Archive for ND&S Updates
ND&S Weekly Commentary 5.18.20 – Reopening
May 18, 2020
Last week US Stocks sold-off on dour retail sales, escalating tensions between the US and China and historic rising unemployment.
The decline in consumer spending was an unprecedented 16.4% in April while economists were expecting a 12% decline. On Friday, the Trump administration moved to halt shipments of semiconductors to Huawei Technologies in China. The Chinese countered by threatening to restrict investments in US companies if shipments were blocked. The weekly jobless claims reached 3 million creating 36 million unemployed Americans in roughly 2 months.
Major news headlines surround the Covid-19 pandemic and states reopening. There is tremendous pressure by business owners against health guidelines and restrictions. Also, employees who have received stimulus checks and unemployment benefits may be taking a pay cut by going back to work. A political battle continues with the House pushing their HEROES stimulus package and Republicans fighting to lessen the liability and burden around worker and customer safety now squarely on employers.
US stocks ended the week lower with the DJIA declining 2.6%, the S&P 500 down 2.2% and the NASDAQ slipping 1.2%. Oil stocks lost 7.0% and banks declined 5.6% for the week. Though oil increased 20.0% to close at $29.65 a barrel, oil demand remains suspect. Bank stocks received a momentary boost with rumors that Goldman Sachs may be looking to acquire. They lost ground, however, as consumer demand indicators weakened. Foreign stocks also were weak with developed (MSCI EAFE) and emerging markets (MSCI EM) down 3.2% and 1.1%, respectively. The US stock market has rebounded over 30% from its March 23rd lows. We are hopeful that the developing vaccines will be available sooner than expected.
Interest rates are anemic and there are concerns that US rates could turn negative. However, Jerome Powell, Fed Chairman, stated that “negative interest rates is probably not an appropriate or useful policy for us here in the United States.” The Fed has and will continue their monetary easing and various other liquidity facilities to support the flow of credit in several markets. As a result, the Fed’s balance sheet could grow to $10 Trillion by year-end. The 10yr Treasury yield ended the week down fractionally at 0.64%.
Our cautious posture towards the financial markets accounts for having slightly higher cash balances, safe and quality holdings and diversification in client’s portfolios. With earnings season winding down, this week will feature important housing market data, manufacturing and service PMIs, jobless claims and Fed Commentary.
We wish everyone to be healthy and safe. Our hearts go out to those affected and the medical personnel helping us get through this horrific pandemic.
“More compassionate mind, more sense of concern for other’s well-being, is source of happiness.”– Dalai Lama
NDS Weekly Commentary 5.11.20 – Markets Continue Higher
May 11, 2020
Markets rallied again last week as investors continue to take historically bad economic data in stride. Market optimism around the economic reopening and successes on the therapeutic front has provided the recent boost.
For the week, the DJIA advanced 2.67% while the S&P 500 gained 3.57%. The tech-heavy NASDAQ jumped ahead by 6.05%. The MSCI EAFE index (developed markets) increased 0.90% while emerging market equities (MSCI EM) gave back 0.52%. Small company stocks, represented by the Russell 2000, jumped by 5.52% for the week. Fixed income, represented by the Bloomberg/Barclays Aggregate, finished the week lower by 0.33% as interest rates increased on the week. As a result, the 10 YR US Treasury yield closed the week at a yield of 0.69% (up from the previous week’s closing yield of 0.64%). Gold prices closed at $1,704/oz. Oil continued higher as traders anticipate the demand picking up slightly due to the soft reopening of the economy. Oil is likely to remain low for an extended time period with low oil prices serving as a tax cut to consumers and businesses.
The scope of the coronavirus economic impact became clearer last week as non-farm payrolls fell 20.5 million in April. This represents the first full month of the lock-down in response to the pandemic. As expected, the unemployment rate rose to a post-World War II record of 14.7%. While the data was horrific, it did eclipse analyst’s estimates. Over 18.1 million workers have reported that they are on temporary layoff, and therefore a portion should be rehired as the country gradually reopens. This will likely be a slow recovery in jobs as beefed up unemployment benefits (at least through July …) have discouraged some employees from going back to work right away.
With 86% of the constituents of the S&P 500 having reported, year over year earnings are showing a decline of 13.8% according to FactSet Research. Revenues have held up slightly better so far as they are down less than 1% from a year earlier. Technology, healthcare and consumer staples are the sectors which have held up the best.
We would not be at all surprised for the market to give a little back in the short-term as the range of plausible outcomes moving forward remains wide right now. Key variables, usually used to forecast markets, have given way to how quickly the economy reopens, the number of new virus cases, and how quickly therapies and vaccines to fight the disease are developed. We plan to take advantage of sizable price dislocations that present themselves as we remain optimistic for markets and the economy long-term.
“Optimism is the faith that leads to achievement. Nothing can be done without hope and confidence.” – Helen Keller
ND&S Weekly Market Commentary 5.4.20 – A Ray of Hope …
May 4, 2020
We hope that all of you and your families are well. The country is edging ever-so-slowly towards a cautious reopening of the economy, and we hope that people act prudently and continue to follow the Covid-19 protocols in their communities. Promising results from Gilead’s Remdesivir trial gave investors a ray of hope as the National Institute of Allergy and Infectious Diseases (NIAID) announced that “hospitalized patients with advanced COVID-19 and lung involvement who received remdesivir recovered faster than similar patients who received placebo, according to a preliminary data analysis from a randomized, controlled trial involving 1063 patients, which began on February 21.” Of course, an effective vaccine is still the ultimate goal, and dozens of trials for potential vaccines and therapeutics are underway.
In contrast to recent weeks, large-cap U.S. stocks under-performed last week as investors bid-up lagging U.S. small company stocks and foreign stocks. On the week, the S&P 500 and the DJIA gave back 0.2%. The Russell 2000 which represents small/midsized US companies bucked the trend and gained 2.22%. International markets gained ground as developed international markets (MSCI EAFE) advanced 3.1% while emerging markets (MSCI EM) jumped 4.3%. Bonds were off slightly as the Bloomberg Barclays Aggregate finished lower 0.12% on the week. The 10yr Treasury ended last week at a yield of 0.64%. Gold prices declined 3.1% on the week while oil prices leapt 23.3% to $19.78 per barrel. Even after last week’s surge, oil prices are down 68% year-to-date.
The first quarter earnings season is underway with nearly 67% of S&P 500 companies reporting better-than-expected earnings (albeit from lowered expectations due to the economic shutdown). So far, earnings growth is down 16.75% year-over-year while revenues are up 1.49%. Most large-cap technology companies reported in-line to slightly-better top and bottom line results last week. As one would expect, over 160 companies in the S&P 500 have either withdrawn or suspended forward guidance as the outlook for the economy remains cloudy.
The S&P 500 finished last week 27% higher than the lows experienced in March. After such a powerful set of relief rallies, we suspect that markets are ahead of themselves. Worldwide economies will not return to anything close to normal for quite some time, and we would not be surprised if markets pulled back a bit until the path forward becomes clearer.
This time is not different … we will get through this crisis just like we have gotten through every other crisis. Warren Buffett, at his virtual annual meeting this past weekend, summed it up well – “We’ve faced tougher problems, and the American miracle, the American magic, has always prevailed.”
ND&S Weekly Commentary 5.26.20 – Markets Cheer Vaccine News
May 26, 2020
Equity markets rose across the board last week as investors focused on state “reopening plans” and positive initial results for Moderna’s Coronavirus vaccine. For the week, the S&P 500, DJIA and NASDAQ were up 3.27%, 3.43% and 3.48%, respectively. International equity markets also advanced with developed markets, as measured by EAFE up 3.03% and emerging markets up 0.5%. Cyclical stocks were strong last week in spite of continuing negative economic news. The best performing sectors in the S&P 500 were industrials, energy and real estate. Fixed income markets also rallied as corporate bonds and municipals rose 1.5% and 1.1% respectively for the week. The yield on the 10yr U.S. Treasury settled at 0.66%.
Economic news continued to reflect the impact from Covid-19 shutdowns. Initial jobless claims for the week of May 16 came in at 2.438 million slightly higher than consensus. Existing home sales declined 17.8% in April to a seasonally adjusted annual rate of 4.33 million, its lowest reading in a decade. On the positive side, the flash PMI for manufacturing increased to 39.8 in May from 36.1 in April and the flash PMI for services rose to 36.9 in May from 26.7 in April.
This week look for economic reports on consumer confidence, new/existing home sales and personal consumption. Investors will be hoping for signs that the reopening will have a positive social and economic impact without triggering a spike in virus cases.
“And if words cannot repay the debt we owe these men, surely with our actions we must strive to keep faith with them and with the vision that led them to battle and to final sacrifice.” – Ronald Reagan