Archive for ND&S Updates
NDS Weekly Commentary 8.19.19 – Volatility Continues
August 19, 2019
Stock markets worldwide were lower last week as weak economic data out of China and Germany rattled investors. Chinese industrial production slowed to 4.8% year-over-year, the weakest since 2002, while German GDP contracted -0.1% for the 2nd quarter of 2019. Trade worries continued to hang over the markets as China and US exchanged threats. However, hidden behind all of the negative global headlines were July retail sales that rose a healthy 0.7% month-over-month and new home permits were up 8.4% month-over-month and now up 1.5% year-over-year. It’s important to remember consumption is two-thirds of U.S. GDP and retail sales are 43% of consumption.
Despite an 800 point selloff in the DJIA on Wednesday, markets bounced back and finished the week modestly lower. For the week, the DJIA, the S&P 500, and the NASDAQ were down -1.4%, -0.9% and –0.9%, respectively. Developed international and emerging markets declined -1.5% and -1.0%. The best performing sectors for the week were the more defensive (albeit overvalued) consumer staples, utilities, and real estate.
The increased volatility has benefited fixed income markets as investors sought shelter in U.S. Treasury securities. Interest rates continued to fall for the week. During the week, the 30 year U.S. Treasury bond briefly dipped below 2.0%. At one point during the week, the yield on the 2 year and 10 year U.S. Treasury briefly inverted raising recessionary concerns. However, by the end of the week the 10 year ended at 1.55% down from 1.74% and the 2year was at 1.48%. While recessionary fears are rising we do not anticipate a recession in the near-term.
This week is a slow week for economic news with only reports on existing home sales, new home sales and preliminary mfg. PMI.
We would remind investors to maintain a well-diversified portfolio to help weather periods of market volatility.
“Failure will never overtake me if my determination to succeed is strong enough.” – Og Mandino
ND&S Weekly Commentary (8.12.19) – Confucius Say …
August 12, 2019
The ongoing US-China trade war escalated last week and wreaked havoc in the financial markets. China retaliated to President Trump’s 10% tariff threat on over $300 billion of imports by devaluing its currency to its lowest level in eleven years. As a result, there was a major flight to safety that drove down bond yields globally and caused renewed volatility in the equity markets. The prices of historical safety nets of government bonds and gold were bid higher. The yield on the 10-year Treasury slid to 1.6%, its lowest level since October 2016. The price of gold surged past $1,500 an ounce for the first time since 2013.
The volatility of the stock market was clearly evident on Wednesday as the Dow Jones Industrials went from down 589 to end nearly flat in the sharpest turnaround in seven months. For the week, the DJIA and the S&P 500 finished down 0.61% and 0.40%, respectively, while the NASDAQ declined 0.51%. Trade tariff threats weighed heavily on international markets as developed equities (EAFE) slipped 1.14% and emerging market stocks (EEM) were off by 2.22%.
Fixed income markets were quite volatile due largely to the currency devaluation of China, slowing global growth and, yes, fear. The yield on the 10-year US Treasury dropped from 1.86% last week to 1.74%.
It is difficult to explain the indirect causes and effects of negative interest rates. The global supply of negative-yielding bonds has grown to over $15 trillion. Bond prices are expected to remain high as a result of increasing demand for income yields, slowing economic activity and monetary easing by global central banks.
Several research analysts and economists claim that central banks around the world are reducing rates to weaken their currencies which would make their exports less expensive and support economic growth. Investors are expecting further rate cuts by the Federal Reserve in order to prevent the US dollar from strengthening and keeping our exports competitive.
The price of Brent crude fell 4.6% to $56.75 a barrel. Rising inventories of oil have kept prices down about 25% in the past 12 months which is great for consumers but difficult for energy companies.
This week’s reports: Monday—China vehicle sales—Tuesday, US and Germany’s inflation rates— Wednesday, China retail sales, Germany and Europe GDP, Thursday—US retail sales and Friday—US housing starts and building permits.
“He who thinks too much about every step he takes will always stay on one leg.”
-Chinese Proverb
Weekly Commentary (08/05 /19) –Fed Cuts Rates and Trade Tensions
August 5, 2019
Markets were decidedly lower last week as President Trump announced he would impose a 10% tariff on $300 billion on additional Chinese imports beginning September 1. President Trump’s decision on Thursday (against the advice of his chief advisers) completely overshadowed action by the Fed the day before. On Wednesday, the Fed lowered rates by 0.25%, as widely expected.
For the week, the DJIA fell 2.59% while the S&P 500 dropped 3.07%. The volatile Nasdaq declined 3.90%. Developed international markets also sold off. For the week, the MSCI EAFE index gave up 2.64% while emerging market equities (MSCI EM) sunk 4.29%. Small company stocks, represented by the Russell 2000, finished lower by 2.85% for the week. Fixed income, represented by the Bloomberg/Barclays Aggregate, finished the week higher as investors reacted to actions by the Fed and President Trump. As a result, the 10 YR US Treasury closed at a yield of 1.845% (down ~22 bps from the previous week’s closing yield of 2.07%). Not surprisingly, Gold prices closed at $1,445.60/oz – up 1.85% on the week. Oil prices dropped $0.54 last week as signs of slowing global growth lowered future demand expectations.
We expect China to retaliate against President Trump’s recent actions. As a result, markets will most likely be volatile for the next week or so. Buckle-up and stay close to your long-term target asset allocations with a slight defensive bias.
As everyone knows by now, two mass shootings took place in the United States over the weekend. We are greatly saddened by these events, and we extend our sincere condolences to the families who lost love ones. This madness must end.
“We don’t develop courage by being happy every day. We develop it by surviving difficult times and challenging adversity.” – Barbara De Angelis
Weekly Commentary (08/26/19) –Trade Tensions Weigh on Markets
August 26, 2019
Markets were fairly calm for most of last week until China announced on Friday that they would impose tariffs of 5% to 10% on $75 billion worth of U.S. goods to be implemented in two stages – September 1st and December 15th. Not to be outdone, President Trump responded in-kind by saying he would raise the tariff rate by 5% on existing and planned tariffs. He also directed U.S. companies to immediately look for alternatives to China while tweeting “We Don’t Need China.” Wasting no time, the media used the chaos and uncertainty to reiterate their battle cry that a recession is looming. While the probability of a recession has increased lately, it is unlikely that we will see one in the near term. We will likely see a recession within the next 18 months or so, but recessions are quite normal and happen, on average, about once every five years.
Economic data released last week was mostly positive. Existing home sales jumped 2.5% in July (better than expected) while existing home pricing increased 4.3% year-over-year. Initial jobless claims for the week ending August 17 were better than consensus as claims remained below 300,000 (level considered for a healthy jobs market) for 233 consecutive weeks. New homes sales were reported on Friday as levels were slightly less than expected; however, June’s level was revised sharply higher which makes up for July’s slight miss. Trade tensions and headline news about a looming recession certainly have investors on edge, but the U.S. consumer (2/3rds of GDP) remains mostly upbeat.
For the week, the DJIA fell 0.98% while the S&P 500 dropped 1.42%. The volatile NASDAQ declined 1.81%. Developed international markets fared better. For the week, the MSCI EAFE index advanced by 0.86% while emerging market equities (MSCI EM) inched higher by 0.38%. Small company stocks, represented by the Russell 2000, finished lower by 2.27% for the week. Fixed income, represented by the Bloomberg/Barclays Aggregate, finished the week slightly higher as investors continued to flee to the perceived safety of bonds. As a result, the 10 YR US Treasury closed at a yield of 1.52% (down ~3 bps from the previous week’s closing yield of 1.55%). Not surprisingly, Gold prices closed at $1,526.60/oz – up 0.93% on the week. Oil prices dropped $0.64 last week as signs of slowing global growth lowered future demand expectations.
We wish the markets were calmer and less frenetic, but that is not the case. We expect the markets to continue to overreact to headline news regarding trade with China. We suggest investors stay close to their long-term target asset allocations with a slight defensive bias.
“All you need is the plan, the road map, and the courage to press on to your destination.” – Earl Nightingale