Archive for ND&S Updates
ND&S Weekly Commentary 6.21.21 – The Fed Rattles the Market
June 21, 2021
Investors were a little unnerved last week by a shift in the Federal Reserve’s monetary policies. The Fed raised its inflation expectations and said interest rates may increase in 2023, rather than their previous forecast of 2024. Though the Fed will maintain the current level of $120 billion a month in asset purchases, its members have started talking about a tapering. The Fed’s stimulus has been a powerful force behind the Covid-19 recovery and bull market.
For the week, the DJIA fell 3.4%, the S&P 500 declined 1.9% and the Nasdaq slipped 0.26%. The worst performing sectors were materials, financials and energy. Investors moved away from small U.S. stocks with the Russell 2000 dropping 4.2%. International equities also declined for the week with the MSCI EAFE and MSCI EM declining 2.4% and 1.4%, respectively. In addition, the strengthening in the dollar has weakened gold which fell last week by 5.9%, the largest decline in over a year. Oil (WTI) closed at $71.64/bbl – up 1.03% on the week.
Fixed income markets were fairly volatile last week as long rates declined and short rates jumped higher resulting in a small flattening of the yield curve. The 10year U.S. Treasury fell slightly from 1.47% the previous week to 1.45%.
Inflationary pressures have been increasing as consumer prices have soared and wages are rising as the demand for labor outpaces supply. Complicating things further, almost 4 million people quit their jobs in April, the highest on record. In economic reports last week, the Producer Price Index (PPI) for May was up 0.8% m/m and has jumped 6.1% over the last 12 months. Retail sales declined in May, however, the total value of retail sales was $620.2 billion, well above the $526 billion in February 2020. Lastly, unemployment claims rose for the first time in several weeks to 412,000. This week, look for economic reports on existing and new home sales, durable goods orders and consumer sentiment.
It’s not surprising that the markets declined given that the markets are less than 2% from their all-time highs. Historically, the market averages three 5% pull backs a year but we haven’t experienced one in 8 months. We feel that markets may have over reacted to the Fed last week and we expect volatility to continue this summer. Investors will continue to focus on inflation news and when the Fed might take their foot off the gas. Continue to maintain a well-diversified portfolio. Let’s Make it a Great Week!
“A father carries pictures where his money used to be.” – Steve Martin
ND&S Weekly Commentary 6.14.21 – Markets Grind Mostly Higher
June 14, 2021
Markets were mostly higher last week as interest rates declined despite the highest monthly increase in the CPI since August 2008.
For the week, the DJIA declined 0.80% (snapping a two week winning streak) while the S&P 500 gained 0.41%. The tech-heavy Nasdaq had a good week and advanced 1.85%. International markets finished in the green. For the week, the All Country World Index ex-USA finished higher by 0.21% while emerging market equities (MSCI EM) eked out a gain of 0.03%. Small company stocks, represented by the Russell 2000, were strong and finished the week higher by 2.16%. Fixed income, represented by the Bloomberg/Barclays Aggregate, advanced 0.47% for the week as yields moved lower. As a result, the 10 YR US Treasury closed at a yield of 1.47% (down ~9 bps from the previous week’s closing yield of ~1.56%). Gold prices closed at $1,877.40/oz – down 0.66% on the week. Oil prices jumped 1.85% on the week to close at $70.91 per barrel. Oil prices are up a whopping 46.15% year-to-date.
Last Tuesday’s Job Openings and Labor Turnover Survey (JOLTS) report surprised to the upside as job openings on the last business day of April reached a record 9.3 million. Current labor market tightness appears to be a result of low immigration (Covid related) and stimulus payments that, in many cases, provide workers with an incentive to remain unemployed. We’ll be watching signs of inflation as recent labor market tightness will likely lead to upward pressure on wages. On Thursday, the U.S. Bureau of Labor Statistics reported that the Consumer Price Index (CPI) rose 5% in May, compared to a year ago. As mentioned earlier, the CPI reading was the highest yearly increase since August 2008. Interest rates moved lower on the news as more and more investors seem to agree with the Fed’s view that rising inflation is transitory.
All eyes will be on the Fed this week as they meet on Tuesday and Wednesday. We see the Fed sticking to their accommodating stance while perhaps hinting about future tapering. Investors also expect the Fed to elaborate on their ‘transitory’ view of inflation.
Easy monetary policy and strong economic growth should continue to support risk assets. We continue to suggest that investors stay close to their long-term target asset allocations with a slight defensive bias. Enjoy the summer!
“Formula for success: rise early, work hard, strike oil.” – J. Paul Getty
ND&S Weekly Commentary 6.7.21 – Equities Limp Higher
June 7, 2021
Markets again closed the week in positive territory thanks to a Friday rally that came after a weaker-than-expected payroll report. The economy added fewer jobs than anticipated and wage gains were relatively tame suggesting the Fed won’t be forced to act on its interest policy anytime soon.
For the holiday-shortened week, the S&P 500 increased 0.88% while the DJIA finished 0.52% higher. The best performing sectors were energy, real estate, and financials. International markets were mixed with developed (MSCI EAFE) up 0.85% and emerging (MSCI EM) slipping 0.15%. The yield on the 10yr U.S. Treasury ticked lower to close at 1.56%. Gold prices declined to $1,889/oz. – down 0.67%. Oil jumped to $69.62/bbl – up 4.98% last week.
Economic data released last week was mixed. The big economic news was that the economy added 559,000 jobs in May, a miss against expectations for an increase of about 671,000. As a result, the unemployment rate declined 0.3 percentage points to 5.8% which was slightly better than estimates. The labor force participation rate, which accounts for the number of Americans looking for work or currently employed, dropped to 61.6%. In other economic news, the Institute of Supply Management (ISM) reported the manufacturing PMI index in May increased to 61.2%. The services PMI for May also came in better-than-expected. Jobless claims last week were 385,000, the lowest level for initial claims since the Covid-19 outbreak.
For now, we remain cautiously optimistic about equity markets. Investors should continue to maintain risk exposure in-line with one’s long-term investment objectives and goals. Let’s make it a good week!
“There are no shortcuts in evolution.” – Louis D. Brandeis
ND&S Weekly Commentary 6.1.21 – Markets Continue Rally
June 1, 2021
Stocks finished higher last week despite concerns about higher inflation.
For the week, the S&P 500, DJIA and NASDAQ were up 1.2%, 1.0% and 2.1%, respectively. The best performing sectors were communication services and consumer discretionary which benefited from a number of good earnings announcements from the retail sector. International equity markets also advanced with MSCI EAFE up 1.2% and MSCI EM up 2.4%. Covid-19 trends in Europe have shown continued improvement. Fixed income markets were also positive for the week with the rate on the 10 year U.S. Treasury Note declining from 1.63% to 1.58%. Gold closed at $1900/oz. – up 1.3% and oil (WTI) jumped 4.3% to close at $66.32/bbl.
First quarter earnings are on pace to rise by 50% from a year ago, marking the fastest growth rate since the Global Financial Crisis. Of companies who have reported, over 85% have had a positive earnings surprise (earnings-per-share above Wall Street consensus). In terms of revenues, over 75% have reported revenues above estimates. The forward 12-month P/E has adjusted lower due to the improved earnings outlook and is now at 21x.
Core Personal Consumption Expenditures (PCE), the Fed’s preferred measure for inflation, came in at 3.1% year-over-year reflecting a surge in demand after Covid-19 restrictions were lifted in a number of states. The Fed aims to maintain core PCE at around 2% but it has remained below that level for years. Most economists are expecting that higher inflation numbers will only be transitory. Personal income fell 13.7% in April after surging the previous month due largely to stimulus payments. This week look for economic reports on mortgage applications and the May jobs report. Estimates are for 700,000 jobs to be added but they may come in lower as companies have said they can’t find enough workers to fill open positions.
Let us never forget the real meaning of Memorial Day – to honor those who have gone before us and paid the ultimate price to ensure our freedom and to secure the blessings of liberty.
“Their sacrifice was great, but not in vain. All Americans and every free nation on earth can trace their liberty to the white markers of places like Arlington National Cemetery. And may God keep us ever grateful.”
– George W. Bush
ND&S Weekly Commentary (6/28/21) – Investors Celebrate the Start of Summer
June 28, 2021
Investors welcomed the start of summer with a push higher in all market averages. Comments from Federal Reserve members eased concerns about inflation as the Fed reiterated their transitory outlook for inflation.
For the week, the DJIA gained 3.44% while the S&P 500 moved ahead by 2.74%. The tech-heavy Nasdaq had a good week and advanced 2.35%. International markets finished in the green. For the week, the All Country World Index ex-USA finished higher by 1.5% while emerging market equities (MSCI EM) tacked-on a gain of 1.42%. Small company stocks, represented by the Russell 2000, were strong and finished the week nicely higher by 4.32%. Fixed income, represented by the Bloomberg/Barclays Aggregate, declined 0.41% for the week as yields moved higher. As a result, the 10 YR US Treasury closed at a yield of 1.54% (up almost 9 bps from the previous week’s closing yield of ~1.45%). Gold prices closed at $1,776.60/oz – up 0.49% on the week. Oil prices continued their march higher to close at $74.05 per barrel, up 3.87% on the week.
Last Tuesday’s National Association of Realtors (NAR) report on May’s existing home sales indicated that sales fell 0.9%, better than expectations. Existing home sales are up 44.6% from the same time last year. On Wednesday, The IHS Markit Group reported that the IHS Markit Flash U.S. Composite PMI Output Index for June came in at 63.9, down from 68.7 in May – any reading over 50 indicates an expanding manufacturing sector. On Thursday, the Bureau of Economic Analysis reported Real GDP for the first quarter increased at a seasonally adjusted annual rate of 6.4%, in-line with expectations. Lastly, on Friday the Bureau of Economic Analysis indicated that personal income fell 2.0% in May, better than expectations for a 2.5% drop. Importantly, personal consumption expenditures (PCE) advanced less than 0.1% in May, missing expectations for a 0.4% advance (PCE is one of the Fed’s favorite gauges of inflation).
We see a relatively quiet week ahead as Americans prepare for the upcoming 4th of July weekend. Easy monetary policy and strong economic growth should continue to support risk assets. We continue to suggest that investors stay close to their long-term target asset allocations with a slight defensive bias. Enjoy the summer!
“The summer night is like a perfection of thought.” – Wallace Stevens