Archive for ND&S Updates
ND&S Weekly Commentary 12.20.21 – The Fed and Omicron Rattle Markets
December 20, 2021
Global equities declined last week as the Omicron variant concerns remained in the forefront. Adding to the fray, the U.S. Federal Reserve announced last week that its run of ultra-easy monetary policy will be ending soon in response to rising inflation.
For the week, the DJIA lost 1.67% while the S&P 500 gave back 1.91%. The tech-heavy Nasdaq finished the week lower by 2.94%. International markets also finished in the red as developed market equities (MSCI EAFE) were down 0.46% while emerging markets (MSCI EM) retreated 1.75%. Small company stocks, represented by the Russell 2000, were also weak as they closed lower by 1.68%. Fixed income, represented by the Bloomberg/Barclays Aggregate, grinded out a gain of 0.35% for the week as yields were quite volatile in response to the Fed policy changes. As a result, the 10 YR US Treasury closed at a yield of 1.41% (down 7 bps from the previous week’s closing yield of ~1.48%). Gold prices closed at $1,808/oz. – up 1.17% on the week. Oil prices slid 1.13% last week to close at $70.86/bbl.
The FOMC wrapped up their December policy meeting last Wednesday announcing that they will accelerate the reduction of its monthly bond purchases. At the current pace, the monthly purchases should conclude in March 2022. Additionally, Fed officials indicated that we could see as many as 3 rate hikes in 2022. The shift in policy was somewhat expected in response to persistent inflation that the Fed now sees at 5.3% for 2021.
In economic releases last week, the Producer Price Index (PPI) for November came in higher than expectations rising to a record 9.6% y/y. The Flash PMI from Markit Economics ticked lower to 57.8 missing consensus of 58.3. Both the manufacturing and services sectors remain in expansion territory. Retail sales for November increased 0.3% m/m missing consensus estimates of a 0.8% increase.
This will be a holiday-shortened week for the markets as volatility should remain elevated. Over the weekend, Senator Joe Manchin announced that he wouldn’t support the Build-Back-Better legislation as currently presented. This should have little impact on the markets overall as most of the focus will remain on the Omicron variant. Equity investors have been rewarded with strong returns in 2021 with very few setbacks in the S&P 500, DJIA and Nasdaq. Markets are long overdue for a breather after the big run-up. As such, we continue to suggest that investors remain diligent and stay close to long-term asset allocation targets.
Stay safe and enjoy the holiday season!
“The Grinch hated Christmas! The whole Christmas season!
Now, please don’t ask why. No one quite knows the reason.
It could be his head wasn’t screwed on just right.
It could be, perhaps, that his shoes were too tight.
But I think that the most likely reason of all
May have been that his heart was two sizes too small.”
How The Grinch Stole Christmas – Dr. Seuss
Weekly Commentary (12/13/21) – Markets March Higher, Again
December 13, 2021
Equity markets finished broadly higher last week as investors continued their love affair with stocks. Investors seem to be thinking that inflation, though quite high, may have peaked. Also motivating investors is the news that the symptoms of the omicron variant seem to be fairly mild.
For the week, the DJIA jumped 4.05% while the S&P 500 gained 3.85%. The tech-heavy Nasdaq finished 3.62% higher. For the week, the MSCI EAFE Index closed ahead by 2.44% while emerging market equities (MSCI EM) added 1.15%. Small company stocks, represented by the Russell 2000, finished in the green by 2.45%. Fixed income, represented by the Bloomberg/Barclays Aggregate, was weak as it finished lower by 0.72% for the week as yields moved higher on renewed signs of stronger inflation. As a result, the 10 YR US Treasury closed at a yield of 1.48% (up 13bps from the previous week’s closing yield of ~1.35%). Gold prices closed at $1,782.90/oz. – barely up 0.05%. Oil prices moved higher on easing concerns for the omicron variant and renewed U.S.-Iran tensions.
Economic news released last week confirmed that inflation pressures persist. The November Consumer Price Index came in at +6.8% – although it was as expected, the CPI number marked the highest reading in close to 40 years. Perhaps we have seen the peak in inflation, but there is no doubt that consumers and businesses are feeling the pinch.
The week ahead will feature reports on the Producer Price Index, Retail Sales and Manufacturing and Service PMIs. Potentially market-moving news could follow the Fed’s monetary policy meeting that wraps up on Wednesday.
Markets may take a breather this week after last week’s big run-up. As such, we continue to suggest that investors stay close to their long-term target asset allocations with a slight defensive bias.
Stay safe and enjoy the holiday season!
“If you can dream it, you can do it.” – Walt Disney
NDS Weekly Commentary 12.6.21
December 6, 2021
It was a tumultuous week for the markets as a result of concerns over the Omicron Covid-19 variant and more hawkish commentary from the Federal Reserve.
For the week, the DJIA and S&P 500 lost 0.8% and 1.2%, respectively, and the NASDAQ fell 2.6%. U.S. small company shares also slid 3.8% as measured by the Russell 2000. Foreign stocks were mixed with developed markets (MSCI EAFE) falling 0.9% while emerging markets (MSCI EM) rose 0.2%. Within the S&P 500, the communication services sector slid 2.8% and the consumer discretionary sector declined 2.3%. Similar to stocks, crude oil ended the week 2.6% lower at $66.38/bbl.
Concerns over the Omicron variant spreading and affecting economic growth resulted in the yields on government bonds to fall sharply. The yield on the 10yr U.S. Treasury note slipped to 1.35% from 1.48% the week prior. The Federal Reserve chairman, Jerome Powell, testified before Congress and indicated that there is a concern about persistent inflation and Covid-19 spreading that will place more pressure on supply chains. He suggested that the Fed may speed-up plans to taper their bond-buying stimulus program.
On the economic front, November non-farm payrolls rose by just 210,000 versus estimates of an expected gain of 545,000. However, the U.S. labor participation rate increased and the unemployment rate declined from 4.6% to 4.2%.
To be sure, investors respond more to reactive fiscal and monetary policies than the fear of the Covid-19 pandemic itself. On Friday, the U.S. stock market volatility, as measured by the CBOE Volatility Index (VIX), rose to its highest intra-day level in over 10 months. As we regrettably acknowledge that Covid will be around for quite a while and political reactions abound, we expect market volatility to continue.
This week ahead, economic data to be reported include inflation, productivity and consumer sentiment.
“More money has been lost trying to anticipate and protect from corrections than actually in them.” -Peter Lynch
ND&S Weekly Commentary 12.27.21 – Volatility Continues Amid Headwinds
December 27, 2021
After dropping sharply on Monday, global equities reversed course to finish the holiday-shortened week in the green. For the week, the Dow Jones Industrial Average (DJIA) increased 0.15%, the S&P 500 added 1.25% and the tech-heavy Nasdaq rose 3.13%. International markets were mixed with developed markets (EAFE) increasing 0.64% and emerging (MSCI-EM) equities sliding 0.30%. The Russell 2000 index, made up of U.S. small cap companies, jumped 4.15%. Treasury yields moved higher across the board, with the yield on the benchmark 10 year US Treasury note closing the week at 1.50%. As a result, the Bloomberg/Barclay’s Aggregate closed down 0.22%. Crude oil (WTI) rose 4.1% to $73.79 per barrel and gold was flat closing at $1,805/oz.
The economic calendar has been limited due to the holiday week. Consumer confidence remains high with a reading of 115.8 in December, up from 111.9 in November. According to the Mastercard Spending Pulse which tracks purchases across all formats, holiday spending jumped 8.5% this year compared to 2020. In the week ahead, there will be a report on housing from S&P/Case-Shiller.
Volatility should remain elevated due to year-end tax selling and uncertainty around the Omnicron variant. No doubt, there will continue to be event cancellations and postponements due to Covid-19 concerns. However, governments have avoided any significant lock-downs that have proven to be economically punishing and mostly ineffective in controlling the spread.
Without question, it has been an eventful and prosperous year for the markets. We continue to recommend staying diversified and re-balance where necessary.
We wish you and your families a Happy and Healthy New Year!