Archive for ND&S Updates
ND&S Weekly Commentary 4.17.23 – Most Markets Advance Despite Recession and Inflation Concerns
April 17, 2023
Equity markets were higher globally last week while US Gov’t and corporate bonds had a mild retreat.
For the week, the DJIA moved up 1.20% while the S&P 500 added 0.82%. The tech-heavy Nasdaq grew by 0.30% on the week. Small company stocks, represented by the Russell 2000, rose 1.54%. International markets were generally stronger than the US last week as the MSCI EAFE index gained 2.25% and the MSCI EM advanced 1.66%. Fixed income, represented by the Bloomberg Barclays Aggregate, had a down week, falling 1.10% as a downtrend in interest rates reversed. The mortgage rate bellwether 10 YR US Treasury closed at a yield of 3.52% (up ~22bps from the previous week’s closing yield of 3.30%). Gold prices continued to climb (+0.80%) and closed at $2,019/oz. Oil (WTI) prices also continued an uptrend off a recent bottom in mid-March (~$67) to finish at $82.16/barrel.
Despite content from the recent FOMC meeting minutes that actually forecasts a recession for the US in 2023 (!), equities continued an uptrend that began in October 2022. With the Bears arguing we have not seen a proper Bear Market bottom and the Bulls pointing to October, equities are trudging higher. According to FactSet, the Q1 estimate decline for the S&P 500 is ~6.7%. This does not support the bull case, yet investors seem to be looking past this and investing for a more distant horizon. If inflation submits, and interest rates stay stable or move lower, this stormy period for both bonds and equities will likely pass. In the opposite case, we could simply be in the eye of the storm and have more rough sailing ahead.
Last week’s economic releases included CPI data, which was positive, on a relative basis. The CPI was only up 0.1% compared to 0.4% in the previous month and a 0.2% consensus forecast. This led to a 5.0% CPI YoY, which was lower than the 5.1% forecast and compares well to a 6.0% YoY for the previous month. Core CPI came in on the forecast target of 0.4% for the month and 5.6% YoY – a tick higher than 5.5% YoY for the previous month. Equity investors, always looking for sunny skies, thought this was great news.
We are potentially at the pivot point for inflation – is it stuck, is the decline slowing, or is it dropping like a stone? Like weight loss, the initial move down from peak is much easier than the next stages and we may be seeing some resistance here. That could mean the Fed will have to further constrict the economy’s intake by potentially raising rates more than the consensus believes, holding rates higher, longer, or both. The optimists envision a simple slide back to the goldilocks zone of 2-2.5% inflation and full employment. We have many doubts it will be that simple.
Revenue and earnings reports, as well as future guidance, will be announced over the next few weeks. These reports are often a catalyst for significant market moves. In this perverse environment where results that are too good garner fears the Fed will need to move rates higher and hold there longer, it is even a greater guessing game than normal as to how the market will react to Q1 earnings. While true investors do not get let themselves get too caught up in these gyrations, there are plenty of short-term players who try to capitalize on moment-to-moment news, and that amplifies the market swings.
“The best way to measure your investing success is not by whether you’re beating the market but by whether you’ve put in place a financial plan and a behavioral discipline that are likely to get you where you want to go.”– Benjamin Graham
ND&S Weekly Commentary 4.10.23 – Markets Modestly Lower in Short Week
April 10, 2023
Equity markets were modestly lower during the holiday-shortened week amid signs that the US economy is losing steam.
For the week, the DJIA advanced 0.69% while the S&P 500 slipped 0.06%. The tech-heavy Nasdaq declined by 1.08% on the week. International markets were modestly higher last week as the MSCI ACWI Ex USA index gained 0.10%. Small company stocks, represented by the Russell 2000, gave back 2.66%. Fixed income, represented by the Bloomberg Barclays Aggregate, had a strong week (up 0.49%) as rates declined across all time periods. As a result, the 10 YR US Treasury closed at a yield of 3.30% (down ~25bps from the previous week’s closing yield of 3.55%). Gold prices broke through a psychological resistance level last week to close at $2,002/oz. Oil (WTI) prices jumped higher to finish at $80.70/barrel as OPEC+ surprised the market with a 1.6 million barrel per day output cut.
The U.S. economy started 2023 off strong, with many Wall-Street economists calling for positive real GDP growth upwards of 3%. However, the Atlanta Fed GDPNow model now shows the U.S. economy forecasting Q1 real growth of only 1.5%, down from 3.5% two weeks ago. A sharp drop in the ISM manufacturing and nonmanufacturing PMIs, and a larger-than-expected decline in job openings in February were just some of the economic data misses last week.
Earnings season will kick off this week with several reports from the banking and consumer discretionary sectors. The financial reports and follow-up commentary from the banking sectors will be closely watched given the fallout from the SVB and Signature Bank failures a few weeks ago. Other important economic data releases this week include reports on inflation (both CPI and PPI) and retail sales for the month of March.
“Either you run the day or the day runs you.” – Jim Rohn
ND&S Weekly Commentary 4.3.23 – Equities End Q1 on Strong Note
April 3, 2023
Equity markets closed out the first quarter out on a strong note as it seems investors are looking beyond potential near-term challenges and are expecting a dovish shift in monetary policy.
For the week, the DJIA increased 3.22% while the S&P 500 gained 3.50%. The tech-heavy Nasdaq advanced 3.37%. International markets were also strong with the MSCI EAFE Index (developed countries) finishing higher by 4.02% while emerging market equities (MSCI EM) added 1.95%. Small company stocks, represented by the Russell 2000, jumped 3.94% for the week. Fixed income, represented by the Bloomberg Aggregate, declined 0.46% for the week as yields moved considerably higher across all areas of the yield curve. As a result, the 10 YR US Treasury closed at a yield of 3.48% (up ~ 10 bps from the previous week’s closing yield of ~3.38%). Gold prices closed at $1,980/oz. – down 0.75%. Oil prices jumped higher to close at $74.37 per barrel, up over 9.0% on the week.
In testimony before the Senate Banking Committee, vice chair Michael Barr called Silicon Valley Bank a textbook case of mismanagement … we would agree. In response to the SVB and Signature Bank closures, the White House has proposed stricter banking rules on liquidity requirements and annual stress tests on smaller banks … this would bring on its own set of challenges. Any additional liquidity problems are likely contained now with the emergency lending measures instituted by the Fed.
Economic data released last week showed that inflation may be beginning to moderate. The Fed’s favorite inflation measure, core PCE deflator, rose 0.3% in February, much less than what was expected and a deceleration from 0.6% in January. Also released on Friday, the University of Michigan’s measure of one-year inflation expectations came in at 3.6%, its lowest reading since 2021.
Markets have raced out of the gates in 2023, recuperating some of the declines felt in 2023. The best performing areas of the equity markets have been those which are considered growth stocks. In fact, the Morningstar Dividend Composite which tracks the US dividend sector, was only up a modest 0.55% for the first three months. Markets are reflecting that we have likely seen peak interest rates. This is not a sure-bet and something we will be continuing to monitor in the weeks ahead.
Best wishes for a Happy Passover and Happy Easter.
“The only sure weapon against bad ideas is better ideas.” – Alfred Whitney Griswold
Weekly Commentary (4/24/23) – Markets Finish Mostly Lower on the Week
April 24, 2023
Equity markets finished mostly lower last week as investors digested first quarter earnings reports and economic releases.
For the week, the DJIA lost 0.19% while the S&P 500 dropped 0.09%. The tech-heavy Nasdaq finished lower by 0.42%. For the week, the MSCI EAFE Index inched higher by 0.05% while emerging market equities (MSCI EM) dropped 1.95%. Small company stocks, represented by the Russell 2000, advanced 0.59%. Fixed income, represented by the Bloomberg/Barclays Aggregate, finished lower by 0.23% for the week as yields moved slightly higher. As a result, the 10 YR US Treasury closed at a yield of 3.57% (up 5bps from the previous week’s closing yield of ~3.52%) as investors reacted to tepid bank earnings and expectations for a May rate hike by the Fed. Gold prices closed at $1,979.50/oz – down 1.13%. Oil prices moved lower by 5.53% to $77.87.
Economic news released last week confirmed a fairly resilient yet weakening economy (no surprise). Housing starts dropped 0.8% month-over-month in March as higher interest rates impacted both builders and new home buyers. Initial US jobless claims came in at 245k last week, higher than the expected 240k. Finally, S&P Global’s Flash April PMI Composite rose to 53.5 – better than expected but indicating that inflation continues to be sticky. Average prices for goods and services increased for the third consecutive month with April’s increase being the fastest since September.
As we close out April this week (believe it or not), expect a lot of news flow. Earnings are on tap for 170 companies in the S&P 500, including some of the biggest technology companies (Apple, Amazon, Google/Alphabet, Meta, Microsoft and others). Consumer Confidence and New Home Sales data will be released on Tuesday. Wednesday brings an update on Durable Goods Orders. The closely watched PCE inflation report will be released on Friday, and that should give investors some insight into the Fed’s upcoming meetings and thinking. Also, on Friday will be the release of April’s Chicago PMI and the University of Michigan Consumer Sentiment for April.
There is an expression – never short a dull market – with the VIX index (also known as the fear index) trading around 17 (down from ~33 last year) it seems as though traders are somewhat complacent. We expect some market volatility this week as investors digest a slew of earnings and economic releases. Diversification, patience and a bias towards quality will help investors manage through this period of uncertainty.
Enjoy the week.
“Try to be like the turtle – at ease in your own shell.” – Bill Copeland