Archive for ND&S Updates
ND&S Weekly Commentary (7/22/19) – Earnings Season Kicks into Gear
July 22, 2019
Equity prices weakened last week as investors digested mixed earnings news and shifting expectations on Federal Reserve rate moves. For the week, the S&P 500 and DJIA were off 1.2% and 0.6%, respectively, while the NASDAQ declined 1.2%. International markets were mixed with developed markets down 0.1% and emerging markets up 0.8%. Communication services, energy and real estate were the weakest sectors last week.
In fixed income, the rate on 10 year U.S. Treasury fell to 2.05% from 2.12% last week. It’s widely believed that the Fed will reduce rates by 1/4% at its July meeting and that the chances for 1 or 2 more rate cuts before the end of the year are high. Globally other central banks are also in an easing mode.
Earnings reports accelerated last week with companies showing mixed results but many exceeding beaten down expectations. Microsoft reported earnings that beat expectations and the stock rose slightly on Friday. According to FactSet, earnings for companies in the S&P 500 will be down 1.9% from a year earlier. Actual results may be somewhat better given companies tendency to reduce expectations in advance.
In the week ahead, look for economic reports on existing home sales, durable goods orders and a first estimate for 2nd quarter GDP. Growth for the 2nd quarter is estimated at 1.8% vs 3.1% for the 1st quarter. Growth has moderated as a result of slowing global growth and trade uncertainty but still appears solid due to low inflation, solid job numbers and the prospect for lower rates. Chances of a recession in the near term appear to be low.
“Less is only more where more is no good” – Frank Lloyd Wright
ND&S Weekly Commentary (7.15.19) – Stock Market Milestones
July 15, 2019
US stocks achieved record highs last week buoyed by investors’ expectations that the Fed will lower interest rates at the end of the month. The Dow Jones Industrial Average (DJIA) was up 1.54%, while the S&P 500 climbed 0.82% and the NASDAQ rose 1.01%. International equities continue to be weighed down by trade tariffs and delayed negotiations. Developed international stocks (EAFE) slipped 0.54% and the emerging market equity index (EEM) declined 0.75%.
Fed chairman Jerome Powell hinted at a possible reduction in the Federal Funds Rate during the FMOC meeting on July 30-31. Powell said that below baseline inflation target of 2% could stifle economic growth and the central bank will “act as appropriate” to maintain the US expansion.
The Trump administration abandoned a proposal for rebates from governmental drug plans and a federal judge blocked the proposed rule requiring drug makers to list drug prices on television. Healthcare stocks rallied and then settled back down declining 1.64%.
Citigroup (C), JP Morgan (JPM), Goldman Sachs (GS) and Wells Fargo (WFC) report second quarter earnings on Monday and Tuesday. The low interest rate environment and weak trading volume have tempered earnings expectations. Bank revenues, earnings and guidance are key drivers of the stock market. However, they are cheap with the bank index trading at about 10.2 times estimates for the next 12 months compared to an average multiple of 12.4 for the last 10 years.
Oil prices continue to rally with the WTI now above $60 gaining 5% for the week. Tropical storm Barry shut down 53% of the oil production in the Gulf of Mexico. US inventories were already on the downswing over the last four weeks as a result of the instability in the Middle East.
Investors fear that Congress will fail to raise the US borrowing limit, which could be required in September, a month earlier than expected. Also, stronger than expected consumer prices were reported for June. As a result, the 10 year US Treasury yield rose to 2.12% up from last week’s 2.04%.
In addition to the kickoff of earnings season, this week the economic calendar is very active with reports on housing starts, manufacturing, industrial production, retail sales and consumer sentiment.
“Remember to celebrate milestones as you prepare for the road ahead.” – Nelson Mandela
ND&S Weekly Commentary (7/8/19) – Equities Notch New Highs
July 8, 2019
Markets pushed higher during the holiday-shortened trading week, notching closing highs before giving some back on Friday to end the week. A better-than-expected nonfarm payroll report on Friday increased the uncertainty around potential Fed action at July’s meeting. Markets had been pricing in a potential 50bps cut in 2019. The dovish expectations which have given support to equity markets in previous weeks.
For the week, the DJIA gained 1.27% while the S&P 500 tacked-on 1.69%. The volatile NASDAQ jumped 1.96%. Developed international markets were also higher as the MSCI EAFE index increased 0.52% for the week while emerging markets increased 0.69%. International equities should benefit more if we have some certainty around trade resolutions with China. Small company stocks, represented by the Russell 2000, were up 0.59% last week. Treasury yields jumped higher on the week as the 10 year US Treasury closed at a yield of 2.04%, up 4bps from last week.
On Monday, the ISM reported its measures for the manufacturing sector, which came in at 51.7% beating estimates. However their reading for the services sector missed estimates and was reported as 55.1%. Any reading above 50.0% implies the sectors are expanding, but both readings are quite a bit below their 12 month highs affirming a slowdown of activity. On Friday, the US Labor Department reported that the unemployment rate ticked up to 3.7%, but remains near its lowest level seen in decades. Average hourly earnings are up a healthy 3.1% y/y. The economy added 224,000 jobs in June which easily surpassed analysts’ estimates of 165,000. The week ahead includes reports on inflation and congressional testimony from Federal Reserve Chairman Jerome Powell. His testimony will shape markets expectations for upcoming monetary policy.
Congratulations to the USA Women’s National Team for their victory on Sunday over Netherlands for the 2019 Women’s World Cup.
“Failure happens all the time. It happens every day in practice. What makes you better is how you react to it.” – Mia Hamm
Weekly Commentary (7/1/19) – Trade Uncertainty Continues / Don’t Fight the Fed
July 1, 2019
Markets were mixed to slightly down last week as trade uncertainty with China raised concerns about the potential for a broad-based global slowdown. At the same time, the U.S. Federal Reserve and other central banks around the world gave investors reason for hope as they intimated that a round of interest rate cuts is right around the corner. The old expression – Don’t Fight the Fed – is alive and well.
For the week, the DJIA fell 0.45% while the S&P 500 dropped 0.27%. The volatile Nasdaq declined 0.30%. Developed international markets fared better. For the week, the MSCI EAFE index gained 0.67% while emerging market equities (MSCI EM) advanced 0.43%. Small company stocks, represented by the Russell 2000, improved nicely and finished ahead by 1.16% for the week. Fixed income, represented by the Bloomberg/Barclays Aggregate, finished the week higher as investors reacted to comments by the Fed that interest rates would likely remain low for the foreseeable future. As a result, the 10 YR US Treasury closed at a yield of 2.00% (down ~07 bps from the previous week’s closing yield of 2.07%). Gold prices closed at $1,409.70/oz – up 0.89% on the week. Oil prices advanced as tensions with Iran pushed oil to close at $58.47 – up 1.81% on the week.
Negotiations with China over the weekend resulted in an agreement to continue talks with no immediate jump in tariffs. We expect markets to cheer the news, but a final resolution to trade with China will be necessary for markets to continue their advance through the summer. In the meantime, the Fed will continue to provide investors with a reason to stay in the game.
Most importantly, we wish our clients and friends a happy Fourth of July as we all celebrate the many blessings bestowed on our great country.
Enjoy the week ahead!
“They who can give up essential liberty to obtain a little temporary safety deserve neither liberty nor safety.” – Benjamin Franklin, Memoirs of the life & writings of Benjamin Franklin.
ND&S Weekly Commentary (7/29/19) – All Eyes on the Fed
July 29, 2019
Strong earnings pushed stocks higher last week as investor eyes turned to this week’s Fed meeting, where it is anticipated they will reduce the federal funds rate by 0.25%. On the week, the DJIA inched higher by 0.14% while the broader based S&P 500 closed up 1.66%. Small companies had a strong week with the Russell 2000 jumping 2.02%. However, international stocks closed lower on the week with the MSCI EAFE and MSCI EM down 0.20% and 0.75%, respectively. Treasury yields remained steady on the week with the 10 yr. US Treasury closing at 2.08%, up slightly from 2.05% the week prior. Gold closed the week at $1420 oz. while oil remained in the mid-$50s per barrel.
The big economic news last week was the release of 2Q19 real GDP, which came in at a better-than-expected 2.1%. This result follows a 3.1% advance in the 1st quarter of the year. The growth was supported by strong consumer spending (+4.2%) which offset a small decline (0.6%) in business investment. Other economic releases last week included durable goods, which rebounded 2.0% in June, beating estimates and new home sales that came in at a 646k annual rate which missed expectations. .
Earnings season is upon us and has thus far been positive versus expectations. With approximately 43% of S&P 500 companies having reported, blended earnings are currently -2.3% year-over-year, while revenues are expected to grow 3.9%, according to FactSet Research. This week, roughly half of the S&P 500 companies will report earnings. Apple, Mastercard, Procter & Gamble, Pfizer are just some of the companies scheduled to report.
US-China trade talks are expected to resume this week in Shanghai. US has signaled that it would like to get back to the same level of dialogue reached in May. Most eyes will be on the fed as they wrap up their July meeting on Wednesday.
“The will to win, the desire to succeed, the urge to reach your full potential … these are the keys that will unlock the door to personal excellence.” – Confucius