Archive for ND&S Updates

ND&S Weekly Commentary – “Negative” Oil Grabbed Headlines

April 27, 2020 

Markets started last week on the decline, driven by volatility in the oil markets, before recovering some ground and ending the week slightly negative. Due to lack of storage space in Cushing, Oklahoma where physical settlements take place, the price for May contracts for WTI oil fell below zero for the first time in history. On Friday, President Trump signed a $484 billion fourth relief package that replenishes the Payroll Protection Plan bringing total relief funds to nearly $3 trillion with more anticipated.

For the week, the S&P 500, the DJIA and NASDAQ were all negative at -1.3%, -1.9% and -0.2%, respectively. One small positive was that small caps, as measured by the Russell 2000, finished up 0.3%. Small caps have been among the worst performers year-to-date as they are impacted by the slow growth environment. International equities were also negative last week with developed markets declining 2.0% and emerging markets down 2.4%. In fixed income, U.S. Treasuries continued to provide some stability as the yield on the 10 year declined from 0.7% to 0.65%. Municipals backed down somewhat as most states now face large deficits and long-term pension liabilities grow.

This week, economic reports are expected on 1st quarter GDP, ISM mfg., and consumer confidence … all are expected to show declines. On a positive note some states, including Alaska, Georgia, South Carolina, Tennessee and Texas are expected to start announcing easing of lockdowns. New York State has also stated they will start to reopen in phases.

Earnings season is in full swing and so far S&P 500 earnings growth is down roughly 20.7% year over year while revenues are up 2.0%. Most companies have stopped issuing forward guidance due to the uncertainty of Covid-19 containment efforts. This will be a big week of company reports as Facebook (FB), Alphabet (GOOGL), Amazon (AMZN), Apple (AAPL), and Microsoft (MFST) are scheduled to report. Look for markets to continue to be volatile and focused on progress or improvements on treating the Coronavirus.

“The trick to forgetting the big picture is to look at everything close-up” – Chuck Palahniuk

ND&S Weekly Commentary – RESILIENCE

April 20, 2020 

Stocks rallied for the second straight week as there were tentative signs that the coronavirus outbreak was slowing, new treatments were showing encouraging results, and the Federal Reserve approach of advanced “whatever it takes” have eased the interim credit crisis.

As a result, the DJIA rose 2.2%, the S&P 500 gained 3.1% and the tech-heavy NASDAQ soared 6.1%. The S&P 500 broad index is now up 28% from its March 23rd low. International equities also finished higher on the week with developed markets up 1.0% and emerging markets gaining 1.6%. Despite the Fed’s unprecedented support of foreign monetary authorities, the US dollar has appreciated especially against the Euro and Yen. We feel that the US will likely be more resilient through this horrific crisis than other developed economies. The US has more impactful and accommodating monetary and fiscal policies at its disposal, a much higher level of health-care spending and has a smaller share of manufacturing in its GDP.

Our hearts and prayers go out to the victims, their families, and healthcare workers affected by the coronavirus. There have been over 2 million confirmed cases worldwide and 690,000 reported cases in the US. The good news is that the social containment efforts are working and the infection and mortality rates are slowing. Last week, President Trump and his staff worked together with governors to begin planning for a return to normalcy and re-opening of the US economy.

The economic data and corporate earnings demonstrate the level of damage the coronavirus and containment efforts have inflicted. Recessionary conditions now exist with another 5.5 million workers applying for unemployment benefits last week bringing the total of furloughed and laid off workers to 22 million (roughly 14% of US workforce). US retail sales declined 8.7% month over month and China’s GDP sank 6.8% in the first quarter. Industrial production slid 5.4% in March, its largest single month decline since 1946. The largest U.S. banks, JP Morgan, Citigroup, and Bank of America started earnings season last week. As a result of the economic shutdown, their revenues and earnings slowed in the first quarter and they warned of increasing their loan loss reserves.

The yield on the 10yr Treasury closed the week at 0.65% which is down from 0.73% the week prior. One year ago the yield was 2.59%. Despite OPEC+ supply cut backs, oil prices hit an 18yr low last week.

This week, existing home sales, the Purchasing Manager Index (PMI) and consumer sentiment will be reported. Almost 20% of S&P 500 companies are scheduled to release results this week. This will give investors a look at the Covid-19 pandemic impact on sectors from airlines to technology companies.

We expect volatility to continue and there likely will be a retest of market lows. As we stated in past weekly commentaries and our recent quarterly newsletter, this too shall pass. Our team is working diligently to monitor markets and researching investments for risks and opportunities.

“Our greatest weakness lies in giving up. The most certain way to succeed is always to try just one more time.” – Thomas Edison

ND&S Weekly Commentary 4/13/20 – Markets Roar Back…

April 13, 2020 

We hope that all of you and your families are well. It appears that some of the social distancing measures being taken are showing results in the hardest hit areas around the world. Please continue to follow the Covid-19 protocols in your communities.

Markets roared back last week hopefully providing investors some relief over the long weekend. U.S. equities recorded one of the best weeks in modern history. On the week, the S&P 500 jumped 12.1% and the DJIA gained back 12.7%. The Russell 2000 which represents small/midsized US companies (and has been more impacted by slower growth expectations) catapulted 18.5%. International markets were also strong as developed international markets gained 8.1% while emerging markets increased by 6.8%. The 10yr U.S. Treasury yield increased 11bps to close at a yield of 0.73%. With volatility high and government yields near zero around the world, gold continues to provide investors some protection and closed at $1736 oz. Oil prices will remain volatile as oil producing nations agreed to a production cut over the weekend to reduce oil output by almost 10 million barrels a day. This should alleviate some of the supply imbalance in oil that a global shutdown has created.

We are currently seeing a deterioration in the U.S. labor market of unprecedented speed and magnitude. The March employment report released last week showed a decline of 701K and an unemployment rate that rose to 4.4%. An additional 16.8 million have filed claims for unemployment insurance implying that the unemployment rate is nearly 15%. Markets are hoping that the expanded unemployment benefits and business loans from the $2.3 trillion fiscal package can keep workers and businesses afloat long enough to see a sharp employment recovery when social distancing measures ease.

This week, we will get our first glimpse of first quarter 2020 earnings announcements with 15 S&P 500 companies set to report. We expect earnings for Q1 and Q2 to be quite challenged and somewhat meaningless, but we plan to key-in on management commentary and balance sheet strength. After last week’s rally, it would appear the markets are bit ahead of themselves, and we urge investors to proceed with some caution. We plan to take advantage of pricing dislocations, and it continues to be our intention to begin putting higher-than-normal cash levels back to work in the markets as opportunities present themselves. We will likely see a number of additional relief rallies. Remember, bottoms are a process. Rest assured, we are monitoring investments and markets, and we remain available should you have any questions.

“The glow of one warm thought is to me worth more than money.” – Thomas Jefferson

ND&S Weekly Commentary (4.6.20) – Coronavirus Uncertainty Continues

April 6, 2020 

We hope that all of you and your families are well. It appears that we are headed into a pivotal week for the virus so please continue to 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 week as investors sold stocks due to heightened uncertainty surrounding the spread of Covid-19. With coronavirus cases topping one million globally the impact on economies around the world will be massive. In the United States alone, a record 6.6 million Americans applied for unemployment benefits last week.

On the week, the S&P 500 weakened 2.1% and the DJIA declined 2.7%. The Russell 2000 which represents small/midsized US companies (and is more impacted by slower growth) dropped 7.1%. International markets were not immune from the pullback as developed international markets (MSCI EAFE) gave back 3.7% while emerging markets (MSCI EM) were lower by 1.2%. Bonds were a bit of a safe-haven as the Barclays Aggregate finished higher by 0.73% on the week. The 10yr Treasury ended last week at a yield of 0.62% versus 0.72% the week prior.

Markets have already priced in a global recession (which most likely began in early March). The depth and breadth of the global recession will depend on the course of the virus and the human response (individuals and governments) to those impacted by the virus. The economic backdrop will get worse before it gets better; however, markets almost always bottom before manifestations of a crisis begin to meaningfully improve.

The vast majority of large companies around the world are not permanently impaired, yet markets are pricing securities as if that is the case. We plan to take advantage of pricing dislocations, and it continues to be our intention to begin putting higher-than-normal cash levels back to work in the markets as opportunities present themselves. We will likely see a number of relief rallies, but we remain cautious (a bit less so as each week passes) 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.

A Happy Passover and Easter to all.

“We should take comfort that while we may have more still to endure, better days will return: we will be with our friends again; we will be with our families again; we will meet again.”Queen Elizabeth II