowdown in the economy. Last week, it was reported that the manufacturing PMIs came in at 52.1%, missing estimates … any reading above 50 is considered an expansion. On Friday, it was reported that 75k jobs were added in May, which missed expectations for a 185k gain. Eyes will be on this week’s economic reports on inflation, retail sales, and consumer sentiment.
We continue to recommend that investors stay close to their intended asset allocation targets and remain patient. Let’s make it another good week!
“With the new day comes new strength and new thoughts.” – Eleanor Roosevelt
Weekly Commentary (06/03/19) –Another Tweet, Another Down Week
June 3, 2019
Markets pulled back for the 6th consecutive week as the trade rhetoric with China intensified and an unexpected threat of tariffs on Mexican imports weighed on an already frazzled investor psyche. The Trump administration reported that they would impose 5% tariffs on all Mexican imports beginning June 10th unless Mexico stepped up its efforts to thwart the illegal immigration issue. Very few people anticipated this blurring of social and economic policies, and this recent threat could hold up the ratification of the USMCA (United States-Mexico-Canada Agreement).
Economic news continues to be mostly reasonable. On Thursday, the Bureau of Economic Analysis reported that real GDP (GDP adjusted for inflation) rose a very respectable 3.1% in the 1st quarter. Also reported on Thursday, Pending Home Sales fell 1.5% (missing expectations of an increase of 0.5%) in April and marking the 16th straight month of year-over-year declines. Also on Thursday, the U.S. Labor Department reported initial jobless claims for the week ending May 25 were 215,000 – in-line with expectations. Claims have been below 300,000 (a level which indicates a healthy jobs market) for 221 consecutive weeks, the longest streak on record. On Friday, the Bureau of Economic Analysis (BEA) reported that Personal Income for April rose 0.5%, exceeding expectations for a gain of 0.3%. Personal disposable income also advanced a healthy 0.4% in April. Bottom line – the economic backdrop remains decent, but the trade rhetoric and political posturing will most certainly translate into economic challenges unless they are resolved shortly.
For the week, the DJIA fell 2.93% while the S&P 500 dropped 2.58%. The volatile Nasdaq declined 2.39%. Developed international markets fared better. For the week, the MSCI EAFE index retreated 1.85% while emerging market equities were the bright spot as the MSCI EM index advanced 1.24%. Small company stocks, represented by the Russell 2000, moved lower by 3.18% for the week. Fixed income, represented by the Bloomberg/Barclays Aggregate, finished the week higher as investors fled to bonds as a safe haven. As a result, the 10 YR US Treasury closed at a yield of 2.14% (down ~18 bps from the previous week’s closing yield of 2.32%). Gold prices closed at $1,305.80/oz – up 1.73% on the week. Oil prices dropped as oil closed at $53.50 – down by 8.75% on the week.
Markets are certainly on edge, and we suggest investors remain patient and continue to stick close to long-term asset allocation targets (with slightly higher levels of cash). This period of heightened volatility will most certainly end … it always does.
Enjoy the week ahead!
“Hope is independent of the apparatus of logic.” – Norman Cousins
ND&S Weekly Commentary 6/24/19 – Easing Ahead
June 24, 2019
Last week at the June FOMC meeting the Federal Reserve decided to maintain the target range for Fed funds at the 2.25%-2.50% rate. However, they did abandon the word patience in the minutes and replace it with “will act as appropriate to sustain the expansion” implying easing ahead. Most economists now are predicting a rate cut at the July meeting with a possible second cut later in the year. As a result, global equity markets continued their advance with the S&P 500, DJIA and NASDAQ up 2.22%, 2.41% and 3.0%, respectively. International developed markets and emerging markets advanced 2.22% and 3.84%. For the week, the best performing sectors were energy, technology and healthcare. Energy stocks got a boost last week as Iran continues to rattle the Mid-East by shooting down a U.S. drone over the Strait of Hormuz. Look for volatility to continue for the near-term and maintain your diversified asset allocations.
In fixed income, bond prices also got a boost from easing comments from the Fed and the ECB. The 10 year U.S. Treasury finished the week at a yield of 2.07%, which was down from 2.09% and at one point traded below 2.0%. This week look for economic reports on consumer confidence, new home sales and durable goods orders.
“There is no risk-free path for monetary policy.” – Jerome Powell