Archive for ND&S Updates

ND&S Weekly Commentary (9.25.23) – One More Rate Increase Expected

September 25, 2023 

The Fed meeting last week unraveled pretty much as expected. The Federal Reserve kept the federal funds rate unchanged, however, it gave plenty of ammo for the press and investors to continue speculating on what policy will look like at future meetings. In the Fed’s statement, the committee noted strong economic growth across the country. Their biggest concern (and the market’s, which reacted negatively post meeting), at this point, is whether the strong economic growth will bring with it more inflation pressures.

For the week, the S&P 500, the DJIA and NASDAQ were all negative at -2.91%, -1.89% and -3.61%, respectively. Small Cap stocks, as measured by the Russell 2000, also closed lower by 3.81%. International equities were also negative last week with developed markets declining 2.03% and emerging markets down 2.08%. Fixed income, represented by the Bloomberg/Barclays Aggregate, finished lower by 0.50% for the week as yields moved meaningfully higher in response to FOMC commentary. As a result, the 10 YR US Treasury closed at a yield of 4.44% (up 11bps from the previous week’s closing yield of ~4.33%). Gold prices closed at $1,927/oz. – up a modest 0.9%. Oil (WTI) remains elevated closing last week at $89.63 per barrel which is likely a headwind to growth at these levels.

As we enter the last trading week of the 3rd Quarter, equity markets remain well in positive territory year-to-date even with a difficult September. The equity markets seem stuck in this, bad economic news is good news & good economic news is bad news environment. We believe the economy is slowing despite what will likely be a 4%+ reading for 3rd Quarter GDP. As result, we continue to remain patient and a bit defensive within allocations while waiting for better opportunities to present themselves.

“It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price.” – Warren Buffett

ND&S Weekly 9.18.23 – Fall Is Upon Us

September 18, 2023 

The major stock market indexes finished mixed last week, as investors struggled with inflation data and rising oil prices.
The S&P 500 fell 0.12%, the Dow Jones Industrial Average eked out a gain of 0.14%, while the tech-heavy Nasdaq slid 0.37%. International equities fared better with developed markets (MSCI EAFE) up 1.6% and emerging markets (MSCI EM) gaining 1.27%.

The consumer price index (CPI) rose a hefty 0.6% in August, and was up 3.7% from a year ago. The acceleration was caused by higher energy prices. Core CPI, which excludes energy and food, rose 0.3% versus 0.2% forecasted. U.S. benchmark West Texas Intermediate oil prices rose above $90 per barrel for the first time since November 2022.

The bond market bounced around a bit with U.S. Treasury yields modestly increasing over most maturities. The 10-year Treasury closed at a yield of 4.29%, up slightly over last week’s 4.26%.

In other economic news, China reported that its economy picked up steam last month, easing concerns about the world’s second-largest economy. U.S. retail sales and wholesale price inflation were higher than expected. All of this bodes well for a soft economic landing and signs of a resilient consumer. There could be trouble on the horizon; however, as the United Auto workers officially launched their strike against the Big 3 automaker plants.

All eyes and ears will be on next week’s Federal Reserve meeting when central bankers will share their latest thinking on interest rate policy. Important housing data and the leading economic indicators for August will also be reported.

“And all at once, summer collapsed into fall.”Oscar Wilde

Weekly Commentary (9/5/23) – Markets Reverse Course and Move Lower

September 11, 2023 

Markets were lower across the board last week as investors reacted to interest rates moving higher across the yield curve.

For the week, the DJIA slid 0.70% while the S&P 500 fell 1.26%. The tech-heavy Nasdaq dropped 1.92%. International markets followed suit. For the week, the MSCI EAFE Index (developed countries) finished lower by 1.38% while emerging market equities (MSCI EM) declined 1.17%. Small company stocks, represented by the Russell 2000, had a tough week, and retreated 3.58%. Fixed income, represented by the Bloomberg Aggregate, lost 0.30% for the week as yields moved higher. As a result, the 10 YR US Treasury closed at a yield of 4.26% (up ~ 8 bps from the previous week’s closing yield of ~4.18%). Gold prices closed at $1,918.40/oz – down 1.10%. Oil prices continued higher and closed at $87.51 per barrel, up 2.3% on the week.

Last week was relatively quiet for economic data releases. However, interest rates found more reasons to move higher: continued reaction to the employment reports, the higher-than-expected ISM services reading at 54.5 – the highest in six months and above any forecasts in the Bloomberg survey of economists, and higher oil prices are just some of them. Oil continues to move higher as news that Saudi Arabia and Russia will maintain their oil production cuts through year end. Weekly jobless claims came in at the lowest since February. Higher interest rates in the US are lifting the USD and this hinders emerging markets and US multinationals with heavy ex-USD earnings. A tough environment is a mild assessment.

This week’s economic releases bring some key inflation data, including CPI, PPI, and retail sales. The Consumer sentiment data comes at the end of the week and that is an area of great interest, as well. There is increasing speculation about the US Consumer running out of stamina and real concerns of spending slowing down. The Fed meets the following week and although a hike announcement from this next meeting is highly unlikely, their posture and comments will have great attention as investors and pundits try to predict how much farther the Fed may go to reach its target inflation rate of ~2%.

Investors seem impatient. They are tired of rates going higher and many, if not most, had thought inflation would behave better and faster against the whip the Fed is using to corner it. While the proverbial “soft landing” may occur, one should begin to wonder what does that scenario mean, if it were to play out? What would be the reasoning for the Fed to make substantial cuts to its overnight borrowing rates when employment rates are low, GDP is still positive, and inflation is about 2%. Even if the Fed moved to an overnight rate of 4.5% or even 4% (100-150bps lower from here), how does a 4.25% 10-year rate make sense in that world?

What if the Fed has a hard landing to handle – unemployment begins to move higher, GDP goes negative, and inflation has fallen to ~2%? We think we have seen that playbook – cut rates and deal with warming things up. Maybe the Fed would like to play the music it knows instead of having to play a tune it really has never played before?

“Be careful what you wish for, lest it come true!” – Aesop’s Fables

Weekly Commentary (9/5/23) – Markets Move Higher

September 5, 2023 

Markets were higher across the board last week as investors reacted to softer economic news (back to ‘bad news is good news’ …).

For the week, the DJIA gained 1.57% while the S&P 500 rose 2.55%. The tech-heavy Nasdaq jumped 3.27%. International markets joined the party. For the week, the MSCI EAFE Index (developed countries) finished higher by 2.53% while emerging market equities (MSCI EM) climbed 1.52%. Small company stocks, represented by the Russell 2000, had a great week and advanced 3.63%. Fixed income, represented by the Bloomberg Aggregate, gained 0.48% for the week as yields moved lower. As a result, the 10 YR US Treasury closed at a yield of 4.18% (down ~ 6 bps from the previous week’s closing yield of ~4.24%). Gold prices closed at $1,939.80/oz – up 1.95%. Oil prices jumped higher to close at $85.55 per barrel, up 6.3% on the week.

Last week saw several important economic releases. Consumer confidence fell to 106.1 in August as consumers were frustrated by rising prices – particularly gasoline and groceries. August’s reading of 106.1 was well below the consensus of 116.0. Inflation expectations are still higher than pre-pandemic and makes the Fed’s job of bringing down inflation more difficult. The July JOLTS report showed job openings falling 3.7% to 8.8 million and below the consensus estimate of 9.5 million. July’s number was the lowest level since March 2021. Job openings have now fallen six of the past seven months. Layoffs were little changed while the quit rate dipped to 2.3% … these data suggest waning worker confidence in their job prospects. Friday saw the release of the PCE Price Index that showed a 0.2% pickup in inflation for July (the same as June) and in-line with expectations. On a y/y basis, PCE and Core PCE growth jumped 3.3% and 4.2% – matching consensus. Consumer spending rose more than expected and suggests the Fed’s tightening cycle is not over. The Fed will likely pass on raising rates at its September meeting, but the likelihood of a rate increase in November has increased.

The week ahead holds a few events that will provide investors with a snapshot of how the economy and sentiment are holding up in early September. Releases include: August Services PMI, ISM Non-Manufacturing Index, and the latest iteration of the Fed’s Beige Book. Finally, the Consumer Credit report is due out on Friday – this should provide a nice snapshot of the health of the consumer (the lifeblood of our economy).

September has not been overly kind to investors over the years with the median market return of -0.1%. But we all know that 2023 so far has been anything but normal. We urge investors to stick close to long-term asset allocation targets.

“Opportunity is missed by most people because it is dressed in overalls and looks like work.” – Thomas Edison