Archive for ND&S Updates

ND&S Weekly Commentary (7.25.22) – Bad News is Good News

July 25, 2022 

The markets continued their summer rally, as investors welcomed signs of a slowing economy, possible peaking inflation, and earnings results that have come in better than feared.

For the week, the S&P 500 gained 2.6%, the DJIA was up 2.0%, and the tech-heavy Nasdaq gained 3.3%. International stocks sprang back with developed markets (MSCI-EAFE) soaring 4.4% and emerging markets increasing 3%. The second quarter earnings season is in full swing, with about a fifth of the S&P 500 companies reporting last week. Over two-thirds of the companies have exceeded their estimates. The S&P 500 is down 16.1% year-to-date and trading at 16.6 times expected earnings over the next twelve months. That is down from 21 times at the end of 2021.

The bond market also gained as the U.S. 10-year Treasury Note fell from 2.93%, the previous week, to 2.77%, its lowest level in nearly two months. Commodity prices have deflated with oil at $94.70 per barrel, down over 20% from its recent peak. Two economically sensitive commodities, copper and lumber have also fallen from their highs, 32% and 60%, respectively. The driving force has been the strength of the US dollar which is now near a twenty-year high relative to foreign currencies.

On the economic front, the job market might be cooling with weekly jobless claims hitting 251,000, the highest level in nine months. Also cooling is the housing market with existing home sales and housing starts missing consensus expectations.

Next week all eyes will be on Wednesday’s Federal Reserve meeting and a slew of corporate earnings reports for the 2nd quarter. The Fed is expected to announce another three-quarter point rate increase to the federal funds rate. Over one-third of the S&P 500 companies report, including Amazon, Microsoft, Apple, Google, and Meta Platforms. On Thursday, the Bureau of Economic Analysis will report their Q2 2022 estimate of U.S. Gross Domestic Product (GDP). GDP could be negative for the second straight quarter, which would indicate that the U.S. is in a technical recession.

We maintain a cautious posture and favor a high-quality and well-diversified portfolio to weather the expected volatility. The global economy continues to grapple with high inflation, war, and a pandemic that keeps finding ways not to end.

“Headlines, in a way, are what mislead you because bad news is a headline, and gradual improvement is not.” -Bill Gates

ND&S Weekly Commentary 7.18.22 – The Yo-yo Makes Investing Hard

July 18, 2022 

Consumer and Producer Price Index (CPI, PPI) numbers were reported last week, and both came in a little hotter than the market was anticipating. The CPI was expected to be high at 8.8% but surprised at a 9.1% annual rate. Initially stocks sold off and bonds rallied. Surprisingly, the market shook off that initial drop and recovered only to slide back marginally. Then, the PPI came out at 1.1% versus 0.8% monthly increase and that was enough to push investors away from equities and drive markets lower. A decent rally on Thursday off those lows carried into Friday and though down for the week, markets were not off much.

The equity markets are searching for their bottoms. At any sign of recovery, the market has mini rallies -classic bear market action. This signals the investors are there, the cash is there, and when conviction returns, markets like this one often come screaming back to higher levels. The coming near-term news (earnings, guidance, actual rate hike, Fed comments) is likely to pull markets down a bit more, but there is real pent-up demand for equities, and it is easy to miss the opportunity by trying to time the market. Bonds were slightly higher over the week and the treasury curve has flattened.

For the week, the DJIA declined 0.16%, while the S&P 500 dropped 0.91%. The tech-heavy Nasdaq finished 1.57% lower. International markets were also lower, with the MSCI EAFE Index down 1.75% while emerging market equities (MSCI EM) gave back 3.68%. Small company stocks, represented by the Russell 2000, declined 1.40%. On a positive note, fixed income, represented by the Bloomberg/Barclays Aggregate recovered 0.89% for the week. The 10 YR US Treasury closed at a yield of 2.93%, down 16bps from 3.09% the week prior. Gold prices ($1,812/oz.) closed lower on the week to $1,706/oz. – down 1.95%. Oil (WTI) prices also retreated last week closing at $97.59 per barrel.

This week there will be reports on housing and home-building data. Expect continued deterioration as the economy is slowing. Leading economic indicators will be reported on Thursday as will Philadelphia Fed manufacturing index and jobs data. The jobs data is a key factor in predicting whether the monetary policy at work can avoid a strong recession or even dodge a recession altogether.

The 2022 equity and fixed income markets in the US and across the globe have been among the most difficult investors have ever experienced. Investing implies a long-term commitment with solid results reaped in the future. Because the public securities markets provide current prices at every moment, it is natural to observe these “marks” and then to be drawn into the emotional swings these near-term valuations can produce. This can undermine the efforts of even the very seasoned investors. It is challenging, but we must remember the time horizon of our investing and keep that perspective in mind, always. Watching markets is like watching a person play with a yo-yo on an escalator…if you do not keep the big picture in mind, the near-term results appear more dramatic than they will tun out be.

“Nothing great in the world has ever been accomplished without passion.” – Georg Wilhelm Friedrich Hegel

Weekly Commentary (7/11/22) – Investors Celebrate the Fourth of July

July 13, 2022 

Markets rose across the board during the holiday-shortened week.

For the week, the DJIA gained 0.82% while the S&P 500 moved ahead by 1.98%. The tech-heavy Nasdaq had a good week and advanced 4.58%. International markets finished in the green. For the week, the All Country World Index ex-USA finished higher by 0.96% while emerging market equities (MSCI EM) tacked-on a gain of 0.97%. Small company stocks, represented by the Russell 2000, were strong and finished the week nicely higher by 2.43%. Fixed income, represented by the Bloomberg Aggregate, declined 0.87% for the week as yields moved higher. As a result, the 10 YR US Treasury closed at a yield of 3.08% (up ~ 20 bps from the previous week’s closing yield of ~2.88%). Gold prices closed at $1,740.60/oz – down 3.24% as the U.S. dollar rose 1.70% on the week. Oil prices retreated a bit to close at $104.79 per barrel, down 3.36% on the week.

Last week saw a number of economic important releases. The ISM Non-Manufacturing Index fell to 55.3% in June vs. 55.9% in May, yet the results were better than the consensus estimate of 54.2%. Friday’s release of non-farm payrolls was much better than expected as payrolls increased 373,000 in June, well above expectations for a gain of 265,000. The unemployment rate held steady at 3.6% while the labor force participation rate remained steady at 62.2% vs. 62.3% in May. The strength of the U.S. labor market will help to soften the blow from any potential recession.

The week ahead holds a few important events that investors will be watching closely – June CPI comes out on Wednesday while PPI gets released on Thursday followed by the University of Michigan Consumer Sentiment Index on Friday. This week also is the start of 2nd quarter earnings season with Pepsi, Delta Airlines, JP Morgan, Wells Fargo, Citigroup and others reporting. We expect companies to talk about the challenges of inflation, softening consumer demand and ongoing supply chain issues.

Enjoy the summer!

Weekly Commentary 7/5/22 – Happy Fourth of July

July 5, 2022 

Major equity market indexes pushed higher on Friday afternoon but ultimately finished the week in the red. For the week, the DJIA declined 1.27%, while the S&P 500 dropped 2.18%. The tech-heavy Nasdaq finished 4.12% lower. International markets were also lower, with the MSCI EAFE Index down 2.18% while emerging market equities (MSCI EM) gave back 1.53%. Small company stocks, represented by the Russell 2000, declined 2.09%. On a positive note, fixed income, represented by the Bloomberg/Barclays Aggregate recovered 1.27% for the week. Treasury yields were lower across the board as the 10 YR US Treasury yield closed at 2.88% (down 25bps on the week). Gold prices ($1,797/oz.) have been under pressure lately due to a strengthening dollar. Oil prices were up modestly on the week closing at $108.43 per barrel.

Last week’s economic releases confirmed that economic activity is cooling (as if anybody needed reminding). Core PCE (the Fed’s preferred inflation gauge) came in at 4.69% year-over-year in May. This is small deceleration from the peak in February (5.31%). Oil has remained stubbornly elevated but other commodities like copper and timber have fallen to near year-to-date lows. It is likely we are at peak inflation levels which should show signs of moderating in the months ahead. The ISM manufacturing index declined to 53.0% in June, still in expansion territory but a deceleration from 56.1% in May. Last week’s reports, quite perversely, ought to put less pressure on the Fed as inflation and economic activity are cooling … bad news is good news at least for now.

We would like to wish our clients and friends a happy Fourth of July as we remain grateful for the many blessings bestowed on our great country.

“We’re blessed with the opportunity to stand for something, for liberty and fairness. And these are things worth fighting for, worth devoting our lives to.” – Ronald Reagan