Archive for ND&S Updates
Weekly Commentary (10/21/19) – Markets Tread Water
October 21, 2019
Markets continued to tread water last week as the general economic backdrop remains mostly positive. Headline news, as usual, seems to be holding the markets back from moving higher.
We are right in the midst of 3rd quarter earnings season, and 81% of companies reporting have reported better-than-expected earnings. Last week saw positive commentary from the banks as they got the 3rd quarter earnings season started.
Economic news released last week was mixed. On Wednesday, the U.S. Commerce Department reported that retail and food-services fell 0.3%; however, August’s number was revised upward. On Thursday, the U.S. Census Bureau reported that housing starts fell in September to a seasonally adjusted annual rate of 1.387 million – up 1.6% from the same time last year. Building permits were better-than-expected and are up 7.7% year-over-year. Also on Thursday, the Federal Reserve reported that industrial production fell 0.4% in September (missing expectations of a 0.2% decline) while August’s reading was revised higher to a 0.8% advance versus the previous reading of a 0.6% increase. Lastly, initial jobless claims for the week ending October 12 were 214,000 and below expectations of 215,000. Claims remained under 300,000 (threshold for a typically healthy jobs market) for 240 consecutive weeks.
For the week, the DJIA slipped 0.13% while the S&P 500 gained 0.55%. The volatile Nasdaq increased 0.40%. Developed international markets fared better. For the week, the MSCI EAFE index jumped 1.24% while emerging market equities (MSCI EM) advanced 1.27%%. Have international equities found a bottom? Small company stocks, represented by the Russell 2000, finished higher by 1.57% for the week. Fixed income, represented by the Bloomberg/Barclays Aggregate, finished the week slightly higher as investors trimmed bond positions. As a result, the 10 YR US Treasury closed at a yield of 1.76% (in-line with the previous week’s closing yield of ~1.76%). Gold prices closed at $1,488.20/oz – up 0.37% on the week. Oil prices dropped $0.92 (or 1.68%) as supply appears to be more than adequate for current demand.
Don’t forget that October has been a traditionally difficult month for the markets, and we expect this October to be no different. The week ahead will see a host of potential challenges – earnings, Brexit, China trade issues, Washington histrionics, and Middle East geopolitics, etc… We suggest investors stay close to their long-term target asset allocations with a slight defensive bias.
“Keep your eyes on the stars, and your feet on the ground.” – Theodore Roosevelt
NDS Weekly Commentary 10.14.19 – Earnings Reports Begin
October 14, 2019
Equities finished last week on a positive note as U.S. markets rallied Friday on news that the U.S. and China had reached a truce on trade. Washington announced Friday that it would postpone planned increases in tariffs and China said it would increase purchases of U.S. agricultural products with hopes that more details could be worked out in the months ahead. In response, the DJIA traded up 319 points on Friday and for the week the DJIA, S&P 500 and NASDAQ advanced 0.93%, 0.66% and 0.94%, respectively. International markets were also strong last week with the MSCI EAFE jumping 2.31% and emerging markets closing up 1.53%. In addition to positive news on trade, core CPI rose a modest 0.1% and consumer sentiment numbers improved. With better news on trade, the materials and industrial cyclical sectors were strongest for the week and the defensive sectors of utilities and consumer staples were the weakest. Conversely, fixed income markets declined with the rate on the 10 year U.S. Treasury soaring to 1.76% from 1.52% during the week. This week look for economic reports on retail sales, housing starts and industrial production.
Earnings season starts in earnest this week with major banks, Johnson & Johnson, Coca Cola and others scheduled to release earnings. Consensus earnings expectations for the 3rd quarter are forecast to decline as much as 4.3%, however, if you factor in stock buybacks and the tendency of companies to beat forecasts, earnings are likely to come in better than anticipated. We believe the economy will continue to grow modestly and that the Fed will continue to be supportive with a 0.25% rate cut at their December meeting.
“But he that dares not grasp the thorn Should never crave the rose.” – Anne Bronte
Weekly Commentary 10.7.19 – Fight to Zero
October 7, 2019
For the third straight week, the Dow Jones Industrials (DJIA) and S&P 500 declined. Investors and traders created a volatile week as dismal manufacturing data, disappearing trading commissions, and new tariffs on the European Union were announced. The DJIA lost 0.9%, the S&P 500 declined 0.3%, while the NASDAQ Composite rose 0.6%. The strength of the US dollar, worsening trade tariff issues, and weakening global economic growth hit developed international equities (MSCI EAFE), which declined 2.2%. Emerging market equities were down 0.5%. After sliding in the beginning of the week, financial markets rebounded on Thursday and Friday as sluggish employment data was released renewing confidence that the Federal Reserve would maintain their dovish stance and lower rates.
So far, global central banks have been more than accommodative with their monetary policies. There have been 33 interest-rate cuts by global central banks over the last three months. The dovish and accommodative global monetary policies should help lessen further economic declines and cushion the downside of financial asset prices.
The U.S. employment report on Friday showed that there were 136,000 jobs added in September, just slightly below the 150,000 consensus. The good news was that the jobless rate declined from 3.7% in August to 3.5%, the lowest rate in 50 years.
Investors should not get overly concerned about the media’s announced claims and counter-claims regarding the impeachment inquiries of President Trump. There have only been two presidents impeached by the House of Representatives, Andrew Johnson in 1868 and Bill Clinton in 1998. Both were not convicted by the Senate and allowed to remain in office.
We should remember that one year ago the 10-year US Treasury yield was above 3%. Last week, it declined 15 basis points to 1.53%, a result of the concern of a slowing economy. Interest rates are expected to remain low and possibly be further reduced by Federal Reserve dovish policy later this year.
We recommend that investors remain diversified, retaining a portfolio of safe, low duration bonds, a slightly higher cash position, and quality equities. We will be closely watching the upcoming earnings season and would be enticed to add to stocks with a bias toward dividends on short-term weakness. Please keep in mind that 60% of stocks in the S&P 500 index have a dividend yield higher than the 10-year US Treasury. Also, for most investors the federal income tax rate on qualified dividends is 15% and no higher than 20%. Dividends matter!
There will be important inflation data released this week: the Producer Price Index (PPI) on Tuesday and the Consumer Price Index (CPI) on Thursday. Also, the Federal Open Market Committee will release their minutes from its September meeting on Wednesday.
“People who succeed in the stock market also accept periodic losses, setbacks and unexpected occurrences. Calamitous drops do not scare them out of the game.” – Peter Lynch
ND&S Weekly Commentary (10.28.19) – Earnings Season in Full Swing
October 28, 2019
Strong earnings pushed stocks higher last week. With approximately 40% of companies having reported, reports generally have been better than expected outside of a few disappointments. Blended earnings are currently at -0.4% year over year versus expectations of a 3.25% decline. Revenues are up 3.0% from the same quarter a year ago. There are a number of companies scheduled to report this week which includes Alphabet, Mastercard, Apple, Facebook, and AT&T.
US equity markets closed the week very close to their all-time highs. For the week, the S&P 500 increased 1.23% while the DJIA finished up 0.70%. Smaller US companies represented by the Russell 2000 rose 1.53%. International equities were also positive with developed (MSCI EAFE) and emerging (MSCI EM) closing higher by 1.27% and 1.17%, respectively. Bonds gave a little back last week with the benchmark Barclay’s US Aggregate Index declining 0.15% on the week. The 10 Year U.S. Treasury yield closed at 1.80%, which is up from 1.76% the week prior.
Economic data released last week was a mixed bag. Flash U.S. manufacturing Purchasing Manager’s Index (PMI) released last week beat expectations with a reading of 51.5 (a PMI reading above 50 represents an expansion). Manufacturing PMIs in Europe and Japan also stabilized as most countries had month over month increases. Durable goods orders fell 1.1% month over month missing estimates. According to the National Association of Realtors, existing home sales declined 2.2% in September missing estimates of a 0.7% decline.
Earnings reports will accelerate this week with 230 companies comprising the S&P 500 scheduled to report. Investor attention will also key on the Federal Open Market Committee (FOMC) meeting announcement set for Wednesday. The futures market is putting the odds of a 25 basis point cut by the FOMC at 90%. Expect the conversation around the sustainability of economic growth to ratchet up in the coming days. Let’s make it a good week!
“Life is 10% what happens to you and 90% how you react to it.” – Charles R. Swindoll