Archive for ND&S Updates
ND&S Weekly Commentary 3.24.20 – Coronavirus Uncertainty
March 24, 2020
First and foremost, we hope that all of you and your families are well. Please follow the Covid-19 protocols in your communities. This crisis will end, and we can all do our part to slow the spread of this pervasive virus.
Last week was another volatile and nerve-wracking week as investors sold stocks due to heightened uncertainty surrounding the spread of Covid-19 and the massive impact on economies around the world. The Dow has now erased three years of gains in a month while historically it took the market on average 18 months to move from peak to trough.
On the week, the S&P 500 weakened 14.95% and the DJIA declined 17.29%. The Russell 2000 which represents small/midsized US companies (and is more impacted by slower growth) dropped 16.14%. International markets were not as bad, but they also gave back ground with developed international (MSCI EAFE) -5.76% and emerging markets (MSCI EM) -9.79%. Bonds were not immune to the chaos with the Barclays Aggregate down 2.29% on the week. The 10yr Treasury ended last week at a yield of 0.92% versus 0.94% the week prior.
There are some difficult days and weeks ahead as quarantines and lock-downs grow. Yes, markets have already priced in a global recession, but the uncertainty from day to day will likely keep investors on edge. The Federal Reserve has been very aggressive in their monetary response, and we sincerely hope and expect that Congress will put aside its pettiness and pass an impactful stimulus bill … our workers and our country deserve no less.
Markets are most certainly displaying the tell-tale signs of panic and capitulation. The vast majority of large companies around the world are not permanently impaired, yet markets are pricing securities as if that is the case. The economic backdrop will get worse before it gets better; however, markets almost always bottom before manifestations of a crisis begin to meaningfully improve.
It is our intention to begin putting higher-than-normal cash levels back to work in the markets as opportunities present themselves. No doubt, we see quite a few bargains in the market today. We will likely see a number of relief rallies, but we remain cautious and don’t plan on jumping at the first sign of a bounce … a bottom will take time to form. Rest assured, we are monitoring investments and markets, and we remain available should you have any questions.
“No problem of human destiny is beyond human beings.” – John F. Kennedy
ND&S Weekly Commentary 3.16.20 – Markets React Wildly to Pandemic Uncertainty
March 16, 2020
We hope that all of you and your families stay healthy and safe and please follow the Covid-19 protocols in your communities. This is certainly an unnerving time and the steps being taken both here in the U.S. and abroad to combat the spread (and to flatten the curve) of the virus are unprecedented. Our belief is the faster we can shut down the spread of the virus (even if that means extreme measures), the faster we can return to a normal operating environment.
Last week was most certainly the wildest week since the financial crisis. The World Health Organization on Wednesday declared the coronavirus a pandemic. On Friday, President Trump declared a national emergency. Markets around the world fluctuated wildly all week as investors attempted to gauge the economic and social impact of the virus.
On the week, the S&P 500 weakened 8.73% and the DJIA declined 10.24%. The Russell 2000 which represents small/midsized US companies (and is more impacted by slower growth) dropped 16.44%. International markets also gave back value with developed international (MSCI EAFE) -18.36% and emerging markets (MSCI EM) -11.92%. Bonds were not immune to the chaos with the Bloomberg/Barclays Aggregate down 3.17% on the week. The 10yr Treasury ended a wild week as it closed at a yield of 0.91% versus 0.74% the week prior.
The outlook for the economy and markets will depend on the world’s success at flattening the curve. Simply put, the harsher the actions to tackle this now, the quicker we can slow this virus and get people back to work. Markets always discount the future, and they have already discounted a significant slow- down and most likely a recession. No doubt, the market action last week was indicative of a panic/capitulation phase, and we suspect that the bulk of the market correction is behind us. Having said that, it is quite likely that markets could reach lower levels as more virus cases are reported. Markets will stabilize as we begin to see the virus’ peak and containment.
Our hope is that the coordinated response between government and our private sector will illustrate the power of collaboration in working for the common good. We are already seeing massive monetary and fiscal stimulus packages that will serve to support the economy through this very difficult, but temporary, time. We have been net sellers of equities over the past few months, and we continue to maintain cash levels at the higher end of our policy range. We would caution against making a wholesale change to your long-term plan or investments. As we mentioned above, it feels like we are in the fear/panic stage of the cycle where stock prices disassociate greatly from their true value. Rest assured, we are monitoring investments and markets, and we remain available should you have any questions.
“Ask five economists and you’ll get five different answers – six if one went to Harvard.” – Edgar Fiedler
Weekly Commentary (03/09/20) – Markets Stabilize Last Week … More Uncertainty Ahead
March 9, 2020
Markets stabilized last week after suffering their worst weekly drop in over 10 years the previous week.
For the week, the DJIA advanced 1.79% while the S&P 500 gained 0.61%. The tech-heavy Nasdaq inched ahead by 0.10%. International markets were also positive as investors put money to work after the previous week’s sell-off. For the week, the MSCI EAFE index (developed markets) jumped 0.35% while emerging market equities (MSCI EM) tacked-on 0.69%. Small company stocks, represented by the Russell 2000, finished lower by 1.81% for the week. Fixed income, represented by the Bloomberg/Barclays Aggregate, finished the week higher by 1.88% as investors fled to the perceived safety of bonds. As a result, the 10 YR US Treasury yield collapsed to its lowest yield in history as it closed the week at a yield of 0.74% (down sharply from the previous week’s closing yield of ~1.13%). Gold prices jumped as gold closed at $1,670.80/oz – up 6.82% on the week. Oil prices dropped 7.77% to $41.28 on global growth concerns, plentiful supply and OPEC disarray. Fortunately, low oil prices serve as a tax cut to consumers and businesses.
Market uncertainty remains high as the coronavirus continues to spread around the world. Adding fuel to the fire, Russia and OPEC failed to come to an agreement over the weekend on production cuts to oil. As a result, oil prices are plummeting this morning as Saudi Arabia and Russia attempt to put pressure on U.S. shale producers (lower oil prices may force many shale producers to shut-in production and/or go bankrupt). This current bout of volatility is certainly unnerving, particularly after investors have been treated with relative calm over the past few years. We don’t know when markets will bottom. We do know, however, that they will bottom. Every correction that we have ever had has been temporary, and this one will be no different.
Could more pain be ahead for investors? Of course. The uncertainty of the global growth impact from the coronavirus along with plunging oil prices will put downward pressure on stock markets around the world. We suspect that central banks and governments around the world will come to the rescue to help stabilize markets.
Patient, long-term focused investors will be well served in the end, and investors that sell based on panic rarely win over time. This recent bout of volatility reinforces the benefits of diversification as well balanced portfolios have been able to weather the storm relatively well. Investors should stay close to their long-term target asset allocations with a slight defensive bias as markets work through this period of volatility.
“Everyone goes through adversity in life, but what matters is how you learn from it.” – Lou Holtz
Weekly Commentary (03/02/20) – Coronavirus Fears Push Markets Into Correction Territory
March 2, 2020
Markets moved into correction territory last week amid fears of the economic impact of the coronavirus on global growth. Markets suffered their worst weekly drop in over 10 years (and the world didn’t come to an end …).
For the week, the DJIA fell 12.26% while the S&P 500 lost 11.44%. The tech-heavy Nasdaq dropped 10.52%. International markets fared a bit better, but they also lost ground. For the week, the MSCI EAFE index (developed markets) gave back 9.55% while emerging market equities (MSCI EM) declined 7.23%. Small company stocks, represented by the Russell 2000, finished lower by 12.01% for the week. Fixed income, represented by the Bloomberg/Barclays Aggregate, finished the week higher by 1.26% as investors fled to the perceived safety of bonds. As a result, the 10 YR US Treasury yield collapsed to its lowest yield in history as it closed the week at a yield of 1.13% (down from the previous week’s closing yield of ~1.46%). Gold prices were surprisingly weak as gold closed at $1,564.10/oz – down 4.92% on the week. Oil prices dropped 16.15% to $44.76 on global growth concerns and plentiful supply. Fortunately, low oil prices serve as a tax cut to consumers and businesses.
After a long period of relative calm in the markets, it is not surprising to see volatility surge as fears of the unknown grip investors’ psyches. We don’t know when the spread of COVID-19 will subside. We do know, however, that it will ultimately subside. In the meantime, markets are correctly adjusting to slower (or perhaps zero) economic growth. As we have highlighted many times in the past, the average intra-year decline in the S&P 500 has been roughly 14%. Since 1950, and before the current setback, markets have experienced 23 corrections (10%-plus pullback in prices) with an average decline of 13.7%. So far in 2020, the peak-to-trough correction has been 15.8% in the S&P 500 and 13.6% for the DJIA. Markets have recovered, on average, four months after each correction.
Could more pain be ahead for investors? Of course. The uncertainty of the global growth impact from the coronavirus is likely to remain high; however, markets have already discounted quite a bit of bad news. We suspect that central banks around the world will come to the rescue to help stabilize markets. We question whether or not central bank easing will work, but we agree that the main impact of such easing will be psychological.
We suggest that investors turn off CNBC. Patient, long-term focused investors will be well served in the end, and investors that sell based on panic rarely win over time. This recent bout of volatility reinforces the benefits of diversification as well balanced portfolios have been able to weather the storm relatively well. Investors should stay close to their long-term target asset allocations with a slight defensive bias as markets work through this period of volatility. Stay calm and carry on.
“Life is 10% what happens to you and 90% how you react to it.” – Charles R. Swindoll
ND&S Market Commentary 3.30.20 – Markets Jump on Stimulus Hopes
March 30, 2020
Equity markets closed lower on Friday but still recorded large gains for the week as the coronavirus (Covid-19) continued to spread across the globe. Expectations are for further acceleration of confirmed cases as testing becomes more widespread … increased testing will provide a better reading on the virus’s prevalence and severity. To offset the financial pressures of the nationwide shutdown, the Federal Reserve announced massive policy measures to support credit and lending, while Congress passed a bipartisan bill which included a $2 trillion rescue package for businesses and households on Friday. The bill includes direct payments to individuals and aid to large corporations and small businesses.
For the week, the S&P 500 climbed 10.3% notching its biggest gain since March 2009. The DJIA rose 12.8% marking the biggest weekly gain for the index since 1938. International markets also rallied with developed markets (MSCI EAFE) up 11.2% and emerging markets (MSCI EM) advancing 5%. Bonds posted a strong week as normalcy returned to fixed income markets. The 10yr Treasury closed at a yield of 0.72% which is down from 0.92% the week prior.
We are going to see incredibly steep contractions in economic data over the next several weeks and months; however, these reports will have minimal impact on the markets as focus will be 6-9 months out. As an example, unemployment claims skyrocketed to 3.3 million for the week ending March 21, which is more than 3x the previous record high. Most of claims were from the service industries -specifically accommodation and food services. This week look for economic reports on consumer confidence and monthly employment which should start to reflect job losses from the virus.
Monday and Friday saw market declines, but Tuesday through Thursday saw the biggest 3-day rally since 1931. We expect markets to remain volatile until there are signs of the virus slowing and success at “flattening the curve”. No doubt, we see quite a few bargains in the market today. We will likely see a number of relief rallies, as a bottom will take time to form. It is our intention to begin to redeploy higher-than-normal cash levels as opportunities present themselves. Long-term investors should remember that since 1928, through 14 recessions and 21 bear markets, equity markets have never failed to regain a prior peak. This time will be no different.
“The investor who says, this time is different, when in fact it’s virtually a repeat of an earlier situation, has uttered among the four most costly words in the annals of investing.” – John Templeton