Archive for ND&S Updates

NDS Weekly Market Update – “Proceed Carefully”

August 28, 2023 

Jerome Powell told investors that the central bank would “proceed carefully” with further rate increases in prepared comments at last week’s Kansas City Fed Annual Symposium, a gathering of central bankers from around the world. Markets responded favorably to those comments to close out last week in positive territory.

For the week, the DJIA shaved off 0.42% while the S&P 500 ticked higher by 0.84%. The tech-heavy Nasdaq increased 2.27% last week. International markets were mixed with the MSCI EAFE Index (developed countries) declining 0.18% and emerging market equities (MSCI EM) gaining 0.74%. Small company stocks, represented by the Russell 2000, fell 0.29% last week. Fixed income, represented by the Bloomberg Aggregate, gained 0.28% for the week as the long end of the yield curve moved lower. The 10 YR US Treasury was virtually unchanged for the week closing at a yield of 4.25%. Gold prices closed at $1,916/oz. – up 1.33%. Oil prices moved lower for the second consecutive week to close at $79.05 per barrel, down 1.0% on the week.

In economic news released last week, the August Mfg. and Services PMIs showed continued softness in the overall US economy. Durable goods orders also came in soft falling 5.2% m/m, missing analysts’ estimates. Ironically, the equity markets responded favorably on those data releases as it might take pressure off the Fed to continue pushing rates higher in its battle against inflation. The week ahead will include reports on consumer confidence, PCE (the fed’s preferred measure of inflation), and multiple reports on the US labor market.

Equity markets have shed roughly 4% in the month of August, as interest rates have continued to push higher across the yield curve. As allocators of capital, we are constantly weighing the risks in the overall market. Short-term rates continue to offer attractive yields which allows us to remain patient in our endless search of favorable long-term opportunities.

“He that can have patience can have what he will.” Benjamin Franklin

ND&S Market Update: Markets Close Lower for Third Straight Week

August 21, 2023 

Stocks were under pressure last week, as investors struggled with higher interest rates and renewed worries over China’s economy.

For the week, the DJIA was down 2.1%, its worst week since March. The S&P 500 also dropped 2.1%, and the tech-heavy Nasdaq slid 2.6%, both down for the third consecutive week. Foreign markets were heavily hit by China’s economic troubles. Developed (MSCI-EAFE) and developing markets (MSCI-EM) each fell 3.2%.

The Federal Open Market Committee’s meeting minutes from July, showed officials expressed concerns that more rate hikes may still be needed. The yield on the 10-year U.S. Treasury rose 10 basis points (bps) to 4.26%, its highest level since 2007.

China’s deepening economic troubles and concerns about debt levels in their real estate sector are weighing heavily on global financial markets. Some positive news about the continued resilience of our economy was the U.S. retail sales report exceeding economists’ expectations. Retail sales rose 0.7% in July relative to June, topping consensus of 0.4%. The price of U.S. crude oil fell 2% to $80.39, ending seven weeks of consecutive gains.

Economic data released this week will include consumer sentiment, real estate reports, and weekly unemployment claims. Top central bankers from around the world will gather for the Kansas City Fed’s annual symposium in Jackson Hole, WY this week. As usual, all eyes will be on Federal Reserve Chairman Jerome Powell, who’s expected to speak Friday morning.

There will be a few additional corporate reports (most notably Nvidia) this week but, otherwise, trading volume should remain low. We suggest that investors look favorably on cash yields, and maintain a well-diversified portfolio.

“Summer’s lease hath all too short a date.” William Shakespeare

Weekly Commentary (8/14/23) – Markets Meander Lower in Second Straight Week of Declines

August 15, 2023 

Markets continued to creep lower even as investors welcomed data supporting a continuation of the slowing inflation trend, though yields continue to inch higher.

For the week, the DJIA was the only major equity index to rise, gaining 0.69% while the S&P 500 continued lower, sliding 0.27%. The tech-heavy Nasdaq declined 1.87% and international markets also finished down. For the week, the MSCI EAFE was lower by 0.56% while emerging market equities (MSCI EM) dropped 1.92%. Small company stocks, represented by the Russell 2000, also dropped, shedding 1.62%. Fixed income, represented by the Bloomberg Aggregate, declined 0.64% for the week as yields moved higher. As a result, the 10 YR US Treasury closed at a yield of 4.16% (up ~ 11 bps from the previous week’s closing yield of ~4.056%). Gold prices closed at 1,912.90/oz – down 1.38% as the U.S. dollar rose 0.19% on the week. Oil prices rose to close at $83.19 $82.82 per barrel, up 0.45% on the week.

Last week’s CPI release supported the trend of slowing inflation as the data came in just about right on the expectations with CPI running 3.2% YoY and Core CPI at 4.7% YoY, but the Producer Price Index (PPI) had a surprise on the high side with July PPI rising 0.3% versus 0.2% expectation. As rates are ticking higher across the maturity spectrum, it seems that more investors are believing the Fed’s mantra of “higher for longer”. Among the conundrums in the current environment is imagining what the Fed’s impetus is to make significant rate cuts if the US economy does not have a recession, and then, what does the rest of the yield curve look like in that environment? Do we stay inverted or does the belly and the end of the curve need to be higher? That question must be part of the equation that is causing another rate shift higher, and this presents a challenge to stock valuations.

The week ahead includes retail sales numbers and housing data, as well. This data is important because it provides signals on the underpinnings of economic activity and consumer attitudes. The Fed and the economy are at an interesting juncture. Unemployment/labor numbers are amazingly strong, consumers are still spending, and as a result inflation is becoming harder to suppress. If the Fed backs off too much, it could lose what seems like a good grip in its fight. Also, at this point, it is hard to foresee rate cuts of such significance that the middle of the curve makes sense. Therefore, we are being cautious as the equity markets have moved higher very quickly and we could be facing an interest rate environment that most bullish investors did not anticipate.

We still have lots of Summer and nice weather to come – no matter what the markets do!

“Be happy in the moment, that’s enough. Each moment is all we need, not more.”Mother Teresa

Weekly Commentary (8/7/23) – Markets Pull Back to Start August on a Sour Note

August 7, 2023 

Markets pulled back last week as interest rates rose and Fitch downgraded the U.S.’s credit rating due to the nation’s rising deficits, high debt levels, and an “erosion of governance.”

For the week, the DJIA lost 1.1% while the S&P 500 gave back 2.3%. The tech-heavy Nasdaq declined 2.8% as earnings from a few high-flying tech stocks disappointed. International markets also finished in the red. For the week, the All Country World Index ex-USA finished lower by 2.4% while emerging market equities (MSCI EM) pulled back 2.4%. Small company stocks, represented by the Russell 2000, finished lower by 1.2%. Fixed income, represented by the Bloomberg Aggregate, declined 0.6% for the week as yields moved higher. As a result, the 10 YR US Treasury closed at a yield of 4.05% (up ~ 09 bps from the previous week’s closing yield of ~3.96%). Gold prices closed at $1939.60/oz – down 1.06% as the U.S. dollar rose 0.38% on the week. Oil prices rose to close at $82.82 per barrel, up 2.78% on the week.

Last week saw a number of economic releases and earnings reports. Economic news released last week echoed the soft-landing narrative for the U.S. economy while also pointing to sticky wage inflation. June job openings came in at 9.58M versus 9.65M expected. July non-farm payrolls were 187K versus 200K expected. So a mixed message – while openings and payroll gains came in less than expected, wage growth surprised to the upside. The unemployment rate held steady at 3.5% while the labor force participation rate remained steady at 62.6 … no surprises there. The strength of the U.S. labor market will help to soften the blow from any potential recession (which will likely not arrive in 2023). Earnings releases last week were mostly as expected. S&P 500 companies are on pace to report a decline of 5.2% in earnings during the 2nd quarter – the worst quarterly performance since 2020. Although earnings have declined, on average, more than 70% of companies reporting have beaten expectations. While earnings have been declining, revenues are expected to grow 0.6% year-over-year, according to FactSet.

The week ahead holds a few important events that investors will be watching closely – July CPI comes out on Thursday while PPI gets released on Friday along with the University of Michigan Consumer Sentiment Index. The inflation reports will be watched closely as they may give a clue to future Fed action.

Enjoy the last few weeks of summer!

“Dreams will get you nowhere, a good kick in the pants will take you a long way.” – Baltasar Gracian