Archive for ND&S Updates
ND&S Weekly Commentary 4.19.21 – Higher and Higher
April 19, 2021
The US stock market hit all-time highs last week as blue-chip companies reported solid earnings and fresh economic data showed strong improvement in consumer spending and the labor market. Investors’ expectations for a return to normalcy and economic growth are being fueled by cyclical companies and banks reporting healthier revenues, earnings and guidance.
For the week, the Dow Jones Industrials Average (DJIA) rose 1.18%, the S&P 500 gained 1.39% both advancing for four straight weeks. The tech-heavy Nasdaq gained for the third consecutive week, up 1.10%. Foreign stocks also appreciated with developed (MSCI EAFE) and emerging (MSCI EM) markets gaining 1.67% and 1.41%, respectively. The price of oil ($/bbl) soared 6.5% to $63.13 and gold finished the week down 1.91% to $1,774/oz. The yield on the 10 year U.S. Treasury saw its largest one week decline since June, falling from 1.67% the previous week to 1.59%. The Federal Reserve has convinced investors that it will not increase rates and will accommodate slightly higher inflation. That said, inflationary fears remain a major headwind to the highly valued equity and credit markets.
As stimulus checks arrive, consumers have begun to splurge and retail sales soared 9.8% last month compared to February. There is hope that the pandemic has created a lot of pent up demand and it could be fueled further by banks relaxing their credit standards and increasing lending at these historically low interest rates. Unemployment has steadily improved with weekly jobless claims coming in at 567,000, much better than consensus estimates and a new low since the pandemic began.
As mentioned, creeping inflation is being tolerated for now. Consumer prices rose 0.6% in March. Headlining the uptick in sales were motor vehicles and building materials soaring 27% and 32%, respectively, from their pre-pandemic peak according to FactSet. In addition to the splurge in consumer spending, the global supply disruptions to production caused by the pandemic is pressuring input costs and highly skilled labor is in short supply.
The transition from recovery to expansion, created by the re-opening of the economy due to accelerated vaccine momentum, substantial fiscal stimulus and an accommodative monetary policy, have served the financial markets well. The first quarter earnings of the S&P 500 are expected to grow at a whopping 25%. We must keep a watchful eye on valuations (are bit stretched…) and interest rates which drive the markets over time. Please remain diversified and stay in-line with your long term goals.
“Your love, liftin’ me higher
Than I’ve been lifted before
So keep it up, quench my desire
And I’ll be at your side forevermore”
Song by Carl Smith and Raynard Miner as performed by Jackie Wilson and by the Knickerbocker All Stars.
ND&S Weekly Commentary 4.12.21 – S&P 500 and DJIA Reach New Highs
April 12, 2021
The S&P 500 and DJIA closed at record levels last week supported by the improving economic recovery and an increasingly successful rollout of the coronavirus vaccines.
Economic data released last week confirmed the improving economic picture. The Institute for Supply Management (ISM) reported their March manufacturing and services index last week with both reports coming in better-than-expected. The services index surged 8.4 percentage points in March to mark an all-time high of 63.7%. The manufacturing index was equally as strong posting 64.7%. Durable goods orders fell 0.8% in February to $505.7 billion missing estimates for a 0.5% decrease. The Producer Price Index (PPI) showed final demand for goods and services increased 1.0% in March. The PPI measures price changes from the producer’s perspective which offers a different vantage-point on inflation pressures.
For the week, the S&P 500 and DJIA were up 2.76% and 1.99%, respectively. The Nasdaq rebounded on the strength of the technology sector to close higher by 3.13%. Small company stocks, represented by the Russell 2000, cooled off to close 0.46% lower. International markets were mixed last week with the developed markets (MSCI EAFE) increasing 2.01% and emerging markets (MSCI EM) lower by 0.34%. The rise in treasury yields moderated last week as the 10yr U.S. Treasury yield had a slight decline of 2bps to close at 1.67%. Gold prices closed at $1,741/oz. – up 0.97% on the week. Oil prices closed at $59.32/bbl – down 3.47% last week.
First-quarter earnings season begins this week with a number of major banks scheduled to report results Wednesday before the bell. With earnings season, we will return to market fundamentals and also gain deeper insight into how individual companies are navigating the reopening. Equity markets posted a strong first quarter and are at least partially discounting strong economic conditions ahead. We continue to suggest investors stay close to long-term asset allocation targets.
Congratulations to Lee Elder and Hideki Matsuyama. Elder, was the first African-American to play the Masters Tournament in 1975. He was joined by Jack Nicklaus and Gary Player as honorary starters for the 85th edition of the Masters Tournament. Hideki Matsuyama, made history on Sunday as the first male golfer from Japan to win one of golf’s major championships.
“I always said that if they have a course like this in heaven, I want to be the head pro.” – Gary Player
Weekly Commentary (04/05/21) – Markets Advance on Massive Infrastructure Plan
April 5, 2021
Equity markets closed near all-time highs last week as investors cheered President Biden’s $2 trillion (yes, trillion) infrastructure plan along with another round of stimulus money.
For the week, the DJIA advanced 0.24% while the S&P 500 gained 1.14%. The tech-heavy Nasdaq jumped 2.60%. International markets were strong as the MSCI EAFE index (developed markets) closed higher by 0.53% while emerging market equities (MSCI EM) jumped higher by 2.40%. Small company stocks, represented by the Russell 2000, finished ahead by 1.46% 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 1.69% (up ~6 bps from the previous week’s closing yield of ~1.63%). Gold prices closed at $1,726.50/oz – down 0.33% on the week. Oil prices closed at $61.45/bbl (up 0.79% on the week).
Economic news released last week was mixed, but the big news came on Friday when the Labor Department reported that 916,000 jobs were added in March – far surpassing estimates for a gain of 647,000 jobs. The strong jobs report will likely boost equity markets in the short-term. Economic releases in the week ahead include Durable Goods, JOLTS job openings and Producer Price Index (PPI).
Economic and market fundamentals remain quite reasonable, and the news on the vaccine front continues to be encouraging. Markets will likely turn their attention to the details of the massive infrastructure plan and how the Biden administration plans to pay for the plan. Of course, the burden will fall to taxpayers, and the first proposed major tax increase announced by the Biden team pushes corporate taxes up 33% – from 21% to 28%.
We suggest investors stay close to their long-term target asset allocations (stay underweight fixed income and be market weighted to slightly higher-than market weight in equities). Let’s make it a good week!
“Success is never final, failure is never fatal. It’s courage that counts.” – John Wooden
ND&S Weekly Commentary 4.26.21 – A Volatile Week for Stocks
April 26, 2021
Equity markets ended a volatile week with a Friday rally on strong economic news. For the week, however, major markets all finished slightly lower with the S&P 500, DJIA, and the NASDAQ down respectively -0.1%, -0.4%, and -0.25%. On Thursday, the Labor Department reported that weekly jobless claims were the lowest since the pandemic began at 547,000. That good news was overshadowed by news reports that President Biden is expected to propose a capital gains tax rate of 39.6% on taxpayers earning more than $1 million a year which hit markets hard. On Friday, however, markets rallied strongly as reports on the IHS Markit Flash U.S. Services index jumped to 63.1 in April, the fastest expansion since 2009. Also, the IHS Markit Manufacturing index showed a steep rise in output and at the same time the Commerce Department reported that new single-family home sales in March rose more than 20% compared with February. For the week, the strongest sectors were real estate and healthcare while the weakest was energy. International equities were mixed with the MSCI EAFE index down -0.38% and emerging markets (MSCI EM) rising 0.35%. Fixed income markets were relatively quiet last week with the yield on the 10 year U.S. Treasury declining slightly to 1.58% from 1.59% the prior week.
This week will be busy with a third of the S&P 500 companies reporting earnings, a Federal Reserve meeting, and Presidential address to Congress on Wednesday. Among companies reporting this week will be Apple, Microsoft, Alphabet, and Amazon. So far, earnings news has been positive, with 86% of companies reporting earnings better than Wall Street’s expectations. Corporate profits for the quarter are expected to be up about 33.9%. The markets trading near all-time highs and big expectations for earnings will likely keep the upside reactions relatively muted. There will also be economic reports released on consumer confidence, first quarter real GDP and pending home sales. Economic news should continue be positive as the economy rebounds but rebalance as necessary if asset allocations are out-of-line.
“It is better to know some of the questions than all of the answers.” – James Thurber