Archive for ND&S Updates
Weekly Commentary (11/22/21) – Markets Finished Mixed for the Week
November 22, 2021
Markets finished mixed last week as investors cheered continued strong earnings from corporate America only to be discouraged by resurgent cases in COVID-19. Austria became the first country in Europe to re-impose a full lock-down.
For the week, the DJIA lost 1.29% while the S&P 500 gained 0.36%. The tech-heavy Nasdaq finished the week 1.27% higher. For the week, the MSCI EAFE Index finished lower by 0.78% while emerging market equities (MSCI EM) struggled and closed lower by 1.25%. Small company stocks, represented by the Russell 2000, finished in the red by 2.83%. Fixed income, represented by the Bloomberg/Barclays Aggregate, was relatively flat as it finished up 0.09% for the week as yields moved slightly lower as some economic data released last week suggest that inflationary pressures may begin to ease next year. As a result, the 10 YR U.S. Treasury closed at a yield of 1.54% (down 4 bps from the previous week’s closing yield of ~1.58%). Gold prices closed at $1,851.20/oz – down by 0.89% on the week. Oil prices were materially lower for the week as crude closed at $76.10 per barrel, lower by 5.81%. Oil is up 56.84% year-to-date … certainly denting consumers’ pocketbooks and businesses’ margins.
Economic news released last week was fairly encouraging. The NY Empire State Manufacturing Index for November came in much better than expected as it rose to 30.9 from 19.8 the previous month. October retail sales for retail and food services showed year-over-year growth of 16.3%, well ahead of an expected reading of 13.9%. The Philly Fed Manufacturing Index for November came in at 39, much better than the consensus of a slight increase to 24. Offsetting the excellent retail sales and manufacturing numbers was a weak October Housing Starts. Housing Starts in October fell to 1.52 million against the expected rate of 1.576 million – this reflects the third time in the past four months that housing starts fell.
This holiday-shortened week will feature reports on October existing and new home sales, Consumer Sentiment, October Durable Goods and weekly jobless claims. We also expect President Biden to nominate Federal Reserve Chairman Powell to another term.
November and December have usually rewarded investors. As such, we continue to suggest that investors stay close to their long-term target asset allocations with a slight defensive bias.
Best wishes for a Happy Thanksgiving!
“Be thankful for what you have; you’ll end up having more. If you concentrate on what you don’t have, you will never, ever have enough.” – Oprah Winfrey
ND&S Weekly Commentary 11.15.21 – Persistently Transitory Inflation
November 15, 2021
The major US Stock indexes all fell less than 1% last week, ending a five week positive run as inflation fears weighed on financial markets. For the week, the S&P 500 slipped 0.27%, the DJIA declined 0.56% and the Nasdaq slid 0.68%. The best performing sector was materials, up 2.6%, as inflation fears mounted. The recently passed infrastructure bill bodes well for materials and commodities. International equities were mixed with developed markets (MSCI EAFE) falling 0.34% while emerging (MSCI EM), which relies more on commodity exports, rose 1.71%.
Bond prices fell with the 10-year U.S. Treasury yield at 1.58% up from 1.45% the previous week. As inflation fears mount, the concern is that the Federal Reserve will begin raising interest rates sooner than they have indicated.
Inflation concerns were responsible for a 3% surge in the price of gold which ended the week at $1,864 per ounce, the highest level in more than five months. Energy prices have nearly doubled from last year.
On the economic front, the government reported on Wednesday that the Consumer Price Index (CPI) climbed 6.2% from a year ago, the highest level since 1990. The “core” CPI, which excludes food and energy, increased 0.6% in October, exceeding a consensus of 0.4%. Core prices are up 4.6% versus a year ago and energy prices soared 4.8% in October. The Produce Price Index (PPI) reading was 8.6%, the highest since 2010.
With the holiday season approaching, all eyes this week will be on retail sales and earnings from major retailers. On Tuesday, U.S. retail sales will be released and Walmart reports its earnings. Target and TJX follow on Wednesday and Ross Stores, Macy’s, Kohl’s, and B.J.’s on Thursday.
With the third quarter earnings season behind us, we expect more volatility in the financial markets. We recommend re-balancing portfolios in keeping with long-term objectives. Please do not stretch for higher income yields as pressure mounts for rising interest rates.
“Inflation is the one form of taxation that can be imposed without legislation” – Milton Friedman
ND&S Weekly Commentary 11.8.21 – The Fed Begins to Taper
November 8, 2021
Equity markets moved higher last week as a result of favorable economic data and corporate earnings announcements. The equity markets shrugged off any potential taper tantrum as the Federal Reserve announced the start of tapering its open-market purchases of Treasuries and mortgage-back securities.
For the week, the DJIA advanced 1.43% while the S&P 500 gained 2.03%. The tech-heavy Nasdaq increased 3.08%. Small company stocks, represented by the Russell 2000, jumped 6.11% last week on favorable economic data pointing to domestic economic growth ahead. Developed international markets also moved higher as the MSCI EAFE index gained 1.64% while emerging market equities (MSCI EM) were flat on the week. Fixed income, represented by the Bloomberg/Barclays Aggregate, finished the week up 0.64% as yields continued their recent reversal lower. As a result, the 10 YR US Treasury closed at a yield of 1.45% (down ~10 bps from the previous week’s closing yield of ~1.55%). Gold prices closed at $1,802/oz. – up 1.06% on the week. Oil prices moved lower last week to close at $81.27 per barrel in-spite of OPEC+ producers rebuffing a U.S. call to pump more oil by sticking to their existing production plans.
The major economic-related news last week was the announcement from the Federal Reserve that they will begin to taper their monthly pace of asset purchases. In particular, the Fed will reduce purchases of Treasuries (currently $80b) by $10 billion per month and mortgage-back securities (currently $40b) by $5 billion. The Fed expects to keep tapering those purchases by a further $15 billion each month which means the tapering would conclude in June 2022. The next policy step would be for the Fed to begin increasing its Fed Funds Target Rate (currently 0%-0.25%) at some point in 2022 as conditions continue to improve. In other economic news, the ADP Employment Report for October estimated 571,000 jobs were added in October marking a sharp acceleration from the 302,000 jobs added in September. The ISM reported their October Manufacturing Index reading at 60.8% which beat expectations of 60.3%. Their Non-Manufacturing Index for October increased to a record 66.7%. There will be reports on inflation (CPI & PPI) and job openings expected later this week.
Earnings season starts to wind down this week with 13 S&P 500 Index members, as well as one DJIA company reporting third-quarter results. The end of year has usually rewarded investors. As such, we continue to suggest that investors stay close to their long-term target asset allocations and begin to re-balance as necessary.
“There cannot be a crisis next week. My schedule is already full.” – Henry Kissinger
Weekly Commentary (11/1/21) – Markets Close Out October on a Strong Note
November 1, 2021
Markets finished mostly higher last week to close out a strong October. For the month, all four major domestic market indexes finished between 4% – 7% higher.
For the week, the DJIA gained 0.40% while the S&P 500 tacked-on 1.33%. The tech-heavy Nasdaq finished the week 2.70% higher. For the week, the MSCI ACWI ex-USA Index finished lower by 0.82% while emerging market equities (MSCI EM) dropped 2.20%. Small company stocks, represented by the Russell 2000, finished in the green by 0.26%. Fixed income, represented by the Bloomberg/Barclays Aggregate, was up 0.52% for the week as yields moved meaningfully lower on slower economic growth projections As a result, the 10 YR US Treasury closed at a yield of 1.55% (down 11bps from the previous week’s closing yield of ~1.66%). Gold prices closed at $1,783/oz – down by 0.71% on the week. Oil prices were relatively steady for the week as crude closed at $83.57 per barrel, lower by 0.23%. Oil is up 72.24% year-to-date … certainly denting consumers’ pocketbooks and businesses’ margins.
Earnings season is in full swing with 279 of the companies in the S&P 500 having reported results. Overall, earnings are beating estimates by 10.3% with over 79% of companies topping estimates. Financials and energy reported the strongest results while industrials have trailed. By the end of this week, we expect that roughly 90% of S&P 500 companies will have reported quarterly results. Quite a few companies have warned about supply chain shortages, and we expect this to be an issue for the next few quarters. Interestingly, mentions of ‘supply chain’ in quarterly earnings calls were up 58% during 2Q21 earnings season while mentions during the current quarter are expected to be even higher. Ultimately, these issues will be resolved and margins will improve, but supply constraints certainly present a challenge for companies today.
The big news this week, besides earnings releases, will be the results of the Fed meeting on Tuesday and Wednesday. It is widely expected that the Fed will announce the beginning of tapering of its monthly asset purchases. The Fed has done a reasonable job of telegraphing its intentions so we expect little impact in the markets from their announcement. Lastly, we hope to hear news out of Washington on two very important fiscal stimulus packages … fingers crossed.
November and December have usually rewarded investors. As such, we continue to suggest that investors stay close to their long-term target asset allocations.
“Be kind whenever possible. It is always possible.” – Dalai Lama
ND&S Weekly Commentary 11.29.21 – Markets Retreat on Variant Discovery
November 29, 2021
Markets pulled back during the holiday-shortened week as concerns of a fast-spreading strain of the coronavirus triggered the worst trading session of the year on Friday.
For the week, the DJIA lost 1.95% while the S&P 500 gave back 2.18%. The tech-heavy Nasdaq finished the week lower by 3.52%. International markets also finished in the red as developed market equities (MSCI EAFE) were down 3.71% while emerging markets (MSCI EM) retreated 3.61%. Small company stocks, represented by the Russell 2000, were weak as they closed lower by 4.13%. Fixed income, represented by the Bloomberg/Barclays Aggregate, eked out a gain of 0.13% for the week as yields were quite volatile. As a result, the 10 YR US Treasury closed at a yield of 1.48% (down 6 bps from the previous week’s closing yield of ~1.54%). Gold prices closed at $1,801/oz. – down 3.56% on the week. Oil prices tumbled over 10% last week as traders fretted that lock-downs could reduce demand for transportation fuels.
It was a relatively slow week for macroeconomic data. U.S. consumer spending increased more than expected in October as activity jumped 1.3% month-over-month. Retailers expect holiday sales to be the best in years although there are some concerns of clogged supply chains and port delays. The number of workers filing for unemployment benefits fell to 52-year low of just 199,000, from 270,000 the week prior. The labor markets remain tight with personal income rising 0.5% in October. Lastly, President Joe Biden reappointed Jerome Powell to a second term as Chairman of the Federal Reserve. Notably, the 10yr Treasury note backed up to 1.65% in the wake of the announcement, partially on the belief that Powell will be less dovish in the wake of more-persistent-than-expected inflation.
We expect markets to be choppy as we wait on more news from the scientific community as it relates to Omicron variant. As with the other variants that have recently popped up, we think the pain will be short lived. As always, we plan to look through the day-to-day noise and focus on longer-term objectives. Investors should stay close to their long-term asset allocation targets and re-balance as necessary.
“Thanksgiving is a time of togetherness and gratitude.” – Nigel Hamilton