ND&S Weekly 5.20.19 – Stay Calm

May 20, 2019

The equity markets were a bouncing ball last week as continuing trade tensions weighed down the Dow Jones Industrials (DJIA) for a fourth straight week of losses, its longest losing streak in three years. The DJIA shed 0.61%, the S&P 500 declined 0.69% and the NASDAQ gave up 1.22%. US small caps suffered with the Russell 2000 losing 2.32%. Emerging market stocks fell 3.55% while developed international equities squeezed out a 0.23% gain.

The increasingly rancorous trade conflict has made investors nervous about the two economic powers damaging global supply lines and putting the brakes on an already slowing global economy. However, there was a positive trade development with the US lifting tariffs on Canadian and Mexican steel and aluminum.

It is important to note that corporate earnings fuel stock prices. With first-quarter earnings season almost over, 460 constituents of the S&P 500 companies have reported and 75% of them beat analyst expectations. The impact of trade conflicts will be on center stage again as large retailers, Home Depot, Nordstrom, Kohls, and Target report this week. According to the American Apparel and Footwear Association, 41% of apparel and 72% of footwear produced is manufactured in China.

Economists, analysts, and market pundits are recalibrating their data. Investors, meanwhile, have sought safe-haven assets as US Treasury yields fell, money market inflows surged and utility and telecommunication stocks rose. Overall yields on US Treasuries fell to their lowest levels in over a year. The benchmark 10 year US Treasury yield closed the week at 2.39%, down from 2.47% the week prior.

Though we expect President Trump tweeting about trade and China’s bellicosity to continue, Wall Street consensus is that there will be a trade deal with China. In another escalation with China last week, the US put Chinese hardware company Huawei and 26 of its affiliates on an export blacklist causing a number of US tech giants to halt business with them. The US and others have accused Huawei of committing espionage on behalf of the Chinese government. Hopefully, President Trump and Xi Jinping can settle things at the end of next month at the meeting of the Group of 20 nations. There are other geopolitical risks to take into account including, escalating tensions with Iran, Venezuela’s instability, Europe’s parliamentary elections and North Korean missile launches.

Economic news in the week ahead include reports on new and existing home sales, manufacturing PMIs, and durable goods orders. Despite all of the headline news we strongly feel that investors should remain diversified, not chase the momentum up or down and try to stay calm.

“A pessimist sees the difficulty in every opportunity; an optimist sees the opportunity in every difficulty.” – Winston Churchill

ND&S Weekly Commentary (5/13/19) – Trade Tensions Escalate

May 13, 2019

Markets had a rocky week as trade war concerns weighed heavily on investor sentiment. As is it appeared a trade agreement was close, China allegedly walked back on some of their prior commitments resulting in President Trump’s decision to increase tariffs on $200 billion worth of Chinese imports from 10% to 25%. China vowed to take “appropriate countermeasures” which will likely result in additional levies against US exports to China. The trade uncertainty will likely remain a headwind for the market in the near-term as investor expectations adjust to the reality that there might not be an agreement.

For the week, the DJIA lost 1.96% while the S&P 500 gave back 2.10%. The volatile Nasdaq declined 2.96%. Developed international markets were also weak as the MSCI EAFE index dropped 2.59% for the week. Emerging markets lost ground as well with the MSCI EM index ceding 4.51%. Small company stocks, represented by the Russell 2000, were beaten-down by 2.52% for the week. Fixed income, represented by the Bloomberg/Barclays Aggregate, finished the week higher (+0.31%) in a flight to safety. As a result, the 10 YR US Treasury closed at a yield of 2.47% (down 7 bps from the previous week’s closing yield of 2.54%). Gold prices closed at $1,287/oz. Oil prices were flat on the week as oil closed at $61.66.

With 90% of the constituents of the S&P500 having reported for Q1 2019, blended earnings show a less than 1% decline with the same quarter a year ago. Revenues are expected to rise 5.3% year over year, according to FactSet. This week, 13 companies of the S&P 500 index are scheduled to report results.

There will be economic releases on retails sales, manufacturing, housing starts, and consumer confidence in the week ahead. However, most investor focus will be on the US-China trade front as negotiations remain ongoing.

“There are no secrets to success. It is the result of preparation, hard work, and learning from failure.” – Colin Powell

Weekly Commentary (05/06/2019) – Jobless Rate Hits 50-year High

May 6, 2019

Markets were mostly positive last week as investors cheered better than expected 1st quarter earnings and bullish jobless news. 1st quarter earnings reports are nearly complete and have been mostly solid. In addition to solid earnings, the U.S. Labor Department reported that the economy added 263,000 jobs in April – far exceeding an expected gain of 190,000 jobs. The unemployment rate fell to 3.6%, the lowest level in nearly 50 years. Average hourly earnings rose $0.06 to $27.77, or 3.2%, for all nonfarm payrolls. More encouraging news was found in Monday’s release of inflation data as the Core PCE price index (personal consumption expenditures – a measure of personal spending) rose 1.6% in March. With inflation fairly tame, it is unlikely the Fed will need to raise rates this year.

For the week, the DJIA fell 0.14% while the S&P 500 gained 0.22%. The volatile Nasdaq jumped 0.23%. Developed international markets also gained as the MSCI EAFE index pushed ahead 0.33% for the week. Emerging markets equities saw increased demand as the MSCI EM index advanced 0.48%. Small company stocks, represented by the Russell 2000, were the biggest gainers as the index moved higher by 1.42% for the week. Fixed income, represented by the Bloomberg/Barclays Aggregate, finished the week lower (-0.06%) as investors took profits in bonds. As a result, the 10 YR US Treasury closed at a yield of 2.54% (up ~3.0 bps from the previous week’s closing yield of 2.51%). Gold prices closed at $1,279.20/oz – down 0.49% on the week. Oil prices dropped as oil closed at $61.94 – down by 2.15% on the week.

So much good news is now reflected in the markets. Next up is a resolution, or not, regarding the trade issue with China. Any setback in negotiations with China will likely have a short-term negative effect on the markets. With the underlying strength of the economy, however, any setback will eventually be met with buying. We remain cautiously optimistic.

Enjoy the week ahead!

“Life is 10% what happens to you and 90% how you react to it.” – Charles R. Swindoll

NDS Weekly Commentary (4/29/2019) – Economic Growth Surpasses Expectations

April 29, 2019

1Q GDP surprised investors on the upside last week – growing at an annualized quarterly rate of 3.2% and surpassing consensus estimates of 2.3%. The strong reading was the result of an increase in net exports and inventories of 1.0% and 0.7%, respectively. However, final sales to domestic purchasers grew by only 1.4%. Chances are that exports and inventories will grow more slowly in the 2nd quarter cutting GDP growth to about 2%. Economists expect consumer spending to pick up this spring as retail sales were strong in March. The unemployment rate remains low, wages are rising and consumer sentiment remains strong so economic growth should continue. The most recent GDP report certainly alleviated any recession fears in the short-term.

U.S. markets responded positively for the week with S&P 500 and the NASDAQ up 1.2% and 1.9%, respectively. The best performing sectors last week were health care (+3.7%), which has been a laggard, and communications services (+2.7%). The fixed income market was also positive for the week as the rate on the 10yr U.S. Treasury dropped from 2.57% to 2.51%. Globally, equity markets were weak with developed markets off 0.2% and emerging markets down 1.3%. The international outlook seems to be improving as the ECB is providing additional monetary stimulus and Japan recently passed a fiscal stimulus package.

Corporate earnings continue to come in better than expected. So far, almost 80% of companies that have reported have beaten expectations. This week 190 companies of the S&P 500 index are scheduled to report results. In addition, look for economic reports on factory orders, productivity and March jobs that are expected to be 185,000.

“He has achieved success who has worked well, laughed often, and loved much.”Elbert Hubbard

NDS Weekly Commentary (4.22.19) – Word of the Week: REDACTED

April 22, 2019

The shortened holiday week instilled investor’s confidence as a result of a slew of healthy first quarter earnings. Among widely held companies surpassing analyst estimates were Bank of America, Johnson & Johnson and Pepsi, which pushed the DJIA up 0.60% for the week. The broader-based S&P 500 and tech laden NASDAQ were -0.07% and 0.17%, respectively. International equities were positive for the week with the MSCI EAFE increasing 0.35% and MSCI EM up 0.34%.

Apple and Qualcomm finally settled their royalty dispute and now Apple will buy Qualcomm chips for future iPhones. Bank of America cited loan growth as a contributor to earnings. As a result, technology and financial sectors increased 1.3% and 0.7%, respectively. Energy shares slipped 0.5% on the week as crude oil prices declined to $63.74 a barrel. The health care sector was the worst performer, declining over 4% for the week. Investors are worried about the potential impact of “Medicare For All.”

On Monday, Fed officials indicated that they would be willing to leave rates steady until later this year and gave an optimistic note on the nation’s economy. James Bullard, the St. Louis Fed President said the US economy is in “great shape” and he is encouraged by the Fed’s recent policy shift of a “flat rate outlook.” China reported that the world’s second leading economy expanded 6.4% beating growth expectations of 6.3%. US retail sales jumped 1.6% in March, easily beating the consensus estimate of 0.9%.

On the political front, the redacted Mueller report was released on Thursday. Both sides of the aisle will continue to haggle over Russia’s interference in the 2016 US Presidential election, which the market fully expected. The economic releases for the week ahead include existing and new home sales, durable goods orders, gross domestic product and consumer sentiment index.

We are encouraged by last week’s corporate earnings, Fed statements and China’s economic growth. All eyes are on the US and China trade talks. There are a slew of first quarter earnings yet to be announced, with 155 companies within the S&P 500 scheduled this week. Slowing global economic and profit growth, Brexit and our inverted yield curve remain issues to contend with. It will be a challenge for companies to expand profit margins because of higher input costs and technology gains may have peaked.

We are amazed and skeptical at how quickly global recession fears have subsided and equity markets are now back within reach of their all-time highs.

Once again, to weather the uncertainties we recommend diversifying among various asset classes, maintaining quality assets with a bias towards safe income and dividend growth.

“The greatest products of architecture are less the works of individuals than of society; rather the offspring of a nation’s effort, than the inspired flash of a man of genius….”
-Victor Hugo, The Hunchback of Notre-Dame

NDS Weekly Commentary (4.15.19) – Earnings Season Kicks Into Gear

April 15, 2019

Markets ground higher last week, aided by a Friday rally on the back of bank earnings that boosted investor optimism on the kickoff of earnings season. Before the bell on Friday, JPMorgan Chase reported both Q1 revenues and earnings ahead of expectations. However, profits overall for the S&P500 are expected to decline 4.3% in the 1st quarter from a year ago, according to FactSet. This week will be busy with 55 companies within the S&P500 scheduled to announce earnings.

On the economic front, the International Monetary Fund last week lowered its projections for global growth in 2019 by 0.2% to 3.3%. Slowing growth in China along with the spillover from the trade dispute between US and China are the reasons for the reduction. The Federal Reserve also released minutes from their March meeting, and the uncertainly over their economic outlook would likely leave the federal funds rate unchanged for the remainder of 2019. Also aiding the Fed’s dovish policy, inflation remains somewhat muted with the Consumer Price Index (CPI) increasing 0.4% in March. Over the last 12 months, the CPI increase 1.9% as reported by the U.S. Bureau of Labor Statistics.

For the week, the DJIA declined 0.03% while the S&P 500 gained 0.56%. The Nasdaq increased 0.58%. International markets also gained as the MSCI EAFE index pushed ahead 0.30% and emerging markets equities advanced 0.41%. Small company stocks, represented by the Russell 2000, nudged higher by 0.16%. Fixed income, represented by the Bloomberg/Barclays Aggregate, finished the week lower (-0.12%) as rates increased across all time periods. As a result, the 10 YR US Treasury closed at a yield of 2.56% (up ~6bps from the previous week’s closing yield of 2.5%). Gold prices closed at $1,294/oz and oil prices moved higher to finish at $63.89/barrel amid supply concerns in Libya.

Clients should be on the lookout for quarterly portfolio reports along with our 1st quarter newsletter titled Paradise Regained, a play on John Milton’s follow-on poem and our 4th quarter newsletter title to Paradise Lost.

“In this world nothing can be said to be certain, except death and taxes.” Benjamin Franklin

Weekly Commentary (04/08/19) –Markets Push Higher on Trade Optimism

April 8, 2019

Markets were strong last week as investors pinned their hopes on a resolution to the ongoing U.S./China trade negotiations. Also helping to buoy investors’ spirits were a number of economic reports that seemed to support the notion that the U.S. economy remains in expansion mode (although economic growth is certainly slowing, as would be expected at this point of the long-running economic expansion). ISM Manufacturing index numbers were strong (55.3% vs. consensus of 54.5%) while Friday’s release of employment numbers highlighted the addition of 196,000 jobs in the month of March, exceeding expectations for a gain of 175,000 jobs. Friday’s release of the jobs data showed that unemployment held steady at 3.8% while average hourly earnings (wage inflation) increased 3.2% year-over-year. On the downside was Wednesday’s release of the March ISM Non-Manufacturing index, which showed that the service sector of the U.S. economy slowed as the index came in at 56.1%, missing expectations of 58.0%.

For the week, the DJIA increased 1.95% while the S&P 500 gained 2.09%. The volatile Nasdaq jumped 2.73%. Developed international markets also gained as the MSCI EAFE index pushed ahead 2.01% for the week. Emerging markets equities saw increased demand as the MSCI EM index advanced 2.58%. Small company stocks, represented by the Russell 2000, were the biggest gainers as the index moved higher by 2.80% for the week. Fixed income, represented by the Bloomberg/Barclays Aggregate, finished the week lower (-0.30%) as investors took profits in bonds. As a result, the 10 YR US Treasury closed at a yield of 2.50% (up ~8.4 bps from the previous week’s closing yield of 2.416%). Gold prices closed at $1,290/oz – down 0.2% on the week. Oil prices jumped higher as oil closed at $63.08 – up by 4.89% on the week.

So have U.S. markets moved a bit too far too fast? Probably. Of course, one never knows, but we would not be surprised if the markets pulled back a bit as they digest 1st quarter earnings due to be released over the next few weeks.

Enjoy the week ahead!

“Success is never final, failure is never fatal. It’s courage that counts.”John Wooden

ND&S Weekly Commentary 4.1.19 – Strong First Quarter

April 1, 2019

U.S. equities finished the last week on an up note capping the strongest 1st quarter for the S&P 500 since 2009. For the week, the S&P 500 and the DJIA were up 1.23% and 1.67%, respectively. Buoyed by optimism on trade negotiations between the U.S. and China and a dovish pivot from the Federal Reserve, for the quarter, the S&P 500 was up 13.6% and small cap stocks rose 14.6%. Similarly, international stocks performed well, developed markets rose 10.1% and emerging markets gained 10.0%.

Fixed income markets also rallied in the 1st quarter due to accommodative global central bank policies. The rate on the 10yr U.S. Treasury fell from 2.68% at the beginning of the year to 2.41% while the 10yr German bund dropped from 0.24% to -0.07%.

Concerns over global growth are starting to be felt in the US, as last week 4th quarter U.S. GDP was revised downward from 2.6% to 2.2%. Additionally, 1st quarter U.S.GDP numbers are only expected to be about 1.3% and earnings for S&P 500 companies are estimated to decline 3.9% in the quarter. However, most economists expect growth to pick up in the 2nd quarter as incomes continue to rise and consumer sentiment stays strong. This week look for reports on retail sales, durable-goods and March jobs that are expected to rebound from February.

“April 1. This is the day upon which we are reminded of what we are on the other three hundred and sixty-four.” – Mark Twain

ND&S Weekly Commentary 3.25.19 – Fed Guidance Throws Market for Loop

March 25, 2019

Markets sold off sharply into the close Friday to close the week in the red. The DJIA closed lower by 1.34%, while the broader-based S&P 500 moved lower by 0.75%. Smaller US companies gave back the most closing down 3.05% on the week. International stocks were mixed with the MSCI EAFE declining 0.33% and emerging increasing a modest 0.24%. Yields had a strong move lower following the Fed’s dovish guidance. The 10yr Treasury yield closed the week at a yield of 2.44%, down from 2.59% the week prior. Gold increased to $1312/oz.

The Federal Reserve dialed back their rate hike outlook and surprised the market by projecting zero interest rate increases in 2019, down from the committee’s December projection of two. Futures markets are beginning to price-in a cut in rates later this year. Additionally, the committee announced that it would end its balance sheet run-off in September with its primary goal of owning only treasuries. In an effort to stimulate the economy during the financial crisis, the Fed purchased mortgage-back securities (which are more risky than US Treasuries) to prop up the US housing market. The Fed’s projections for economic growth and inflation were trimmed to 2.1% and 1.8%, respectively.

Weak manufacturing data fueled growth worries last week. Factory activity in Europe fell deeper into contraction territory, slipping to 47.6. Sentiment weakened in the US as well with the flash manufacturing reading falling to 52.5 in March. An index reading below 50 is considered to be contraction. This week, look for economic reports on housing, consumer confidence, and inflation.

Let’s make it a great week!

“Excellence is the gradual result of always striving to do better.” – Pat Riley

ND&S Weekly Market Commentary (3.18.19) – Markets Continue March Higher

March 18, 2019

Equity markets roared back last week after suffering their worst week of 2019. For the week, the DJIA increased 1.10%, despite pressure on shares of Boeing after the tragic loss of 157 lives in another Boeing 737 Max 8 crash in Ethiopia, prompting countries to respond by grounding the new series of planes around the world. The broader-based S&P 500 jumped 2.95% and the tech-heavy NASDAQ increased 3.81%. International markets also experienced a strong week with the MSCI EAFE increasing 2.81% and emerging markets closing higher by 2.67%. Mixed economic data for the week pushed yields lower on US Treasuries. The yield of the 10yr Treasury closed at 2.59%, down from 2.62% the week prior. Gold prices rebounded to about $1,300oz. while WTI crude pushed above $58 a barrel.

The week began with Monday’s release of both retail sales and food-services which increased 0.2% in January, beating estimates. However, December’s estimate was revised lower showing a 1.6% decline. On Tuesday, the consumer price index (CPI) was released showing an increase of 0.2% in February, matching expectations. Over 12 months, the CPI increased 1.5% giving the Fed plenty of reason to proceed with caution ahead of this week’s FOMC meeting. On Thursday, data was released showing that new home sales in January decreased 6.9% m/m coming in below estimates. On Friday, industrial production ticked up 0.1% in February missing expectations for a 0.4% increase.

The British Parliament undertook a series of votes last week to clear the path toward a “Brexit” deal, which is scheduled to happen on March 29th. Lawmakers rejected the latest agreement potentially setting the stage for a withdrawal without an agreement. The political theater will continue this week with a third vote on the withdrawal agreement, this ahead of the European summit later in the week. Eurozone industrial production rose a stronger-than-expected 1.4%. Manufacturing activity tends to be more sensitive to the economic cycle than services.

Investors will be looking ahead to this week’s meeting of Federal Reserve policy makers. The FOMC is expected to leave rates unchanged when they conclude their two-day meeting on Wednesday. Most expectations are for the Fed to hike rates once in 2019 and once more in 2020, while maintaining their “wait and see” stance adopted in January.

Don’t forget to watch March Madness … a nice diversion from the day-to-day noise of the markets and headline news!

“It’s not how big you are, it’s how big you play.”John Wooden