Archive for ND&S Updates
NDS Weekly Commentary 7.20.20 – Earnings Season Starts to Ramp Up
July 20, 2020
Equity markets were somewhat mixed last week as the S&P 500 and DJIA advanced 1.3% and 2.3%, respectively. However, investors appeared to be taking profits in the technology sector, which has been the best performing sector YTD, as the NASDAQ was down -1.1% for the week. Also, value stocks outperformed last week as the Russell 1000 Value Index rose 3.4% vs the Russell 1000 Growth which was -0.8%. Reflecting that shift, the best performing sectors were industrials and materials and the worst were technology and consumer discretionary. International equities were mixed as the EAFE index rose 2.2% and emerging stocks declined 1.2%. Fixed income markets were relatively flat last week as the rate on the 10 year U.S. Treasury declined slightly to 0.64%.
In economic news last week, CPI for June was announced at 0.6%, a slight increase over expectations. Retail sales advanced 7.5% also exceeding expectations of 5.0% and housing starts were up 17.3% month over month. The Labor Dept. reported initial jobless claims of 1.3 million. This week look for economic reports on mfg. and srvs. PMI and new/existing home sales. Earnings season also ramps up this week with major companies Coca Cola, Microsoft, Intel, Tesla and Verizon to report. Last week major banks reported better-than-expected earnings in spite of large increases in loan loss reserves.
We expect going forward that investors will focus on the surge of confirmed cases of the Coronavirus in the southern and western U.S., its impact on the re-opening of the U.S. economy, and the upcoming election.
Don’t forget to wear your masks and stay safe.
“Nothing great in the world has ever been accomplished without passion.” – Georg Wilhelm Friedrich Hegel
ND&S Weekly Commentary 7.13.20 – Let The Earnings Season Begin
July 13, 2020
Last week stocks finished modestly higher with a resurgence of COVID-19 cases causing uncertainties and market volatility. The pandemic is spreading in several US states at record levels and its effects will continue to be the primary driver of the financial markets for the rest of the year. There are some bright spots from improving economic data, historically low interest rates and tremendous financial liquidity. However, the uncertainties over the rise of COVID cases, the political outcome of the US elections and an expected very weak earnings season have investors on edge.
The Dow Jones Industrials gained 1.0%, the S&P500 rose 1.8% and the tech heavy Nasdaq climbed 4.0%. Foreign markets also increased with developed markets as measured by the MSCI EAFE index up 0.3% and emerging markets gaining 4.7% with China’s markets leading the way.
Investors are preparing for a terrible earnings season next week. According to FactSet, estimated earnings for the S&P 500 for the second quarter will plummet 45% from the same period last year and revenues will be down by 10%. The major banks will report this week and all eyes will be on net interest margins, loan loss reserves and guidance. The S&P 500 is only down 0.4% this year and is selling at over 22 times forward twelve month earnings estimates which is expensive. The market could be in for some choppy times ahead.
The 10-year US Treasury note traded down to a yield of 0.57% but finished the week at 0.65% which indicates that rates should remain near zero for quite some time. If the Covid-19 cases continue to surge, the confidence of investors will suffer, increasing the demand for safe assets. The price of gold is already up nearly 20% for the year and gold mining shares are soaring.
The Institute for Supply Management’s (ISM) Non-Manufacturing Index which tracks the service sector of the economy rebounded into expansionary territory in June at 57.1, handily beating estimates of a reading of 50.0. Employment figures continue to improve as 4.8 million jobs were added in June. New drug treatments by Gilead Sciences showed good results and Pfizer and BioNtech expressed optimism that their mRNA vaccine candidate could be ready for approval by the end of the year.
All eyes will be on second quarter earnings announcements this week. Economic data to be reported are inflation on Tuesday, retail sales on Thursday and housing starts on Friday. With so many uncertainties and headwinds, we strongly encourage investors to not chase momentum stocks or higher yielding assets, and stay close to their long-term asset allocation.
“Together we can face any challenges as deep as the ocean and as high as the sky.” — Sonia Gandhi
Recovering Labor Market Pushes Stocks Higher
July 6, 2020
Despite record numbers of new daily Covid-19 cases in the United State and near-record cases globally, equity markets continued higher last week. For the week, the S&P 500 and DJIA rose 1.55% and 0.36%, respectively. The Russell 2000 increased 1.37%. International stocks were also strong with developed international (MSCI EAFE) up 1.62% and emerging markets up 2.16%. Treasury yields increased slightly last week with the 10yr US Treasury settling at a yield of 0.68%. Oil prices (WTI) rose to around $40 a barrel.
A strong labor market report, improving manufacturing PMIs globally and surging pending home sales propelled markets last week. The improving data has some momentum behind it but economic activity is still well below pre-coronavirus. More than 4.75 million workers returned to payrolls in June, which was well ahead of consensus estimates of about 3 million. The May payroll number was also revised higher. As a result, the unemployment number declined to 11.1%, down from 13.1% a month ago. Economic activity in manufacturing grew in June according to the The Institute for Supply Management (ISM) manufacturing purchasing managers’ report. The June PMI reading came in at 52.6%, up 9.5 percentage points from May’s reading of 43.1%. Pending home sales posted a record comeback in May with a 44.3% increase from April. This week, there will be reports on non-manufacturing, car sales, job openings and inflation.
Banks are set to kick off the second-quarter of earnings season in less than 2 weeks. Estimates are for an earnings decline in the Q2 2020 of 43%. It is anyone’s guess how accurate the estimates will prove to be, as over 400 S&P 500 companies failed to guide over the last 3 months. Stocks are coming off their best quarter in decades, so there is pressure to deliver good news or at least some clarity in company strategy to navigate the current Covid-19 environment.
We wouldn’t be surprised to see markets take a pause here. Continuing spikes in cases or temporary shutdowns on a local level will likely begin impacting markets. The uncertainty around company results won’t be answered for at least 3-4 weeks so some caution may be warranted.
“What then is freedom? The power to live as one wishes.” – Marcus Tullius Cicero
ND&S Weekly Commentary 7.27.20 – Markets Quiver Last Week
July 27, 2020
Markets gave some back last week over renewed tensions between the US and China. The US ordered China to close its consulate in Houston which prompted Beijing to revoke the license of the US consulate general in Chengdu, China. Adding to the uncertainty last week, US jobless claims came in at 1.4 million, snapping a 15-week run of declining claims, brought on from the Covid-19 spike. Plans to reduce business restrictions continue to be delayed as a result of the recent outbreak in confirmed cases around the US.
On the week, the S&P 500 declined 0.27% while the DJIA gave back 0.74%. The NASDAQ weakened 1.33% on the week as debate grows over technology stocks and their stretched valuations. The Russell 2000 which represents small/midsized US companies also moved lower as it declined 0.38% for the week. International markets were a bright spot on the week as developed international markets (MSCI EAFE) gained 0.42% while emerging markets (MSCI EM) increased 0.57%. Bonds were a bit higher as the Bloomberg Barclays Aggregate finished ahead by 0.41% on the week. The 10yr US Treasury ended last week at a yield of 0.59%. Gold prices continued their rapid ascent closing at $1,902 marking a 4.99% advance on the week as investors continue to seek out the safe-haven metal. Oil increased to $41.29 per barrel from $40.59 the week prior.
Economic news on the week was mixed. As mentioned above, jobless claims were a disappointing 1.4m which was a 109k increase from the week prior. It was noted on the release, “The Covid-19 virus continues to impact the number of initial claims and insured unemployment.” Housing continues to be a bright spot in the recovery as existing home sales jumped 20.7% in June. The median existing home prices have increased 3.5% year-over-year as housing inventory remains tight in a historically low-rate environment. New home sales in June also jumped 13.8%, greatly exceeding expectations. Worth noting, the Conference Board reported leading indicators increased 2.0% month-over-month in June after a 3.2% improvement in May.
Earnings season continues this week as a of number companies which includes Apple, Facebook, Amazon, Mastercard and Alphabet are scheduled to report. Earnings so far have come in better-than-feared as close to 80% of companies have reported earnings-per-share (EPS) better than analyst estimates while revenues have been generally in-line with expectations. Analysts’ forecasts were for a 10.9% decline in EPS with a 40% drop in revenues due mainly to the Covid-19 impact and restrictions.
Company results and guidance will likely drive the markets this week. We continue to recommend staying close to investment policy targets with an investment bias towards quality and safety.
“I never think of the future – it comes soon enough.” – Albert Einstein