Archive for ND&S Updates
ND&S Weekly Commentary 6.22.20 – Re-openings Continue
June 22, 2020
Despite some volatility during the week, as investors continued to assess the reopening of the economy, equity markets rebounded posting their fourth weekly gain out of the past five weeks. Last week the S&P 500, DJIA and NASDAQ were up 1.9%, 1.1% and 3.7%, respectively. For the week, the strongest sectors were health care, technology and consumer staples. Technology stocks continued to be among the leaders and the sector is the best performing year-to-date in the S&P 500 up 12.1%. There is some evidence that the stock market advance is starting to broaden out as earlier this month more than 97% of stocks in the S&P 500 traded above their 50 day moving average … it is a fairly rare occurrence for breadth to be so strong and it usually forecasts good markets ahead. International equities also advanced last week with MSCI EAFE up 2.1% and emerging markets up 1.5%. Going forward, investors will continue to be focused on economic recovery signs, virus hot spots and increasingly on the upcoming Presidential election.
Fixed income markets also advanced slightly as the Fed continues to ensure that sectors of the bond market function normally. The 10yr Treasury closed at a yield of 0.70%, unchanged from the prior week. Interest rates are likely to remain quite low for the months ahead. Bonds should offer investors some protection in the event of a shock to the equity markets. Investors should continue to monitor their asset allocation targets and re-balance as appropriate.
The U.S. Commerce Department reported last week that retail and food-services sales rebounded 17.7% in May, greatly exceeding estimates for an 8.4% advance. This after retail sales plunged a combined 21.8% in March and April. Jobless claims from the previous week were 1,508K which missed estimates although continue to trend in a positive direction. This week we’ll get fresh numbers on durable goods orders, personal income and spending and existing/new home sales.
“It always seems impossible until it’s done.” – Nelson Mandela
ND&S Weekly Commentary 6.15.20 – Volatility
June 15, 2020
Last week US stocks suffered their worst week since March. Investors were rattled over fears of rising COVID-19 infections and very dovish comments by the Federal Reserve, “the Fed,” forecasting a weaker than expected economy. On Thursday, the Dow Jones Industrials (DJIA) fell more than 1,800 points representing a 6.9% drop. Stocks were unable to sustain their bullish pace for the last 11 weeks during which they gained over 44%.
For the week, the DJIA slid 5.6%, the S&P 500 declined 4.8% and the tech heavy Nasdaq was down 2.3%. Foreign markets also weakened with Developed (MSCI EAFE) and Developing International (MSCI EM) equities down 4.2% and 1.5% respectively. The Cboe Volatility Index (VIX) commonly referred to as Wall Street’s” fear gauge,” gained 44% for the week. Bankrupt companies like Hertz Holdings went wild, rocketing 115% on Monday, dropping 24% on Tuesday and 18% on Thursday. Traders and speculators are making a spectacle of themselves and stirring up tremendous volatility.
On Wednesday, Federal Reserve Chairman, Jerome Powell, stated that the economic recovery is going to be slower and more painful than many had hoped. Powell said the Fed has no plans to raise short-term rates through 2022 and would continue adding liquidity to the credit markets. The 10 year US Treasury yield ended the week at 0.71%, a 0.2% weekly decline. The Fed has been buying bonds for 10 straight weeks including high yield corporates and municipals which stabilized credit markets and enriched risky bond holders. In fact, high yield bonds have gained more than 21% since bottoming in late March. There’s an expression that you should never fight the Fed.
In May, the US surprisingly added 2.5 million jobs, far exceeding the consensus expectations of a 7.5 million job loss – though the added jobs only represented 11% of the 22 million job lost in the preceding two months. The manufacturing and services activity declined but showed improvement over April’s reports. The price of oil once again revealed its volatility on rising inventories declining 7.8% to $ 36.45 price per barrel.
With all of this uncertainty, let us not forget what boosted the market the last several weeks. The Fed’s massive liquidity stimulus, improving economic data, our adjusting to life and business in the new coronavirus world and investor’s fear of missing out have all contributed to the boost. Moreover, there was encouraging news by Eli Lilly and Regeneron Pharmaceuticals on their coronavirus treatments. Moderna also announced it will begin a Phase 3 study of its virus vaccine next month.
This week retail sales will be released on Tuesday, housing starts and building permits on Wednesday and the leading indicator on Thursday. Markets will continue to be quite volatile and we recommend investors try and remain patient and stay close to their long-term asset allocation targets.
Please stay safe!
“You pay a very high price for a cheery consensus. It won’t be the economy that will do in investors; it will be themselves. Uncertainty is actually the friend of the buyer of long-term values.” —-Warren Buffet
Weekly Commentary: Optimism Rules the Week
June 8, 2020
Global stocks surged last week as investors focused on improving, albeit still dismal, economic news. Investors seemed to shrug off concerns related to the coronavirus, trade tensions with China and widespread protests.
On the week, the S&P 500 gained 4.9% while the DJIA surged 6.8%. The Russell 2000 which represents small/midsized US companies also jumped higher as it added 8.1% for the week. International markets joined the party as developed international markets (MSCI EAFE) jumped 7.1% while emerging markets (MSCI EM) tacked-on 7.9%. Bonds sold off as the Bloomberg Barclays Aggregate finished lower by 0.49% on the week. The 10 yr Treasury ended last week at a yield of 0.895%, up 24.3 basis points on the week as bond yields reached their highest levels since March. Gold prices retreated last week and closed at $1,676.20 for a 3.5% drop for the week while oil prices continued their march higher and finished up 11.4% to $39.55 per barrel. Even after last week’s surge, oil prices are down 35.2% year-to-date.
Economic news continues to be dismal although many reports were better than feared. Investors are certainly betting that the worst is behind us. On Monday, the Institute of Supply Management reported that the purchasing mangers’ index (PMI) moved up 1.6% to 43.1% … consensus was for 43.7%. On Wednesday, the ADP National Employment Report (NER) indicated a loss of 2.76 million jobs in the private sector, better than an expected loss of 9 million jobs. May’s non-manufacturing index (NMI) grew 3.6% to 45.4%, ahead of expectations of 44.4%. Also on Wednesday, the U.S. Commerce Department reported that new orders for manufactured goods sank 13%, slightly better than expectations for a 13.4% decline. On Friday, the Labor Department reported that the country added 2.5 million jobs in May, a huge surprise given that consensus was for losses of 8.3 million jobs. The unemployment rate fell to 13.3% from April’s 14.7% level (a post-World War II high). Despite May’s gains, unemployment remains historically high – nearly four times the rate in February.
We mentioned last week that markets will need to broaden out beyond just technology stocks in order to meaningfully advance from here. The positive employment last week prompted just that … value/cyclical stocks moved nicely higher last week as investors bet that the economy might be able to recover from its downturn faster than originally thought. It is impossible to know whether or not this rotation persists, but a broadly diversified portfolio will benefit investors in such an environment.
Markets will be watching as more and more states begin their re-opening process. Stay safe.
“If you cannot do great things, do small things in a great way” – Oliver Napoleon Hill
ND&S Weekly Commentary 6.1.20 – Green Shoots?
June 1, 2020
Global stocks advanced last week for the second week in a row as investors pinned their hopes on a successful reopening of the economy.
On the week, the S&P 500 gained 3.0% while the DJIA advanced 3.8%. The Russell 2000 which represents small/midsized US companies also moved higher as it added 2.8% for the week. International markets joined the party as developed international markets (MSCI EAFE) jumped 5.1% while emerging markets (MSCI EM) tacked-on 2.9%. Bonds were a bit higher as the Bloomberg Barclays Aggregate finished ahead by 0.2% on the week. The 10yr Treasury ended last week at a yield of 0.65%. Gold prices closed at $1,736.90 for a 0.1% advance for the week while oil prices leapt 6.7% to $35.49 per barrel. Even after last week’s surge, oil prices are down 41.9% year-to-date.
Economic news continues to be dismal although many reports were better than feared. Perhaps some green shoots are beginning to appear. On Tuesday, the U.S. Census Bureau reported that April new home sales inched higher by 0.6% month-over-month and down 6.2% year-over-year. The news was much better than the consensus expectation of a 20% decline. On Thursday, the Commerce Department released its reading of new orders for manufactured durable goods; orders fell 17.2% versus expectations for a 19.1% drop. Also on Thursday, the Bureau of Economic Analysis reported a revised first quarter real GDP of -5.0% (driven by weaker than expected business investment spending), below expectations of a 4.8% decline. Pending Home Sales declined 21.8% in April while expectations were for a 17% drop. U.S. initial jobless claims for the week ending May 23 declined from 2.4 to 2.1 million. Of note, 41 million people have filed initial claims for unemployment insurance over the past 11 weeks.
We certainly recognize that markets have advanced handsomely off of the March 23rd bottom and that market valuations are no longer favorable. It is reasonable to expect that the market advance during the past two months or so is unlikely to persist. The five largest stocks in the S&P 500 represent 20% of the index, exceeding the previous 18% peak during the internet bubble in March 2000. The market will need to broaden out for the index to climb meaningfully higher from here … fortunately, we have seen such a broadening out over the past two weeks. We will keep a close eye on the persistency of this rotation.
Investors will be watching the results of the reopening in most states along with escalating trade tensions with China. After a strong May, we would not be surprised if the markets took a breather in June. Of course, the tragic and senseless killing of George Floyd and the resulting protests will cast a pall over the country until a healing process takes hold.
George Floyd – Rest in Peace.
Weekly Review – 06/29/2020
June 29, 2020
Global stocks retreated last week on concerns that a recent surge of covid-19 cases will hamper economic growth. Adding to the uncertainty last week, the Fed released the results of this year’s stress tests on banks and announced that bank buybacks are suspended through September and dividend growth will be capped and payouts based on a formula tied to trailing earnings … not unexpected.
On the week, the S&P 500 lost 2.9% while the DJIA gave back 3.3%. The Russell 2000 which represents small/midsized US companies also moved lower as it declined 2.8% for the week. International markets were a bit better, but they still lost ground as developed international markets (MSCI EAFE) lost 1.3% while emerging markets (MSCI EM) closed lower by 0.1%. Bonds were a bit higher as the Bloomberg Barclays Aggregate finished ahead by 0.2% on the week. The 10yr Treasury ended last week at a yield of 0.64%. Gold prices closed at $1,772.50 for a 1.5% advance for the week as investors fled to the safe-haven metal. Oil prices dropped 3.4% to $38.49 per barrel as soft demand failed to dent more-than-adequate supply. Oil prices are down 37% year-to-date – a boom to consumers and most businesses.
Economic news last week was mixed. On Monday, the National Association of Realtors reported that existing home sales for May dropped 9.7% to a seasonally adjusted annual rate of 3.91 million, missing expectations of 4.09 million. On Tuesday, the U.S. Census Bureau reported that May new home sales jumped 16.6% month-over-month to a seasonally adjusted annual rate of 676,000, far exceeding consensus for 640,000. On Thursday, initial jobless claims were 1.5 million, exceeding expectations by 150,000 while continuing claims dropped 1 million to 19.5 million (beating expectations of 20.0 million). The Bureau of Economic Analysis reported on Thursday its final reading of first quarter GDP … results showed that economic growth contracted at a seasonally adjusted annual rate of 5.0%, in line with expectations. Also on Thursday, the Commerce Department released its reading of new orders for manufactured durable goods in May; orders surged 15.8% versus expectations for a 10.45% gain. Also on Thursday, U.S. initial jobless claims for the week ending June 20 declined from 1.54 to 1.48 million.
Investors will be watching the results of the re-openings in most states and countries around the world. Continuing spikes in covid-19 cases will likely cause investors to take profits until the path forward becomes less murky. We expect a bit of volatility during this holiday-shortened this week as the second quarter comes to a close.
Happy Fourth of July!
“Those who expect to reap the blessings of freedom must, like men, undergo the fatigue of supporting it.” Thomas Paine