Archive for ND&S Updates
Weekly Commentary (09/23/19) – Déjà vu – Trade Tensions Weigh on Markets
September 23, 2019
Markets were within reach of all-time highs last week until news broke on Friday that a Chinese delegation had canceled a visit to U.S. farms thus adding more drama to the ongoing trade battle with China. As Yogi Berra was fond of saying – It’s like déjà vu all over again.
Economic news released last week was mostly positive. On Tuesday the Federal Reserve announced that industrial production jumped 0.6% – well in advance of the expected increase of 0.2%. Capacity utilization was also better than expected. On Wednesday the Fed cut interest rates by 25 bps, as expected. Also on Wednesday, the U.S. Census Bureau reported that housing starts for the month of August surged 12.3% m/m to a 12-year high as low interest rates attracted new home buyers. On Thursday the National Association of Realtors reported that existing home sales jumped 1.3% in August (better than expected). Lastly, initial jobless claims for the week ending September 14 came in better than expected as claims remained under 300,000 (threshold for a typically healthy jobs market) for the longest streak since 1967. Despite headline news, economic data does not point to a recession any time soon.
For the week, the DJIA fell 1.05% while the S&P 500 dropped 0.49%. The volatile Nasdaq declined 0.71%. Developed international markets fared better. For the week, the MSCI EAFE index lost 0.35% while emerging market equities (MSCI EM) gave back 0.46%. Small company stocks, represented by the Russell 2000, finished lower by 1.14% for the week. Fixed income, represented by the Bloomberg/Barclays Aggregate, finished the week 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 1.72% (down ~18 bps from the previous week’s closing yield of ~1.90%). Gold prices closed at $1,507.30/oz – up 1.10% on the week. Oil prices jumped $3.24 (or 5.91%) last week on what is believed to be an Iranian attack on Saudi Arabia’s oil infrastructure.
Don’t forget that September and October are traditionally difficult months for the markets – so expect continued volatility. We suggest investors stay close to their long-term target asset allocations with a slight defensive bias.
“If you don’t know where you are going, you might wind up someplace else.” – Yogi Berra
NDS Weekly Commentary 9.16.19 – Markets Advance as Rates Move Higher
September 16, 2019
Equities advanced last week as money rotated out of bonds and high flying tech names into value stocks and sectors that had been previously out of favor. What otherwise was a quiet week for stocks, a huge discrepancy occurred beneath the surface between the Russell 1000 Value (2.47%) and the Russell 1000 Growth (-0.45%). Improving trade relations with China and a jump in interest rates provided fuel for last week’s move. We caution looking too much into one week’s performance, but a wide gap in performance between the two indexes has been present for years.
On the week, the S&P 500 increased 1.02% while the DJIA finished up 1.65%. Smaller US companies represented by the Russell 2000 jumped 4.90%. International equities were also strong with developed (MSCI EAFE) and emerging (MSCI EM) closing higher by 1.99% and 1.91%, respectively. Bonds really struggled with the benchmark Barclay’s US Aggregate Index shedding 1.66% on the week. Bonds prices move inversely to the direction in yields. Treasury yields jumped higher across the board with the 10yr US Treasury closing at 1.90%, which is up from 1.55% just last week (see image below).
Economic data last week was relatively positive. On Wednesday, the Producer Price Index (PPI) for final demand ticked up 0.1% which exceeded expectations of unchanged. On Thursday, the Consumer Price Index (CPI) increased 0.1% which was in-line with estimates. Over the last 12 months, CPI is up 1.7%. On Friday, retail and food-services sales rose 0.5% in August, doubling expectations of a 0.2% monthly advance. The U.S. consumer continues to be healthy. There will be reports this week on housing, industrial production and manufacturing.
The FOMC gears up for their two-day meeting this week. The Fed is expected to cut its policy rate by another 25bps … this despite political pressure to reduce rates farther. Views are divided on what the Fed’s monetary path will look like for the rest of the year. Rising core-inflation, solid economic activity, and thawing trade relations with China support a wait and see approach for further shifts after the conclusion of this meeting. There will likely be dissent on both sides among members of the FOMC.
“If you can dream it, you can do it.” – Walt Disney
ND&S Weekly Commentary 9.9.19 – The Endless Summer
September 9, 2019
Despite data clearly showing global manufacturing slowing, and below expected job numbers, investors showed a sigh of relief when news on trade talks were back on the table. For the holiday shortened week, the DJIA rose 1.53%, the S&P 500 gained 1.83% and the NASDAQ was up 1.78%. International equities were especially strong with developed markets (MSCI EAFE) rising 2.23% and emerging markets (MSCI EM) advancing 2.44%.
The department of labor was busy announcing jobs data for August which showed mixed results. The US economy added 130 thousand jobs, which missed consensus estimates of 163 thousand. The unemployment rate remained historically low at 3.7%. The total number of Americans employed increased by 590,000, setting a record of 157.9 million workers.
Federal Reserve Chairman Jerome Powell also soothed investor worries stating that fundamentals of the US economy remain strong and there’s no chance of an immediate recession. The market expects another Fed Funds Rate reduction of 25bps at their next meeting.
Further whetting the appetite for equity investing, is the rising S&P 500 dividend yield. It is nearing 2% and soundly beats the 10yr US Treasury yield of 1.55%. When taking into account the expected inflation rate and the after tax yield, dividend paying equities are a relative bargain.
We are not out of the woods yet. The economies of China and the Euro-zone could continue to slow more sharply and we never know what the President’s next move will be. Consumers are spending while inventories have been declining. A sudden surge in hiring workers and increasing wages could spark inflation above the Federal Reserve’s 2% target.
Nevertheless, we strongly feel that a well-diversified portfolio with slightly higher money market balances and a bias for dividend growth will continue to provide happy returns.
There will be a slew of economic data reported this week including the producer, consumer, and import price indices. August retail sales will also be of significant interest as consumer spending is expected to continue to increase.
“Genius is 1% inspiration and 99% perspiration” – Thomas Edison
ND&S Weekly Commentary 9.3.19 – Equities Rally Into September
September 3, 2019
Global equities snapped a four week losing streak to end the month on a high note. Cooling trade tensions and better-than-expected economic data were the catalysts last week, but much of the core concerns regarding trade still remain. According to comments from the Chinese commerce ministry, the talks between the US and China will continue in Washington in September. The rhetoric has been toned down with China vowing not to retaliate on the latest tariff hike.
The Dow Jones Industrial Average (DJIA) jumped 3.1%, while the S&P 500 climbed 2.8% and the NASDAQ rose 2.7% on the week. International equities were also positive with the MSCI EAFE and MSCI EM finishing up 0.9% and 1.2%, respectively. The 10Yr and 2Yr US Treasuries inverted again last week, and both closed the week at yields of 1.50%. Oil continues to trade in the mid-$50 per barrel range as lower supply due to geopolitics has so far offset economic concerns and weaker demand.
Economic data on the week was generally positive versus expectations. On Monday, manufactured durable goods advanced 2.1% in July which beat expectations. On Thursday, real GDP, which adjusts for inflation, increased 2.0% in the second quarter. This follows a 3.1% advance in the first quarter of the year. On Friday, it was reported that personal consumption expenditures increased 0.6% in July, which was an increase from the previous two months. It is important to remember, consumption makes up roughly 70% of the US economy.
Earnings reports for the second quarter are mostly complete. Many analysts and forecasters were calling for an earnings decline as recently as 2 months ago. However, earnings growth for the quarter slowed to 4.9% (well ahead of estimates) from a robust 20% pace seen in 2018. On the surface it is concerning, but last year’s jump was mostly attributed to the Tax Cuts and Jobs Act which lowered the corporate tax rate from 35% to 21%. For the quarter, roughly 75% of companies reported a positive earnings surprise. On the top line, revenue has increased 3.6% versus expectations of a 3.16% increase.
We expect markets to remain volatile until more certainty regarding trade is established. We suggest investors stay close to their long-term target asset allocations with a slight defensive bias.
“The world of ours … must avoid becoming a community of dreadful fear and hate, and be, instead, a proud confederation of mutual trust and respect.” – Dwight D. Eisenhower
ND&S Weekly 9.30.19 – Economic Growth Slowing?
September 30, 2019
Major stock indexes declined for the second consecutive week as economic data indicated that consumer spending slowed and businesses pulled back on investment. Also, mixed signals on the U.S. – China trade dispute weighed on the financial markets. The S&P 500, DJIA and the NASDAQ declined 0.98%, 0.43% and 2.18%, respectively. U.S. consumer spending only edged up 0.1% after surging 0.5% in July and orders for core capital goods declined 0.2%. International markets were also negative with the MSCI EAFE down 0.62% and emerging markets down 1.86% as concerns over persistent weakness in global manufacturing continue. The best performing sectors last week were the more defensive ones of consumer staples, utilities and real estate.
U.S. Treasuries did well last week as headlines about the White House considering limits on U.S. corporate investment in China and House Democrats initiating an impeachment inquiry into President Trump’s involvement with Ukraine pushed risk-averse investors into the perceived safety of bonds. The yield on the 10 year U.S. Treasury declined from 1.74% to 1.69%.
This week should be a busy week for economic data with reports on ISM mfg., factory orders, and ISM non-mfg. On Friday, the closely watched employment report which is estimated to be for 140,000 new jobs will be released.
“Success seems to be largely a matter of hanging on after others have let go.” – William Feather