Newman Dignan & Sheerar, Inc.

Registered Investment Advisors

ND&S Weekly Commentary 10.25.21 – Busy Earnings Week Ahead

October 25, 2021 

The Dow Jones Industrial Average (DJIA) and S&P 500 recorded fresh records last week as the major indexes brushed aside worries of inflation and higher interest rates.

For the week, the S&P 500 jumped 1.6%, the DJIA gained 1.1% and the tech-heavy Nasdaq closed up 1.3%. International equities also fared well as developed markets (MSCI-EAFE) rose 0.63% and emerging markets (MSCI-EM) were up 0.75%.

So far, 117 companies in the S&P 500 have reported third- quarter earnings with 84% posting better-than-expected numbers according to Refinitiv. Strong earnings reports from banks, consumer companies and manufacturers have mitigated concerns of the inflationary pressures on corporate earnings and revenues. Given the string of stronger-than-expected results so far, this week’s docket may have heightened expectations to clear. Scheduled to report this week are Facebook(FB), Apple(AAPL), Amazon(AMZN), Alphabet(GOOG), Visa(V), UPS(UPS), and Microsoft(MFST) to name a few.

Interest rates continued their ascent with the U.S. 10 year Treasury yield touching 1.70% before falling to 1.64% on Friday, a five-month high. On Friday, Jerome Powell, the Federal Reserve chair reiterated his somewhat dovish comments on tapering, interest rates and inflation. The price of U.S. crude oil rose again, climbing above $84 a barrel.

Overall the economic news was not that encouraging last week. Industrial production was down for the second straight month with a decline of 1.3% in September. Despite the decrease, industrial production still rose 4.3% for the third quarter as a whole. Housing starts and permits also fell 1.6% in September. A lot of the recent economic data reports have had to contend with shortages in materials and labor. This week GDP will be reported on Thursday and there will be a slew of earnings reports from big tech and one-third of the companies in the DJIA.

“Perpetual optimism is a force multiplier.” – Colin Powell

ND&S Weekly Commentary 10.18.21 – Markets Brush Off Inflation Fears

October 18, 2021 

Markets reacted positively last week in-spite of inflationary pressures that look more persistent than expected.

For the week, the DJIA tacked-on 1.58% while the S&P 500 gained 1.84%. The tech-heavy Nasdaq finished the week 2.18% higher. International markets also had a strong week as the MSCI EAFE Index finishing up 2.42% while emerging market equities (MSCI EM) increased 2.13%. Small company stocks, represented by the Russell 2000, also finished the week in the green by 1.47%. Fixed income, represented by the Bloomberg/Barclays Aggregate, rebounded 0.33% from recent weakness due to higher inflationary pressures and continued talk of a Fed taper. As a result, the 10 YR US Treasury closed at a yield of 1.59% (down 2 bps from the previous week’s closing yield of ~1.61%). Gold prices closed at $1,773/oz. – up 0.96% on the week. Oil prices continued their march higher to close at $82.28 per barrel, higher by 3.65%. The dramatic increase in oil prices has pressured the Biden Administration to implore domestic energy producers to increase production to help curb rising prices.

Consumer prices rose 5.4% year over year in September, as global supply chains remain disrupted. Price increases in food, shelter, energy and health care  all contributed to the uptick in inflation. Inflationary pressures should ease slightly once logistical logjams are unraveled, but the process is taking longer than expected. At the urging of the White House, Southern California ports will now operate 24/7 to alleviate some of the bottlenecks. With supply chains a mess, adding to the problem is the surge in labor demand. September’s JOLTS report released last week showed the number of job openings to be 10.9 million. Consumers continue to spend, defying expectations of a pull-back amid the supply problems. Retail sales for September increased 0.7% m/m, much higher than a forecasted decline of 0.2%.

We are still in the midst of seasonally weak period for the markets. 3rd quarter earnings season will continue this week with a number of notable earnings reports in energy, industrials, financials, and health care so volatility in some areas of the market should be expected. We continue to suggest that investors stay close to their long-term target asset allocations with a slight defensive bias.

Enjoy the beautiful colors that Fall brings!

“There are no secrets to success. Its is the result of preparation, hard work, and learning from failure.” – Colin Powell

ND&S Weekly Commentary (10.11.21) – Markets Move Higher to Regain Some Lost Ground

October 11, 2021 

Despite starting the week on a sour note, markets rallied over the back-half of the week as the Senate passed a bill allowing the debt ceiling to increase by $480 billion. The bill now moves to the House where it is expected to pass early this week.

For the week, the DJIA gained 1.22% while the S&P 500 tacked-on 0.79%. The tech-heavy Nasdaq finished the week barely positive as it closed just 0.09% higher. For the week, the MSCI ACWI ex-USA Index finished up 0.65% while emerging market equities (MSCI EM) bounced off their lows and gained 0.84%. Small company stocks, represented by the Russell 2000, couldn’t keep up with larger stocks and dropped 0.38%. Fixed income, represented by the Bloomberg/Barclays Aggregate, was down 0.78% for the week as yields moved meaningfully higher on higher inflationary pressures and continued talk of a Fed taper. As a result, the 10 YR US Treasury closed at a yield of 1.61% (up 13 bps from the previous week’s closing yield of ~1.48%). Gold prices closed at $1,756/oz. – down slightly by 0.04% on the week. Oil prices continued their march higher to close at $79.35 per barrel, higher by 4.57%. No doubt, higher oil prices (up 63.5% year-to-date) are denting consumers’ pocketbooks and businesses’ margins.

Friday’s payroll report was the big economic news of the week. After a poor payroll showing in August, investors were hoping that September’s payroll report would show renewed strength in employment gains. Investors were disappointed. Non-farm payroll net adds in September came in at only 194k, well under expectations for a gain of 500k and the slowest pace of job gains this year. The unemployment rate came down from 5.2% to 4.8%, but the labor force participation rate also declined (fewer people seeking jobs). Tight labor markets have been evident in supply chain bottlenecks from trucking to housing, and companies have been warning about cost pressures that will likely impact 3rd and 4th quarter earnings. Speaking of earnings, this week kicks off 3rd quarter earnings season with reports due from a host of companies including, JP Morgan, BlackRock, Bank of America, Wells Fargo and Delta Airlines.

Markets are still in a seasonally weak period (September through late October) so investors should not be surprised by increased volatility. We suggest that investors stay diversified and try not to get bogged down in the day-to-day noise of the financial talking heads. We continue to suggest that investors stay close to their long-term target asset allocations with a slight defensive bias.

“The world is round so that friendship may encircle it.” – Pierre Teilhard de Chardin

ND&S Weekly Commentary 10.04.21 – Headwinds Intensify

October 4, 2021 

Markets pulled back last week as headwinds intensify. The S&P 500 entered its first 5% pullback in 11 months as investors fretted about a looming government shutdown (averted, for now), supply chain shortages, labor pressures, rising inflation and lack of progress in Washington on infrastructure spending.

For the week, the DJIA lost 1.4% while the S&P 500 gave back 2.2%. The tech-heavy Nasdaq finished the week lower by 3.2%. International markets also finished in the red. For the week, the MSCI EAFE Index finished lower by 3.1% while emerging market equities (MSCI EM) were down 1.4%. Small company stocks, represented by the Russell 2000, held their own to finish slightly lower by 0.2%. Fixed income, represented by the Bloomberg/Barclays Aggregate, was down 0.12% for the week as yields moved marginally higher. As a result, the 10 YR US Treasury closed at a yield of 1.48% (up 1 bps from the previous week’s closing yield of ~1.47%). Gold prices closed at $1,757/oz – up 0.4% on the week. Oil prices jumped 2.6% last week to close at $75.88 per barrel.

It was a relatively quiet week for macroeconomic data. On Monday, the Commerce Department reported that the preliminary reading for new orders for manufactured durable goods climbed 1.8% in August, better than expectations for a 0.6% monthly advance. On Wednesday, the National Association of Realtors reported that August Pending Home Sales grew 8.1%, ahead of consensus estimates for a 1.3% advance. On Thursday, second quarter GDP was revised up from an annual rate of 6.6% to 6.7%. On Friday, reports showed that personal consumption grew in August at an annual rate of 11.6% – ahead of personal income growth of 6.1% over the past year. In testimony before Congress, Fed Chair Powell conceded that inflation will likely remain elevated before moderating next year towards the Fed’s 2% target. Lastly, a government shutdown was averted as Congress passed stopgap funding to fund the government through early December (the debt ceiling was not raised).

Markets are still in a seasonally weak period (September through late October) so investors should not be surprised by increased volatility. We suggest that investors stay diversified and try not to get bogged down in the day-to-day noise of the financial talking heads. We continue to suggest that investors stay close to their long-term target asset allocations with a slight defensive bias. Welcome to Fall!