Archive for ND&S Updates
ND&S Weekly Commentary 9.21.20 – Selling Continues for a Third Straight Week
September 21, 2020
Stocks sold off last week helping to push all three major U.S. indexes to a third consecutive weekly loss. Investors continued to take profits in technology stocks as the Nasdaq officially entered correction territory with the index now over 10% below its most recent high set on September 2nd. Anxiety surrounding the upcoming elections, geopolitical tensions, the lack of containment for covid-19, absence of a new stimulus package and tepid economic growth have investors on edge. The Fed added a dose of realism as they continued their guidance for easy monetary policy and low interest rates for the foreseeable future.
For the week, the DJIA closed lower by 0.03% while the S&P 500 gave back 0.64%. The Nasdaq declined 0.56%. Small company stocks, represented by the Russell 2000, bucked the trend and finished higher by 2.64% for the week. International stocks provided a bit of ballast last week. For the week, the MSCI EAFE index gained 0.79% while emerging market equities (MSCI EM) jumped 1.59%. Fixed income, represented by the Bloomberg/Barclays Aggregate, finished the week slightly lower by 0.09%. As a result, the 10 YR US Treasury closed at a yield of 0.70% (up ~3 bps from the previous week’s closing yield of ~0.67%). Gold prices closed at $1,952.10/oz – up 0.74% on the week. Oil prices moved materially higher as oil closed at $41.11 – up over 10% on the week.
Economic news released last week was mixed. On Tuesday, the Federal Reserve reported that industrial production for August increased 0.4%, missing expectations for a 1.0% increase. On Thursday, the U.S. Census Bureau reported that housing starts decreased 5.1% month-over-month to a seasonally adjusted annual rate of 1.416 million. Overall, housing starts are up 2.8% from the same time last year. Housing continues to be a bright spot for the U.S. economy. Also on Thursday, the Department of Labor reported that initial jobless claims for the week ending September 12 were 860,000, better than expectations for 875,000 claims. Data released Friday showed that consumer sentiment increased to 78.9 in early September, better-than-expected.
Second quarter earnings season for the S&P 500 is mostly complete with 83.2% of companies reporting a positive earnings surprise. For the 2nd quarter, earnings were down 30.1% year-over-year (in-line with expectations) while revenues were down 8.7% y/o/y (also in-line with consensus). The impact of covid-19 on the worldwide economy is quite obvious in the above numbers.
Markets seem to be fatigued. The passing of Justice Ginsburg will add more drama to the already-contentious presidential election and stock market outlook. With covid-19 deaths in the United States approaching 200,000 and fears of an upcoming spike in cases, any encouraging news on the vaccine front will certainly be welcomed. We urge investors not to overthink the current wall of worry and to stick close to long-term target asset allocations with a slight defensive bias.
RIP Ruth Bader Ginsburg – a true icon and trailblazer whose contributions to equality and justice were enormous.
ND&S Weekly Commentary 9.14.20 – Markets Pull Back
September 14, 2020
U.S. stocks capped off a roller coaster week with a second straight week of declines. For the week, the S&P 500, DJIA and NASDAQ were all down 2.5%, 1.6% and 4.1%, respectively. This pullback has largely been driven by technology stocks which previously led the U.S. markets to all-time highs and elevated valuations. In the last 2 weeks, the S&P 500 and the NASDAQ have lost 4.8% and 7.2%. Thankfully, economic news and corporate earnings have generally surprised to the upside. The worst performing sectors last week were energy and technology and the best sectors were materials and industrials as value stocks outperformed (at least for the week). Challenges still lie ahead for U.S. stocks in the form of economic recovery, U.S./China tensions, economic stimulus, a presidential election and prospects for a Covid-19 vaccine. As a result, expectations are for continued volatility. International equities were mixed on the week as the MSCI EAFE index rose by 1.5% and emerging markets declined 0.7%.
Fixed income markets have been relatively stable with the 10 year U.S. Treasury trading in a narrow range. Last week, the 10 year Treasury rate dropped from 0.72% to 0.67% as investors sought shelter from volatility. One risk to fixed income is an increase of inflation. The Consumer Price Index (CPI) increased 0.4% in August, outpacing expectations. Over the last 12 months, CPI has increased 1.3% and remains low. This week will bring economic reports on retail sales, housing starts and jobless claims. The Federal Open Market Committee (FOMC) meets this week and will perhaps give some guidance on how long they will remain accommodative.
We continue to preach diversification and urge investors to stay close to long-term asset allocations with a slight defensive bias.
Stay Safe –
“Perfection is not attainable, but if we chase perfection we can catch excellence.” – Vince Lombardi
ND&S Weekly Commentary 9.8.20 – Happy Labor Day
September 8, 2020
U.S. stocks reversed a five week winning streak as investors woke up to the over valuations of large Tech companies. The stock market downturn on Thursday and Friday erased $1.7 trillion in market value. The S&P 500 on Thursday fell 3.5%; however, it is still up 53% from its March lows. The CBOE market volatility index (VIX) surged close to a 10 week high.
For the week, the S&P 500 declined 2.3%, the DJIA was down 1.8% and the tech heavy NASDAQ fell 3.3%. Foreign markets slipped as well with developed markets, as measured by the MSCI EAFE index, falling 2.1% and 6.2% year-to-date. Emerging markets (MSCI EM) lost 1.9% for the week.
The Labor Department reported that the economy regained 1.4 million jobs in August and unemployment declined to 8.4% from 10.2%, which was better-than-expected. The Congressional Budget Office (CBO) released its update to the budget outlook on Wednesday. As expected, there was a sharp deterioration to public finances due to the Covid-19 response with the budget deficit expected to triple to $3.3 trillion. At 16% of U.S. GDP, this would mark the highest deficit since WWII. Much of the deficit are one-time expenses but it will funded by the ever increasing national debt now over $26 trillion. This is a medium to long-term issue that may lead to higher taxes, inflation or a decrease in government spending. This would result in lower economic growth and likely softer equity and bond returns in the future.
US Treasury yields were slightly lower while the US dollar was relatively flat. The yield on the 10 year US Treasury declined to 0.72% from 0.74% the previous week. The Bloomberg gold spot price rose $3.07 to $1,933.98 per ounce and WTI crude oil fell $1.60 to $39.77 per barrel.
The financial markets are faced with several major uncertainties and they may be starting to frighten investors and traders. The uncertainties include the divisive upcoming election, the pandemic, developing a vaccine, and US and China trade relations. A resolved and favorable stimulus bill and the Federal Reserve providing more liquidity through open market bond purchases, would soothe investors’ worries.
We have been concerned about the valuation and concentration of large technology stocks and their effect on the equity markets. With all the unknowns, we expect market volatility to continue so please, stay the course, remain diversified and hold quality assets. During this shortened holiday week, economic data reports will include Consumer Credit, CPI data, and hourly earnings.
“Pleasure in the job puts perfection in work.”-Aristotle
ND&S Weekly Commentary 9.28.20 – Markets Pull Back on an Uptick in COVID-19 Cases
September 29, 2020
Market volatility continued last week with equity markets pulling back for a fourth consecutive week. Equity markets made several attempts to rebound with investors’ hopes tied to another stimulus package. Complicating the outlook are an uptick in coronavirus cases in the U.S. and Europe, social unrest and the upcoming election season.
For the week, the S&P 500 declined 0.61% while the DJIA was down 1.75%. Foreign markets struggled on the week with developed markets, as measured by the MSCI EAFE index, falling 4.21% and emerging markets (MSCI EM) down 4.42% for the week. Fixed income, represented by the Bloomberg/Barclays Aggregate, finished the week slightly lower by 0.09%. The 10 YR US Treasury closed at a yield of 0.66%. Gold prices declined last week to $1,860/oz.
It was a quiet week for economic releases. On Tuesday, the IHS Markit Flash U.S. Composite Outlook PMI for September registered a reading of 54.4. Both U.S. manufacturing and services readings signified an expansion from the previous month. On Friday, new orders of manufactured durable goods increased 0.4% in August, which missed expectations. In congressional testimony last week, US Federal Reserve Chairman Jerome Powell said, “we remained committed to using our tools to do what we can, for as long as it takes, to ensure that the recovery will be as strong as possible, and to limit lasting damage to the economy.” Chair Powell also noted that, “economic activity has picked up from its depressed second-quarter level”. Interest rates are likely to remain low for the foreseeable future as a result of the monetary policy backdrop.
Equity markets have pulled back almost into correction territory during the month of September. We strongly believe that investors should stay diversified across a variety of asset classes with a slight defensive bias to long-term targets.
“The past always looks better than it was. It’s only pleasant because it isn’t here.” – Finley Peter Dunne