Archive for ND&S Updates

ND&S Weekly Commentary 02.24.20 – Coronavirus Scare

February 24, 2020 

Throughout the holiday-shortened week, reports of the COVID-19 coronavirus spreading to other countries created fears of a global economic slowdown. Investors and traders reversed course and went from risk-on to risk-off investments. As a result the Dow Jones fell 1.36%, the S&P 500 was down 1.22% and the tech-heavy NASDAQ slid 1.55%. International equities also suffered with Developed (EAFE) and Developing (EM) down 1.23% and 1.96%, respectively.

On Friday the World Health Organization reported that there were 76,767 confirmed cases of COVID-19 and 2,247 deaths. China’s shutdown of business activity has affected supply chains throughout the world. The second largest economy reported that during the first two weeks of February car sales declined 92% year over year.

In the U.S., the composite economic PMI (Purchasing Managers’ Index), which includes service and manufacturing indexes, came in below 50 for the first time since 2013. U.S. existing home sales were also weak falling 1.3% in January to a 5.46 million annual rate. Housing starts were down 3.6%. The price of a barrel of West Texas Intermediate Crude for March delivery fell over 2% on Friday. Gold was boosted again as a safe haven asset up 1.8% for the week at $1,648.80 an ounce, reaching a seven year high.

The U.S. 10-year Treasury Note slipped to 1.47% the lowest level since early September. The 30-year T-Bond yield dropped to 1.89% reaching an historic all-time low. Recession worries are indicative of an inverted yield curve with the three month T-Bill yielding 1.55% while the two-year notes are 1.34%.

Despite a 3.1% fourth quarter profit growth for the S&P 500 companies and excluding the energy sector the growth rate was 6%, the coronavirus dominated the financial markets. The FAANG’s – Facebook, Apple, Amazon, Netflix and Google are up 10% year to date. Their average price to earnings ratio is up to 35 times estimated earnings from 21 times last year. Another huge holding is Microsoft at $1.4 trillion in market cap. Microsoft is up 14% year to date and trades at 31 times estimated earnings. The stock hasn’t traded at that level since the dot-com crisis.

We anticipate volatility to increase while, hopefully, the coronavirus can be contained and cured. The concentration and size of FAANG and Microsoft within major indices and their exposure to a slowing global economy is worrisome. We strongly feel that raising cash balances for foreseeable needs, assessing the risk of owning sizable positions and diversification will pave the way to stable returns.

This week consumer confidence will be reported on Tuesday, new home sales on Wednesday and personal income and spending on Friday.

“Although the world is full of suffering, it is full also of the overcoming of it.” – Helen Keller

ND&S Weekly Commentary 02.18.20 – Markets Continue to Shrug Off Coronavirus Fears

February 18, 2020 

Markets pushed higher last week despite ongoing uncertainty surrounding the coronavirus. Helping the markets move higher were encouraging comments from Fed Chair Jerome Powell and mostly better-than-expected economic news.

For the week, the DJIA advanced 1.17% while the S&P 500 gained 1.65%. The tech-heavy Nasdaq jumped 2.23% as investors flooded into cloud-related stocks. International markets were mixed. For the week, the MSCI EAFE index (developed markets) inched lower by 0.02% while emerging market equities (MSCI EM) jumped 1.37%. International markets remained under pressure due to uncertainty regarding the impact of the coronavirus on global growth. Small company stocks, represented by the Russell 2000, finished higher by 1.90% for the week. Fixed income, represented by the Bloomberg/Barclays Aggregate, finished the week essentially unchanged as bond investors remained on the sidelines for the week. As a result, the 10 YR US Treasury closed at a yield of 1.59% (unchanged from the previous week’s closing yield of ~1.59%). Gold prices closed at $1,582.70/oz – up 0.81% on the week. Oil prices rose 3.38% to $52.05 despite adequate supply and weakening demand. Low oil prices serve as a tax cut to consumers and businesses and are a contributing factor (along with low unemployment) to robust consumer sentiment and retail sales.

Economic news released last week confirmed a resilient jobs market, still moderate inflation, and elevated consumer sentiment. On Thursday, The U.S. Bureau of Labor Statistics reported that the Consumer Price Index (CPI)  advanced 0.1% in January, below expectations of a 0.2% gain. Over the past 12 months core CPI has risen 2.3%, ahead of the 2.2% consensus and in-line with annual gains seen in October, November and December. Also on Thursday, the Department of Labor reported that initial jobless claims for the week ending February 8 were 205,000, below expectations of 210,000 … another sign of a strengthening labor market. Jobless claims have remained under 300,000 for 257 consecutive weeks – the longest streak on record. On Friday, the U.S. Commerce Department reported that January retail sales advanced 0.3%, matching expectations. The Federal Reserve announced on Friday that January industrial production fell 0.3%, more than the expected 0.2% decline (likely due to fears around global growth as a result of the coronavirus outbreak). Finally, on Friday the University of Michigan Consumer Sentiment Index rose to 100.9 in February – the highest level since March 2018.

Most economic and market fundamentals remain reasonable although traditional market valuations are a bit stretched. We suggest investors stay close to their long-term target asset allocations with a slight defensive bias as markets are due for a pause.

“There are many ways of going forward, but only one way of standing still.” – Franklin D. Roosevelt

ND&S Weekly Commentary 2.10.20 – Coronavirus Takes a Backseat

February 10, 2020 

Equity markets pushed aside fears from the coronavirus last week as better-than-expected U.S. job growth and strong manufacturing data provided the boost the markets needed. We would suggest some caution as the full impact of the virus is not yet fully known, but the Chinese government did indicate that the pace of new infections has slowed. With a significant percentage of industrial production shut down, global supply chains are still adjusting from the ripple effects of the virus.

For the week, the DJIA advanced 3.1%, while the broader-based S&P 500 finished at 3.2%. The tech-heavy NASDAQ surged 4.1% and international markets were slightly weaker with the MSCI EAFE and MSCI EM up 1.9% and 2.8%, respectively. The 10 year US Treasury yield rebounded to 1.59% after falling to 1.51% last week. Gold dropped back to $1,570 an ounce and Oil (WTI) closed at $50.35 a barrel.

Economic data on the week was quite strong. The Institute of Supply Management (ISM) reported that the manufacturing purchasing manager’s index (PMI) for January advanced to 50.9%. The release greatly exceeded expectations of 48.5% and indicated the first expansion in 6 months. The non-manufacturing index which tracks the service sector came in at 55.5% beating estimates. On Friday, the Department of Labor reported that 225,000 jobs were added in January which handily beat the consensus estimate of 155,000. The unemployment rate ticked up to 3.6% from 3.5% the month prior. The increase was driven by labor force participation which increased to 63.4%. Average hourly earnings have increased 3.1% from a year earlier.

Approximately, 65% of the S&P 500 constituents have reported earnings for Q4 2019. Blended earnings for the S&P 500 is showing a modest year-over-year increase while revenues are up 3.4% compared to the same quarter a year ago, according to FactSet Research. Expectations were for a 2.0% decline in earnings-per-share (EPS). This week, 101 companies comprising the S&P 500 are scheduled to report.

Let’s make it another good week!

“Get action. Seize the moment. Man was never intended to become an oyster.”Theodore Roosevelt

ND&S Weekly Commentary (2.3.20) – Coronavirus Rocks Markets

February 3, 2020 

Uncertainty over the spreading coronavirus outbreak from China last week affected markets worldwide and disrupted travel and trade. China’s financial markets were shut down for a week and will re-open on Monday, February 3rd. Equity markets declined across the board and U.S. fixed income rallied as investors sought safe-haven assets. For the week the DJIA, S&P 500 and NASDAQ declined 2.1%, 2.5% and 1.8%, respectively. Internationally, developed markets were down 2.5% and emerging markets were off the most at 5.0%. The worst performing sectors in the S&P 500 were energy and materials and the best performing was utilities. U.S. Treasuries rallied strongly as interest rates dropped across the board. The rate on the 10 Year U.S. Treasury dropped 19 basis points to close the week at a yield of 1.51%. US West Texas Crude (WTI) declined 5% to $51.30 per barrel while Gold finished the week up 1.3%.

In economic news last week, 4Q real GDP growth came in at 2.1% with positive contributions from consumer spending, housing and government spending. Housing benefited from 3 rate cuts from the Federal Reserve last year. At the FOMC meeting last week, the Federal Reserve announced it would keep their rate target unchanged while continuing repurchase operations through April. This week, look for reports on employment, international trade and ISM mfg./non-mfg. PMIs. With 56% of S&P 500 companies reporting earnings so far, 70% have beaten their consensus estimates on earnings (Earnings per Share) and 51% on revenue. From a sector standpoint, financials have been the strongest and energy the weakest, while information technology earnings have been stronger than expected.

We expect volatility to continue until there is more assurance that the coronavirus is under control. In the past, markets have been affected by previous viruses but have been able to bounce back as they were brought under control. In the interim, portfolio diversification will help to moderate volatility.

“We didn’t lose the game; we just ran out of time.”Vince Lombardi