Archive for ND&S Updates
Weekly Commentary (1/24/22) – Markets in Correction Mode
January 24, 2022
Equity markets finished broadly lower last week as investors worried about higher interest rates, inflation and geopolitical uncertainties. The Nasdaq and S&P 500 suffered their steepest drops since March 2020.
For the week, the DJIA lost 4.58% while the S&P 500 dropped 5.68%. The tech-heavy Nasdaq finished 7.55% lower and is now in correction mode – down 12.0% year-to-date. For the week, the MSCI EAFE Index closed down by 2.44% while emerging market equities (MSCI EM) gave back 1.05%. Small company stocks, represented by the Russell 2000, sank 8.07%. Fixed income, represented by the Bloomberg/Barclays Aggregate, was essentially flat as it finished higher by 0.05% for the week as yields moved slightly lower. As a result, the 10 YR US Treasury closed at a yield of 1.76% (down 2bps from the previous week’s closing yield of ~1.78%) as investors moved to the perceived safety of treasuries. Gold prices closed at $1,831.80/oz – up 0.84%. Oil prices moved higher on tensions around the world to close at $85.14 per barrel, up 2.21% on the week.
The Federal Reserve meets on Tuesday and Wednesday, and investors will be waiting for further guidance on the Fed’s plan to hike rates and contain inflation. Earnings season is in full swing with roughly half of the Dow 30 companies having already reported. Earnings have been fairly robust, but 5 out of 6 companies providing guidance have lowered expectations given Covid-related supply chain issues and higher input costs. Economic reports due this week include 4Q’21 GDP, December PCE, December New Home Sales, Durable Goods Orders and Consumer Confidence.
Markets are in correction mode and are moving towards an oversold condition. We hope to be picking up bargains over the days and weeks ahead. Diversification, patience and a bias towards quality will help investors manage through this temporary set-back. As such, we continue to suggest that investors stay close to their long-term target asset allocations with a slight defensive bias.
Stay safe.
“Patience and perseverance have a magical effect before which difficulties disappear and obstacles vanish.” – John Quincy Adams
ND&S Weekly Commentary 1.18.22 – Stocks Decline Again
January 18, 2022
Stock markets suffered their second straight week of losses as inflation fears, higher interest rates and a disappointing start to earnings season worried investors.
For the week, Standard & Poor’s 500, the DJIA and the tech-heavy Nasdaq declined 0.3%, 0.9%, and 0.3%, respectively. Smaller companies represented by the Russell 2000 closed lower by 0.8%. International equities were the lone bright spot with the MSCI EAFE index up 0.2% and the MSCI EM increasing 2.6%.
On Friday, the quarterly profits of JP Morgan Chase and Citigroup fell by double-digits, which was worse-than-expected. The U.S. dollar gained ground while gold lost $4.60 to $1,816.80 per ounce. Oil prices (WTI) climbed to $83.82 from $78.90 the previous week and are up 55% from a year ago. Despite a spike in inflation, the U.S. 10-yr yield was relatively unchanged for the week at 1.78%. However, it has moved much higher since the Federal Reserve reiterated their hawkish stance earlier in the year.
There was a slew of economic data that disappointed, causing concerns that the economic recovery could be vulnerable. For December, consumer inflation matched headline figures of a staggering 7% year-over-year jump, the highest since 1982. There was an unexpected 1.9% decline in retail sales that missed expectations.
Using the consensus 2022 operating earnings estimate of $220, the stock market is now selling at 21.2 times earnings which is not overly expensive. We are, however, concerned about the concentration of the stock market. The five largest holdings of the S&P 500 have a 22.4% weighting and the top five stocks in the Nasdaq represents 40.2%. With the estimated earnings growth of the S&P 500 slowing to 9%, rising interest rates and inflation, not to mention our political and geopolitical issues and Covid, higher volatility is expected. We recommend a cautious approach to maintaining a well-diversified portfolio.
There will be one-third of the S&P 500 companies reporting this week. The hope is that companies will exceed expectations of 20% growth year-over-year. Economic reports will include the Fed’s Empire State manufacturing survey on Tuesday and the Philadelphia Fed manufacturing survey on Thursday. Existing home sales will also be reported on Thursday. Let’s make it a better week in remembrance of Martin Luther King Jr.
“Darkness cannot drive out darkness; only light can do that. Hate cannot drive out hate, only love can do that.” –Martin Luther King Jr.
ND&S Weekly Commentary 1.10.22 – Markets Start 2022 on Sour Note
January 10, 2022
Global equities declined in the first trading week of 2022 as the US Federal Reserve hinted at a more hawkish stance to combat inflation pressures.
For the week, the DJIA slipped 0.25% while the S&P 500 gave back 1.83%. The tech-heavy Nasdaq finished lower by 4.52%. International markets also finished in the red as developed market equities (MSCI EAFE) were down 0.29% while emerging markets (MSCI EM) retreated 0.47%. Small company stocks, represented by the Russell 2000, were also weak as they closed lower by 2.91%. Fixed income, represented by the Bloomberg/Barclays Aggregate, had a brutal week declining 1.53% as yields spiked higher in response to the Fed policy changes and comments. As a result, the 10 YR US Treasury closed at a yield of 1.76%, up substantially from the previous week’s closing yield of ~1.52%. Gold prices closed at $1,793/oz. to finish down 1.46%. Oil prices jumped 4.91% to close at $78.90/bbl.
The Federal Reserve released their December meeting minutes last week. At the meeting, they discussed plans to cut the amount of bonds they are holding on its balance sheet. While they did not determine when they would start rolling off the nearly $8.3 trillion in bonds it is holding, statements out of the meeting indicated the process could start in 2022, which is much earlier than expected. Additionally, officials see up to three quarter-percentage-point rate increases in 2022. Worsening the situation on Thursday was St. Louis Federal Reserve President James Bullard (a voting member of the Federal Reserve Open Market Committee) said he sees an initial rate increase happening as soon as March to “quell the hottest inflation in nearly four decades”.
In other economic news, non-farm payrolls increased 199,000 in December versus a consensus estimate of 450,000. The unemployment rate fell to 3.9% beating estimates of 4.1%. Workers quit their jobs in record numbers (4.5million) in November while total employment openings pulled back. According to the JOLTS report released last week, job openings decreased to 10.6 million.
With strong returns in risk-assets since the March 2020 Covid-19 lows, we are not at all surprised with increased volatility. January is always a good time to review asset allocation policy targets and re-balance as necessary. We continue to stick close to policy targets with a slight-defensive bias.
“Kindness and consideration of somebody besides yourself keeps you feeling young.” – Betty White
ND&S Weekly Commentary 1.3.22 – Markets Move Quietly Higher
January 3, 2022
Equity markets finished mostly higher during the last week of 2021. Trading volumes, as expected, were fairly light due to many investors and traders being on vacation.
For the week, the DJIA advanced 1.08% while the S&P 500 gained 0.87%. The tech-heavy Nasdaq nudged a bit lower as it finished -0.05%. The MSCI EAFE Index closed ahead by 0.96% while emerging market equities (MSCI EM) added 1.15%. Small company stocks, represented by the Russell 2000, finished in the green by 0.21%. Fixed income, represented by the Bloomberg/Barclays Aggregate, finished higher by 0.16% for the week. As a result, the 10 YR US Treasury closed at a yield of 1.52% (up 2bps from the previous week’s closing yield of ~1.50%). Gold prices closed at $1,827.50/oz. – up 0.91%. Oil prices moved higher to close at $75.21 per barrel.
Economic news released last week was pretty quiet. Initial jobless claims for the week ended December 25th declined to 198,000 compared to consensus of 206,000. Chicago PMI rose to 63.1 – more than expected.
The week ahead will feature reports on Manufacturing/Services PMIs, Unemployment and November final Durable Goods Orders.
The economy remains reasonably strong, and we remain sanguine on equites. Concerns over surging Covid cases may temper investors’ enthusiasm for equities in the short-term, but patient investors should be rewarded with mid-to-high single digit returns in 2022. 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 best wishes for a happy, healthy & peaceful New Year!
“I like dreams of the future better than the history of the past.” – Thomas Jefferson
NDS Weekly Commentary 1.31.22 – The Fed is Ready to Raise Rates
January 31, 2022
Equity and bond markets were quite volatile last week in response to increasing geopolitics with Russia, numerous corporate earnings reports, and monetary policy shifting at the Federal Reserve. Equities rebounded Friday to salvage a positive week for US markets.
For the week, the S&P 500 closed up 0.79%, the Dow Jones Industrials Average gained 1.34% and the tech-heavy Nasdaq rose 0.02%. International equities were weak due to geopolitical tensions between Russia and Ukraine with developed markets (MSCI EAFE) down 3.61% and emerging markets (MSCI EM) declining 4.26%. U.S. Treasuries fell last week as concerns about inflation and shifting monetary policy pressured yields. The yield on the 10 year U.S. Treasury increased from 1.75% to 1.78%. Gold closed at $1,778/oz. to close down 2.9%. Oil (WTI) reached its highest level since September 2014 as it closed at $86.82/bbl.
The US Federal Reserve left rates unchanged at the January meeting of the Federal Open Market Committee (FOMC); however, Chairman Jerome Powell made it clear in his post-meeting press conference that they will end their open-market asset purchases and begin raising the federal funds rate at their next meeting in March. As of this morning, the futures market for federal funds was pricing in 5 rate hikes in 2022. In economic releases last week, it was reported that the US economy expanded at a 6.9% annual rate in the final quarter of 2021, beating estimates. Markit Research reported their U.S. manufacturing and services PMI readings at 55.0 and 50.9, respectively. The release showed a significant slowdown from the acceleration in December, but is still showing the economy is in an expansion environment.
Markets should remain volatile this week as the pace of earnings announcements accelerate further. Markets are still in correction mode, but the resiliency it showed last week has us believing there is a more reasonable margin of safety in prices today. We will continue to have a bias towards companies with strong earnings qualities which have weathered the recent storm better than lower quality stocks.
Stay Well!
“The price of greatness is responsibility.” – Winston Churchill