Archive for ND&S Updates

ND&S Weekly Commentary 2.27.23 – Markets Wake up to Realities of This Inflation

February 27, 2023 

Equities were choppy but were decidedly lower over the week. The market is becoming more realistic about how inflation is acting despite an aggressive Fed policy aimed to tame it. More data is indicating that inflation’s retreat will be sluggish, at times, and that it is certainly not linear. More investors are accepting interest rates will be “higher for longer” and that changes the market’s value calculus.

For the week, the DJIA gave back 2.97% and the S&P 500 dropped 2.66%. The tech-heavy Nasdaq fell 3.31%. International markets were also down as the MSCI EAFE Index (developed countries) was off 2.41% and emerging market equities (MSCI EM) declined 2.74%. Small company stocks, represented by the Russell 2000, shrunk 2.86% last week. Fixed income, represented by the Bloomberg U.S. Aggregate, declined 0.89% for the week as yields moved higher. The 10 YR US Treasury yield increased 13 basis points on the week closing at a yield of 3.95%. Gold prices were down about 1.2% and closed at $1,811/oz. Oil (WTI) prices were $3.10 lower on the week closing at $75.39.

The Fed released the minutes last week from their February FOMC meeting. They seemed to indicate that they were not pleased with the equity and bond rallies underway in early February and that tighter monetary policy may be required to offset this implied loosening of conditions. The PCE numbers (the Fed’s preferred measure of inflation) rose 4.7% year over year and were up 0.6% from the previous month. This is leading the market to price in three more 25 bps hikes over the next three Fed meeting and the probability that we have 50 bps hike at the next meeting was near 30%.

This week is light on major economic releases. There are reports on housing and inventory data as well as the release of the ISM manufacturing index. Investors are dialed in on any numbers that indicate the pace of the economy and in this odd configuration of the game piece on the board, hot is bad and cold is good.

“Uncertainty actually is the friend of the buyer of long-term values.” – Warren Buffett

ND&S Weekly Commentary 2.21.23- Markets Little Changed Last Week

February 21, 2023 

Equities were looking for direction for most of last week as expectations for higher policy rates increased. While inflation continues to slow, the pace of improvement decelerated causing markets some unease and increasing doubts that the Federal Reserve has done enough to combat inflation.

For the week, the DJIA was little changed while the S&P 500 shed 0.20%. The tech-heavy Nasdaq advanced 0.63%. International markets were mixed as the MSCI EAFE Index (developed countries) eked out 0.12% and emerging market equities (MSCI EM) declined 1.37%. Small company stocks, represented by the Russell 2000, grew 1.47% last week. Fixed income, represented by the Bloomberg Aggregate, declined 0.47% for the week as yields generally moved higher. The 10 YR US Treasury yield increased 8 basis points on the week closing at a yield of 3.82%. Gold prices closed at $1,834/oz. Oil (WTI) prices were lower on the week closing at $78.49 on the week.

Inflation readings released last week showed that the US inflation moderated less than expected in January. The Consumer Price Index (CPI) rose 6.4% from a year ago, down slightly from December’s 6.5% pace. Additionally, Producer Prices (PPI) increased more than expectations, increasing 5.6% from a year earlier. In other economic news, Retail Sales rebounded sharply in January, exceeding expectations with a 3.0% month-over-month increase. The week ahead will have earnings reports from the U.S. retail sector and economic releases on housing and manufacturing.

After months of debate over whether the US will face a hard or soft landing, the debate has recently turned to whether the economy will land at all. With a string of stronger-than-expected data points (see retail sales above) and strong employment reports earlier this month, Wall Street is beginning to contemplate a “no landing” scenario this year which the Fed continues to hike rates amid improving economic activity. The concern is that it will just postpone the inevitable and we will see a harder recession in 2024.

“Blessed are the young for they shall inherit the national debt.”Herbert Hoover

ND&S Weekly Commentary 2.13.23 – Markets Take A Breather

February 13, 2023 


Markets were lower last week as rising yields continued to put the squeeze on equities and fixed income.

For the week, the S&P 500 declined 1.07%, the DJIA inched lower by 0.11%, and the tech-heavy Nasdaq dropped 2.37%.  The Russell 2000 Small-Cap Index slid 3.34%. International Equity Markets also finished in the red as developed (MSCI-EAFE) and emerging (MSCI-EM) markets gave back 1.56% and 2.40%, respectively. The price of oil (WTI) increased to $78.06 a barrel as Russia announced plans to cut oil production. The price of Gold closed the week, roughly unchanged, at $1,860/oz.

Bonds were also under pressure last week as the yield on the US 10-year Treasury Note rose 0.21% to 3.74% from a week prior. As a result, fixed income measured by the Bloomberg/Barclays U.S. Aggregate, declined 1.45% on the week. Numerous US Federal Reserve officials made the speaking rounds last week and addressed their economic outlook. A strong consensus of “higher for longer” for interest rates appears to have developed in messaging from the central bank. Chair Jerome Powell, speaking to the Economic Club of Washington, D.C. did not go out of his way to protest looser financial conditions. He warned that if tight labor market conditions persist, a higher peak in the Fed’s policy rate may be needed. It would seem that two additional 25bps increases are likely to be on the table.

With about 69% of the constituents of the S&P 500 Index having reported for Q4 2022, earnings are on track for a decline of 5%, while sales rose about 4.7%, compared with the same quarter a year ago, according to data from FactSet Research. Earnings have been a little better than analysts’ have expected with over 70% beating their estimates.

Markets should remain volatile this week as we await economic reports on inflation, retail sales and industrial production. Diversification, patience, and a bias towards quality will help investors manage through this challenging environment.

“Deeds, not Words.” – George Washington

ND&S Weekly Commentary 2.6.23 – Markets Shrug Off Weaker Earnings and a Rate Increase

February 6, 2023 

Investors had plenty to digest last week, with an expected fed rate increase, conflicting earnings reports from big-tech companies, and a slew of economic data and events reported.

The S&P 500 gained 1.6% this past week, the Nasdaq rose 3.3%, while the Dow Jones Industrial Average slipped 0.2%. Despite lackluster earnings reports from Apple, Alphabet, Microsoft and Amazon, investors were encouraged by their cost cutting moves. Facebook (META) surged 23% on Thursday as a result of stronger sales and a $40 billion stock buyback. International equities were mixed with developed markets (MSCI-EAFE) up 0.5% and emerging markets (MSCI-EM) down 1.2%.

As expected, the Federal Reserve raised its target for the fed funds rate by 25 basis points and signaled that two more rate hikes could be expected. However, the Fed acknowledged that inflation has been easing and the past rate increases have been doing their job.
Of the 251 companies within the S&P 500 index reporting for Q4, about 52% exceeded analysts’ revenue estimates and roughly 70% topped earnings projections, according to Bloomberg. Admittedly, the street has been ratcheting down estimates given weakening economic conditions. Overall, corporate earnings are expected to contract 5% on a year-over-year basis.

The Labor Department reported that there were 517,000 new jobs created in January, blowing away economist’s expectations. The unemployment rate fell to 3.4%, the lowest since 1969 and well below expectations of 3.6%. The strong jobs report created concerns that the Federal Reserve may have to continue raising rates to cool inflation and curb consumer spending.

Despite a bouncy ride, the 10-year U.S. Treasury note was little changed for the week, ending at 3.53%. Oil prices slid 7.8% to $73 per barrel and are down 40% from their peak last year.

With mixed economic data and corporate earnings, the Fed maintaining a somewhat hawkish stance and worries of a recession, market volatility will continue. The markets have sprung back nicely and look to be ahead of themselves. Since mid-October, U.S. equities are up 16%, international markets have surged 25% and bonds have rebounded 9%. We would recommend remaining globally diversified and being patient about investing high yielding cash balances.

The economic reports this week are relatively sparse with wholesale inventories and consumer credit being reported.

“I rub it in pretty good when I win.”Tom Brady