Archive for ND&S Updates
ND&S Weekly Commentary 10.24.22 – Fed Pause…?
October 24, 2022
Equity markets finished up strongly last week as earnings have been coming in better than expected and some investors believe the Fed could be closer to pausing rate hikes to allow the recent hawkish policy shift to work its way through the economy. The Fed is still widely expected to increase the federal funds rate another 75bps at their November meeting and another 50-75bps at their December meeting.
The S&P 500 gained 4.75% this past week, while the Nasdaq rose 5.22% and the Dow Jones Industrial Average advanced 4.93%. International equities finished modestly higher with developed markets (EAFE) and emerging markets (EM) up 0.55% and 0.21%, respectively. The 10 YR US Treasury closed at a yield of 4.21% (up 21 bps over the week) and as a result, fixed income, represented by the Bloomberg/Barclays Aggregate, fell 1.07% as yields moved higher across the yield curve. Gold prices finished at $1,643/oz. to finish virtually flat on the week. Oil prices were modestly lower last week closing at $85.05 per barrel.
It was a slightly mixed batch of economic data released last week. Declines in housing starts and existing home sales showed the impact that these higher mortgage rates are having on the sector. In a positive development, industrial production increased 0.4% in September.
The velocity of earnings reports ramps up this week with reports from Apple, Google, Amazon, Visa, and Microsoft to name a few. We will also get more inflation data this week with the release of the PCE price index (the Fed’s preferred measure of inflation). In other economic releases, there will be reports on housing and manufacturing/service PMIs. Markets volatility should be remain elevated this week given the onslaught of company reports.
“Our of difficulties grow miracles” – Jean de la Bruyere
ND&S Weekly Commentary 10.17.22 – Roller Coaster Ride Continues
October 17, 2022
Sometimes the stock markets can be characterized as a roller coaster. That analogy could certainly be used to describe last week’s action. The up-down action started off the week, then a sharp selloff initially in reaction to Thursday’s CPI gave way to a rip your head off rally that saw all indexes higher by greater than 2.5% on the day. The week ended on a sour note Friday despite a reasonable kick-off to Q3 earnings season.
For the week, the S&P 500, Nasdaq and Russell 2000 finished in negative territory down 1.53%, 3.11% and 1.15%, respectively. International markets were also lower, with the MSCI EAFE Index down 1.35% while emerging market equities (MSCI EM) gave back 3.81%. On a positive note, the Dow Jones Industrial Average (DJIA) broke the trend and gained 1.17% last week. Fixed income, represented by the Bloomberg/Barclays Aggregate declined 1.19% for the week. Treasury yields were sharply higher across the board as the 10 YR US Treasury yield closed at 4.00% (up 11bps on the week). Gold prices ($1,649/oz.) have been under pressure lately due to a strengthening dollar. Oil (WTI) prices were lower on the week closing at $85.61 per barrel – down 7.59% on the week.
All eyes were on Thursday’s Consumer Price Index (CPI) release. We have likely seen peak inflation, but it remains stubbornly high. The year-over-year headline reading came in at 8.2% (down from 8.3% last month), while core (excluding food and energy) rose 6.6%, the highest since August 1982. Rising prices for services, mainly shelter and health care, helped fuel the advance. Last week’s inflation report keeps the Fed on track for another 75bps increase at the November FOMC meeting with another likely in December. In other economic news, retail sales flat-lined in September, but rose 0.1% excluding autos. This week’s economic calendar includes multiple reports on housing.
Looking ahead, barring any unforeseen geopolitical development, the focus this week will be on Q3 earnings announcements. We continue to maintain a cautious positioning near-term as markets continue to look for support. However, valuations have really pulled in and we are entering a seasonally attractive period for markets.
Enjoy the beautiful colors that Fall brings!
“Where there is no vision, there is no hope.” – George Washington Carver
Weekly Commentary (10/10/22) – Yo-yo Week ends in Positive
October 10, 2022
Markets came out of the gates much higher last week and despite a sharp reversal beginning late on Wednesday and continuing to Friday’s close, they held on to some decent gains. Several macro-economic figures and forecasts conspired to turn market sentiment.
For the week, the DJIA gained 2.03% and the S&P 500 added 1.56%. The tech-heavy Nasdaq eked out a 0.75% advance. International markets were also in the black as the MSCI EAFE Index (developed countries) ticked 1.94% higher and emerging market equities (MSCI EM) moved ahead 2.52%. Small company stocks, represented by the Russell 2000, also moved up and added 2.27% for the week. Fixed income, represented by the Bloomberg Aggregate, declined 0.25% for the week as yields moved higher. As a result, the 10 YR US Treasury closed at a yield of 3.89% (up ~ 6 bps from the previous week’s closing yield of ~3.83%). Gold prices closed at $1,696/oz – up 2.04%. Oil prices were a big story as OPEC+ cut production targets and WTI leaped over $13 to close at $92.64 per barrel, up 16.5% on the week.
Last week the WTO warned that global trade is expected to grow only 1% in 2023 and global economic growth could drop to 2.3%. OPEC+ announced its decision to reduce production targets and it cited slowing demand as a factor in its rationale. Higher oil prices portend continuing difficulties with inflation, and, at the same time, US payrolls decelerated a bit and unemployment rate dropped back to 3.5%.
There is almost no way to get a positive market reaction to labor news at this juncture. An increase in unemployment is associated with slower demand, lower earnings, and recession. If labor numbers are strong, it is associated with continued demand, persistent inflation, and higher interest rates for a longer time. There is no Goldilocks news in that space.
This week’s economic data releases include some key inflation data points: NY Fed 5-year inflation expectations on Tuesday, PPI index on Wednesday, and CPI data on Thursday. In addition, Retail Sales numbers come out Friday. FOMC minutes are released on Wednesday, and several Fed speakers are scheduled throughout the week. All this data, commentary and the opinions and forecasts it will stoke may create a lively week for securities trading.
Third quarter earnings results will begin to be announced this week. These results and the previews of future earnings that will accompany them could have a meaningful immediate impact on equity prices. In general, the market overreacts to its data inputs and pushes price levels too far past fair valuations – in both directions. We have an interesting few weeks ahead.
Clearly there are high levels of uncertainty across all markets and equity markets, particularly, show no sign of conviction. In such times, it is tempting to become either very bold or very timid. Prudent investors adhere to their investment policy in difficult markets. Panic has no place in any investment policy. A patient disciplined approach, over time, wins the war.
“The two most powerful warriors are patience and time.” – Leo Tolstoy
Weekly Commentary (10/3/22) – Markets Lower, Again
October 3, 2022
Markets failed to mount a quarter-end rally as investors fretted about persistent inflation and slowing economic growth. Comments from Fed Vice Chairwoman Lael Brainard on Friday didn’t help matters as she reiterated the Fed’s intention to maintain restrictive policy.
For the week, the DJIA lost 2.92% while the S&P 500 gave back 2.88%. The tech-heavy Nasdaq declined 2.69%. International markets finished lower as well. For the week, the MSCI EAFE Index (developed countries) finished lower by 1.31% while emerging market equities (MSCI EM) dropped 3.25%. Small company stocks, represented by the Russell 2000, were a bit better, but still managed to sink 0.82% for the week. Fixed income, represented by the Bloomberg Aggregate, declined 0.99% for the week as yields moved higher. As a result, the 10 YR US Treasury closed at a yield of 3.83% (up ~ 14 bps from the previous week’s closing yield of ~3.69%). Gold prices closed at $1,662.40/oz – up 1.04% as the U.S. dollar finally gave back some ground – closing 0.91% lower. Oil prices inched higher to close at $79.49 per barrel, up 0.95% on the week.
Last week saw several important economic releases. August headline Core Personal Consumption Expenditures (PCE) came in hotter than expected at 4.9%, up from 4.7% the prior month. Chicago PMI fell to 45.7 from 52.2 in August – widely missing the forecast of 51.8. Also, the Dallas Fed Manufacturing Survey for September fell to -17.2 from -12.9 in August … more challenging news from the manufacturing sector. Surprisingly, Consumer Confidence rose to 108.0 in September – up from 103.6 in August as the strong labor market and lower gas prices buoyed consumer’s confidence.
The week ahead holds a few events that will provide investors a snapshot of the economy. Releases include: Markit PMI, ISM Manufacturing, Durable and Factory Orders, ISM Services PMI, Trade Balance, Jobless claims, and Non-farm Payrolls. Also, several Fed Governors will be giving speeches this week that may give clues about future Fed moves.
Investor sentiment is at very low levels and markets appear to be oversold. We suspect that markets will bounce from here, but we caution investors not to chase any short-term rally. We urge investors to stick close to long-term asset allocation targets with a slight defensive bias.
We send our thoughts out to those who have been directly or indirectly impacted last week by Hurricane Ian.
“Just because something doesn’t do what you planned it to do doesn’t mean it’s useless.” – Thomas A. Edison
Weekly Commentary (10/31/22) – Markets Treat Investors to Big Gains
October 31, 2022
Domestic markets were broadly higher last week – just as investors were about to lose hope. The month of October, typically a disappointing month for investors, has so far defied expectations and is on course to be the best October since 1976.
For the week, the DJIA jumped 5.72% while the S&P 500 gained 3.97%. The tech-heavy Nasdaq added 2.25% despite a rough week for many large-cap technology stocks. International markets were mixed with the MSCI EAFE Index (developed countries) finishing higher by 4.14% while emerging market equities (MSCI EM) dropped 2.24% as weak markets in China and Hong Kong dragged down emerging markets. Small company stocks, represented by the Russell 2000, were strong as they tacked on 6.02% for the week. Fixed income, represented by the Bloomberg Aggregate, advanced 1.65% for the week as yields moved lower. As a result, the 10 YR US Treasury closed at a yield of 4.02% (down ~ 19 bps from the previous week’s closing yield of ~4.21%). Gold prices closed at $1,639.60/oz – down 0.69%. Oil prices moved higher to close at $87.90 per barrel, up 3.35% on the week.
Last week saw several important economic releases. The U.S. Labor Department reported that GDP for the third quarter grew at an annual rate of 2.6%. The initial estimate was better-than-expected and a reversal from contractions in the first and second quarter. On a downbeat note, US Manufacturing PMI for October dropped to 49.9% from 52.0% in September missing expectations for a print of 51. The S&P Global Flash U.S. Services Business Activity Index slumped to 46.6 in October, down from 49.3 in September. The negative impact of inflation and higher prices was evident in both reports.
All eyes will be on the Fed as they wrap up their two-day meeting on Wednesday. Most indicators point to inflation having peaked, but we suspect inflation will remain sticky for a while – thus keeping the Fed on their aggressive tightening path. It is widely expected that they raise the fed funds rate by 0.75%. Expectations are then for a 50 basis point hike in December and perhaps a 25 basis point hike in February and/or March before being done with their tightening.
Last week’s move in the markets was impressive and welcomed, but we are likely not out of the woods yet. We urge investors to stick close to long-term asset allocation targets with a slight defensive bias.
“Have you come to sing pumpkin carols?” – Linus, It’s the Great Pumpkin, Charlie Brown