Archive for ND&S Updates
ND&S Weekly Commentary 11.14.22 – What a Rebound!
November 14, 2022
The equity markets had a solid rebound from the previous week’s decline, highlighted by Thursday’s one day rally in response to the CPI Inflation Report. Investors cheered the lower-than-expected inflation reading and were glad to see a possible split in Washington for the next two years.
The S&P 500 and DJIA surged 5.9% and 4.2%, respectively. Technology stocks staged their biggest comeback since 2008, soaring 10.1%. As a result, the NASDAQ cashed in at 8.11% for the week. The USD($) declined last week in response to the inflation report and corresponding decline in interest rates which benefited foreign stocks. Developed international companies (MSCI EAFE) climbed 8.43% while emerging markets (MSCI EM) were up 5.74%. Gold rose 5.54% to $1,759/oz. and oil declined 4% to close at $88.96/barrel.
With the hopes that calming inflation would allow the Federal Reserve to begin scaling back the size of their interest rate increases, bond prices rose, which causes yields to decline. The yield on the 10yr Treasury declined from 4.16% last week to 3.82% on Thursday. The bond market was closed Friday in observance of Veteran’s Day.
On Thursday, it was reported that the October Consumer Price Index (CPI) was up 7.7% from a year ago, but it was much less than economists’ expected and down from September’s reading of 8.2%. The core index (excludes food and energy) rose 0.3% last month, below expectations for a 0.5% increase.
This week’s focus will be on the U.S. retail sector with retail sales reported for October and quarterly announcements from Walmart, Target, and T.J. Maxx. Analysts expect some disappointments due to big markdowns to move swelling inventories. Home Depot and Lowes also report this week, giving us a feel for the direction of the housing sector.
Inflation has peaked and is trending in the right direction which should give the Federal Reserve some breathing room to raise rates less aggressively moving forward. There is no question that valuations are appealing, and most institutional investors are extremely pessimistic – normally a positive sign. Markets will remain volatile, so we continue investing in high-quality assets within a well-diversified portfolio.
“The willingness with which our young people are likely to serve in any war, no matter how justified, shall be proportional to how they perceive the veterans of earlier wars were treated and appreciated by their nation.” – George Washington
Weekly Commentary (11/07/22) – Voting is a civic sacrament
November 7, 2022
It was another tough week for US growth investors as the Fed followed through on its signaled increase of the Discount Rate by 0.75% to 4.0%. There were some murmurs across markets that the Fed might come out with comments indicating a slowdown in its use of interest rate hikes to fight inflation. However, after an initial rally on the rate increase announcement and Fed’s statement, the market did not like the tone of the subsequent comments and press conference message and stock prices dropped in response.
For the week, the DJIA shaved off 1.38% while the S&P 500 fell 3.31%. The tech-heavy Nasdaq was taken down 5.62%. International markets were higher with the MSCI EAFE Index (developed countries) adding 1.25% and emerging market equities (MSCI EM) gaining 4.68% as these markets reversed course. Small company stocks, represented by the Russell 2000, had a setback last week after a strong week and gave up 2.53%. Fixed income, represented by the Bloomberg Aggregate, slipped 0.78% for the week as yields moved slightly higher with the Fed action. As a result, the 10 YR US Treasury closed at a yield of 4.17% (up ~ 15 bps from the previous week’s closing yield of ~4.02%). Gold prices closed at $1,674/oz – up ~ 2%. Oil prices moved higher, for a second week in a row, to close at $92.61 per barrel, up 5.36% on the week.
The big event last week was the Fed’s two-day meeting and rate increase announcement. However, important labor data was also announced indicating continued strength in labor rates and job creation. There might be slight signs of deterioration in labor strength, as the unemployment rate came in at 3.7% vs both the previous and expected level of 3.5%. The market consensus is that the Fed will not be letting up while employment data is so strong, and the Fed has stated that over doing the response to inflation is a better error than not containing it.
Important CPI data is released on Thursday, some consumer sentiment data on Friday, and several Fed Governors are speaking throughout the week. Obviously, the big event this week is the election. Those results will dwarf all the other chatter, unless we have a big surprise with inflation. The election results are likely to have a significant impact on markets. Historically, markets run warmer when we have divided power in Washington. The market can rely on less change when there is political gridlock and, in general, that higher degree of certainty is a bolster to conviction levels of models concerned with future sales and earnings. If we do not have some degree of gridlock, the market is not likely to be happy.
Despite the significant repricing of assets over the past 12 months, we have not seen evidence that we have formed a solid base, yet. The future may prove we have, but expectations still seem too optimistic and align more with a soft landing versus a true recession. We favor a cautious course until the fog lifts some more.
“Democracy is the only system that persists in asking the powers that be whether they are the powers that ought to be.” – Sydney J. Harris
ND&S Weekly Commentary 11.21.22 – Little Changed
November 21, 2022
Global equities were little changed, and range bound last week as economic data reconfirmed that inflation is moderating.
For the week, the DJIA ticked higher by 0.11% while the S&P 500 shaved off 0.61%. The tech-heavy Nasdaq was taken down by 1.51%. International markets were higher with the MSCI EAFE Index (developed countries) adding 0.26% and emerging market equities (MSCI EM) gaining 0.80%. Small company stocks, represented by the Russell 2000, fell 1.70% last week. Fixed income, represented by the Bloomberg Aggregate, gained 0.48% for the week as the long end of the yield curve moved lower. The 10 YR US Treasury was unchanged on the week closing at a yield of 3.82%. Gold prices closed at $1,752/oz. – down 0.39%. Oil prices moved lower, for a fourth week in a row, to close at $80.08 per barrel, down 9% on the week.
Headline PPI (Producer Price Index) in October was up 0.2% m/o/m, half the estimate expected. The softer than expected report, much like the October CPI, remains far from where it needs to be but is showing improvement. In other economic news, retail sales for October increased a stronger-than-expected 1.3%, the largest jump in 8 months. Housing starts declined further in October and is showing softness in the face of higher interest rates. This holiday shortened week will have reports on durable goods orders, new home sales, and consumer sentiment.
We hope that all of you and your families are continuing to stay healthy and safe this holiday season. We wish to extend to all a very Happy Thanksgiving!
This week also, brings the return of the most watched sporting event in the world. US returns to the World Cup against Wales after 8-year wait. When the U.S. takes the field on Monday, it will have been 3,066 days since its last World Cup match … that seems like a lifetime ago…
“The World Cup is a very important way to measure the good players and the great ones. It is a test of a great player.” – Pele