Archive for ND&S Updates
ND&S Weekly Commentary 2.16.21 – Equity Markets Grind to New Highs
February 16, 2021
Equity markets continued to grind higher last week. For the week, the DJIA increased 1.11% while the broader-based S&P 500 was up 1.28%. Small-cap U.S. equities (Russell 2000) continued their recent run to close higher by 2.54%. International markets also enjoyed a strong week as developed markets (MSCI EAFE) and emerging markets (MSCI EM) jumped 2.09% and 2.41%, respectively. The yield curve continued to steepen last week as the 10yr U.S. Treasury closed at a yield of 1.20, up slightly from 1.19 the week prior. Yields for longer maturity bonds had a slightly higher increase. Gold held steady on the week, closing at $1,816/oz. Oil (WTI) closed the week at $59.73/ barrel.
Macroeconomic updates were limited last week. On Wednesday, the Consumer Price Index (CPI) increased 0.3% in January, matching expectations. Over the 12 months, core CPI has risen a modest 1.4%. Weekly jobless claims have remained elevated, with last week’s number at 793,000. Federal Reserve chairman Jerome Powell gave a presentation to the Economic Club of New York last week. Powell indicated that the Fed has no plans to raise rates anytime soon, citing their focus on recovery in the labor market and inflation currently below their 2% target. Additionally, Dr. Tony Fauci spoke on the Today Show last week and shared his belief that there would be enough vaccines available by the middle of the summer for anyone who wants to get one.
Earnings season continued to progress largely characterized by better-than-expected results. With roughly 75% having reported so far, according to data from FactSet Research, blended earnings-per-share and revenues for the S&P 500 have increased 2.8% compared with the same quarter last year. Q4 earnings are exceeding expectations by 18%. There will be more announcements this week with CVS Health and Walmart among those scheduled.
Economic news and corporate earnings results have been encouraging. This week, there will be reports on retail sales, industrial production, housing and manufacturing. We believe a slight defensive stance is warranted in equity markets as they have moved meaningfully higher over the last several months. We will continue to add to opportunities down the U.S. market cap structure and to international markets as valuations are more reasonable and those areas are more exposed to an economic reopening.
“Truth will ultimately prevail where there are pains to bring it to light.”– George Washington
ND&S Weekly Commentary 2.8.21 – Markets Advance Smarty
February 8, 2021
Markets advanced smartly last week as investors keyed in on better-than-expected earnings and economic news as well as hopes for a massive $1.9T stimulus package from Washington.
For the week, the DJIA advanced 3.89% while the S&P 500 gained 4.65%. The tech-heavy Nasdaq jumped 6.01%. International markets were also strong. For the week, the MSCI EAFE index (developed markets) closed higher by 2.76%% while emerging market equities (MSCI EM) jumped 4.96% (January – March is a seasonably strong period for emerging market equities). Small company stocks, represented by the Russell 2000, finished ahead by 7.70% for the week. Fixed income, represented by the Bloomberg/Barclays Aggregate, finished the week lower as the yield curve continued to steepen. As a result, the 10 YR US Treasury closed at a yield of 1.19% (up ~8 bps from the previous week’s closing yield of ~1.11%). Gold prices closed at $1,810.90/oz – down 1.97% on the week. Oil prices jumped 8.91%.
Economic news released last week confirmed an improving jobs market and decent manufacturing and services output. On Monday, the Institute of Supply Management (ISM) reported that the purchasing managers’ index fell to 58.7% versus an expectation of 60.0%; however, the index pointed to the 8th straight month of expansion. On Wednesday the ISM reported that the Services PMI for January hit 58.7%, better than the expected 56.8% reading. On Thursday, the U.S. Commerce Department reported that new orders for durable and non-durable manufactured goods advanced 1.1%, outpacing expectations for a gain of 0.7%. Also on Thursday, the Department of Labor reported weekly initial jobless claims (for the week ending January 30) of 779,000, below consensus of 830,000 claims. On Friday, the Labor Department reported that 49,000 jobs were added in January, a slight miss against expectations for a gain of 50,000 jobs. Unemployment dropped to 6.3% (consensus was for a 6.7% rate); however, the labor force participation rate fell to 61.4% as 406,000 workers left the labor force.
Economic and market fundamentals remain reasonable, and the news on the vaccine front has been encouraging. We suggest investors stay close to their long-term target asset allocations with a slight defensive bias. The slight defensive bias is warranted in that U.S. markets have moved higher over the past few months without any meaningful setback.
“I just love working hard. I love being part of a team; I love working toward a common goal.” – Tom Brady
ND&S Weekly Commentary 2.1.21 – Volatility Spikes
February 1, 2021
Stock market volatility spiked last week as retail traders piled into stocks like GameStop and AMC in a battle with hedge fund short sellers. For the week, the S&P 500, DJIA and Nasdaq fell -3.3%, -3.3% and -3.5%, respectively. Small U.S. companies represented by the Russell 2000, declined 4.4%. Investors were concerned about volatility, new variants of the Coronavirus and the slow rollout of Covid-19 vaccinations in many states. The softness in the market lately is certainly not earnings related. So far, 50% of S&P 500 companies have reported 4th quarter earnings with 84% beating earnings estimates and 70% beating revenue estimates. This represents a year over year decline of 3.2%.
International equity markets also declined last week with the MSCI EAFE and emerging (MSCI EM) off -3.5% and -4.4%, respectively. International equity markets look attractive as valuations appear to be lower than U.S. markets. Given their more cyclical nature, international equities may have a stronger earnings recovery in the 2nd half of 2021.
Fixed income markets last week were quiet as the FOMC reiterated intentions to keep rates low for an extended period of time. Fed Chairman Jerome Powell also noted in comments that there have been upward blips of inflation, but communicated that the Fed will remain patient in its policy decisions. The yield on the 10 year U.S. Treasury Note remained unchanged at 1.11%.
The economy grew at a 4% pace in the fourth quarter 2020 according to the Bureau of Economic Analysis. The results missed expectations for a 4.2% increase. This week look for economic reports on manufacturing and services – both are expected to have expanded. On Friday, the monthly jobs report should show an increase in a turnaround from December’s decline in payrolls. However, forecasts range widely reflecting broad uncertainty among economists.
We are continuing to monitor asset allocations and rebalancing as necessary.
“Advice is like snow – the softer it falls, the longer it dwells upon, and the deeper it sinks into the mind.” – Samuel Taylor Coleridge
ND&S Weekly Commentary 2.22.21 – Bond Prices Thaw
February 22, 2021
Equities finished mostly lower during the shortened President’s Day week as investors focused on the post pandemic recovery and the pending stimulus plan. Though there were mixed economic signals reported, the Federal Reserve advocated that the proposed $1.9 trillion stimulus package be passed which they feel is desperately needed and would not overheat the economy.
For the week, the Dow Jones Industrials rose (DJIA) 0.16%, the broader-based S&P 500 dipped 0.68% and the tech-heavy Nasdaq slid 1.54%. International equities were modestly higher with developed (MSCI EAFE) and emerging markets (MSCI EM) up 0.28% and 0.09%, respectively. Smaller companies also weakened with the Russell 2000 declining 0.98%. However, since the small cap rally began last September, the Russell 2000 is up 55% while the S&P 500 returned 21%. Inflation expectations have been affecting the bond market, steepening the yield curve and eroding bond prices. The yield on the 10 year U.S. Treasury jumped to 1.34% from 1.20% the previous week. The iShares 20+ Treasury Bond ETF (TLT) is down 9% year to date. As a result of the big freeze in Texas, U.S. crude oil rose above $60 per barrel for the first time in over a year before closing at $59.
Thus far, 84% of the S&P 500 companies have reported 4th Quarter results with 71% beating revenue estimates and 79% beating on earnings. Analysts are now expecting a 21% increase in S&P 500 company earnings in 2021.
On the economic front, the weekly jobs report disappointed with 861,000 Americans having filed for unemployment, trending higher than the previous weeks. Existing home sales continued to increase in January rising 0.6% from December to a seasonally adjusted rate of 6.69 million annualized units according to the National Association of Realtors. January retail sales surged 5.8% YOY way above expectations thanks to additional fiscal stimulus and e-commerce. The purchasing manager’s index for services and manufacturing from IHS Markit rose to 58.8 in February from 58.7 last month, the strongest reading in nearly six years. As for the pandemic, inoculations are proceeding rapidly and a study shows that Pfizer’s vaccine is 85% effective with just one dose and it can be kept at warmer temperatures than originally thought.
Taking into account our improving economy, huge stimulus and a more than accommodating Fed, we remain cautiously optimistic. The markets have reached all-time highs, the speculative areas of the market are becoming more volatile and margin debt has soared over 40% since last year. We strongly recommend a well-diversified and balanced portfolio made up of high quality holdings.
This week’s economic reports include the January leading indicator index, consumer confidence, durable goods orders and personal income and spending.
“Worry is the interest paid by those who borrow trouble.” — George Washington