Archive for ND&S Updates
ND&S Weekly Commentary 1.19.21 – Markets Pull Back Last Week
January 19, 2021
Markets pulled back last week despite U.S. President-Elect Joe Biden proposing a larger-than-expected relief package. The $1.9 trillion Covid-19 relief package was designed to garner bipartisan support but will likely require some adjustments as passage is far from assured which tempering enthusiasm.
The DJIA, S&P 500, and Nasdaq indices all closed lower on the week by 0.91%, 1.46%, and 1.54%, respectively. The lone bright spot for US equity markets was the Russell 2000, bucking the trend to close 1.51% higher. International equities finished the week mixed with developed international (MSCI EAFE) giving back 1.36% and emerging markets (MSCI EM) ticking higher by 0.36%. Interest rates settled lower last week providing a reprieve for bond investors. The 10 year U.S. Treasury closed at a yield of 1.11%, which is down from 1.13% the week prior. Gold finished lower last week to close at $1839/oz.
Economic news released last week came in mostly below consensus. The Consumer Price Index (CPI) increased 0.4% in December, matching expectations. Over the last 12 months, inflation has increased 1.4%, which is not yet a concern but worth keeping close eyes on given the current monetary and fiscal policies. Jobless claims last week were 965k, a big increase from the previous week but slightly better than estimates. The producer price index (PPI) measuring final demand increased 0.3% in December, missing estimates of 0.4%. Also disappointing economists and equity markets was the retail sales report released Friday. The report showed retail and food-services sales declining 0.7% in December, marking the second consecutive monthly decline driven by the uptick in confirmed Covid-19 cases and restrictions.
President-Elect Joe Biden will be sworn into office this week, hopefully bringing some calmness to Washington. However, the tough work will begin for his administration as focus will need to be on the vaccination rollout and continued fight against Covid-19.
“Life’s most persistent and urgent question is, ‘What are you doing for others?” – Martin Luther King Jr.
ND&S Weekly Commentary 1.11.21- Markets Kick Off New Year in the Green
January 11, 2021
Markets advanced last week as investors looked past political turmoil and focused on expectations of more stimulus out of Washington D.C.. Democratic victories in Georgia raised the likelihood of increased government spending to support a pandemic-weakened economy.
For the week, the DJIA advanced 1.61% while the S&P 500 gained 1.83%. The tech-heavy Nasdaq jumped 2.43%. Developed international markets also moved higher. For the week, the MSCI EAFE index gained 3.16% while emerging market equities (MSCI EM) finished higher by 4.83%. Small company stocks, represented by the Russell 2000, finished ahead by 5.91% for the week. Fixed income, represented by the Bloomberg/Barclays Aggregate, finished the week lower as the index lost 0.94%. As a result, the 10 YR US Treasury closed at a yield of 1.13% (up ~20 bps from the previous week’s closing yield of ~0.93%). Gold prices closed at $1,834.10/oz – down 3.1% on the week. Oil prices jumped $3.72 (or 7.7%) last week as Saudi Arabia decided to cut oil production even as inventories were falling.
Economic news released last week was mixed. On Tuesday, the Institute of Supply Management (ISM) reported that December’s Purchasing Managers’ Index (PMI) advanced to 60.7% versus expectations for a level of 56.7%. On Wednesday, the U.S. Commerce Department reported that new orders for manufactured goods advanced 1.0% in November – beating an expected increase of 0.7%. On Thursday, the ISM reported that the Non-Manufacturing Index (NMI) advanced to 57.2%, outpacing expectations for a 54.5% reading. On Friday, the Department of Labor reported that the U.S. economy lost 140,000 jobs in December, a big miss against expectations for an increase of 50,000 jobs. Despite the decline in jobs, unemployment remained at 6.7% (better than estimates of 6.8%). The employment report was a stark reminder that the COVID-19 pandemic continues to impact economies and workers around the world.
Markets and accompanying valuations have advanced quite a bit over the past twelve months and we see signs that volatility will likely increase. We suggest investors stay close to their long-term target asset allocations with a slight defensive bias. Stay Safe!
“Your attitude, not your aptitude, will determine your altitude.” – Zig Ziglar
ND&S Weekly Commentary (1/4/21) – Markets End Year on High Note
January 4, 2021
U.S. equities closed the last week of 2020 at or close to record all-time highs. For the week, the S&P 500, DJIA and NASDAQ were up 1.45%, 1.35% and 0.66%, respectively. International markets also finished on a high note with the MSCI EAFE adding 1.44% and emerging markets (MSCI EM) jumping 3.16%. The lone detractor were U.S. small cap equities (Russell 2000), which saw some profit taking to finish lower by 1.41%.
It was a slow week for news and economic reports with pending home sales declining 2.6% m/m. That will change in the first week of the year as there is a run-off election set for Tuesday in Georgia that will determine the direction of power in Congress. Market consensus is for Republicans to pick up at least one seat in the Senate giving them a majority. Markets do best under split control in Washington as it will usually foster an environment of bipartisanship. Markets would likely react negatively to a Democratic sweep … like any decline, it will ultimately be temporary. This week, look for reports on mfg. and non-mfg. PMIs with the big economic release being the U.S. Jobs Report for December. Expectations are modest with only 68,000 jobs being added and the unemployment rate increasing slightly to 6.8%. This would be a significant cooling from the 245,000 jobs added in November.
Interest rates were little changed last week as the 10 year U.S. Treasury note finished at 0.93%, down slightly from 0.94% the prior week. What a difference a year makes … many 2020 year-end estimates at the beginning of the year were for the 10yr U.S. Treasury to finish above 3.00%. Nobody saw the 360° turn in monetary policy that was required by the outbreak of Covid-19. The Federal Reserve reaffirmed its commitment to maintaining low rates for the foreseeable future.
Looking ahead to the New Year, the passage of a $900 billion stimulus package and the rollout of Covid-19 vaccines should help support consumer sentiment and bolster the economic recovery. Corporate earnings should also start to look better as the year unfolds.
Best wishes for a happy, healthy and peaceful New Year!
“You can change. And you can be an agent of change.” – Laura Dern
ND&S Weekly Commentary 1.25.21 – Inauguration Week
January 25, 2021
Stocks gained during the holiday-shortened week in observance of Martin Luther King Jr. Day. Investors and traders were optimistic about President Biden’s inauguration and his proposed $1.9 trillion stimulus package along with a solid start to the corporate earnings season. As the week went on, the market lost momentum amid Republican stimulus push back and increased concerns about the pandemic.
For the week, the Dow Jones Industrial Average (DJIA) rose 0.6%, the S&P 500 was up 1.9% and the tech-heavy Nasdaq surged 4.2%. International equities also advanced; developed markets (MSCI EAFE) returned 0.7% and emerging market (MSCI EM) stocks jumped 2.6%. U.S. stocks closed just shy of their all-time highs with communication services leading the way. The S&P 500 is now trading at nearly 23 times this year’s earnings, far exceeding the 25yr historical average of 16.5 times, which clearly indicates investors’ optimism. The pandemic concerns and its global economic impact pushed safe-haven assets slightly higher. The yield on the 10-year US Treasury declined fractionally to 1.10%. Gold prices closed the week up 1.5% and the price of WTI crude oil closed at $52.27 per barrel down 0.3%.
The weekly jobless claims declined but remained high at 900,000, while existing home sales and housing starts continued to gain and are at their highest levels since 2016. With record low mortgage rates and the lowest supply levels going back to 1982, new home construction will undoubtedly surge. Residential housing construction has always been a major catalyst to lift us out of recessionary periods. U.S. manufacturing showed improvement as the IHS Markit data came in better-than-expected. Corporate earnings drive the stock market and last week 86% of the S&P 500 companies reported fourth-quarter results exceeding analysts’ estimates according to FactSet Research.
The “shot in the arm” for the global economy will be the successful roll out of the vaccines. President Biden plans for 100 million shots in 100 days. In the U.S. daily cases of COVID-19 have declined over 10 consecutive days thanks to the vaccine rollout and pandemic restrictions. The CDC says that 41.4 million doses of vaccine have been distributed and 20.5 million administered. Johnson and Johnson is seeking emergency use authorization from the FDA for its vaccine candidate which is being tested for just one dose and can be stored at regular refrigerator temperatures unlike Pfizer’s vaccine. The virus is still infecting people at alarming rates around the world and has mutated into even more contagious variants.
The U.S. Bureau of Economics will report its initial GDP estimate on Thursday. The Federal Reserve is expected to announce a continued accommodative stance when it concludes its two day meeting on Wednesday. There will be a slew of economic reports with the S&P/Case-Shiller 20-City Composite Home Price Index and Consumer Confidence Index on Tuesday, durable goods orders on Wednesday, Leading Economic Index for the U.S. on Thursday and personal income and consumer spending, and consumer sentiment on Friday.
Investors’ jitters abound and with relatively high stock price valuations we recommend being cautious in the near term. A well-diversified portfolio with quality holdings will prove to carry on through these uncertain times.
“I have decided to stick with love. Hate is too great a burden to bear.” – Martin Luther King Jr.