Weekly Market Commentary(3/19/18) – March Madness

March 19, 2018

Markets remained volatile last week with US equity markets ultimately finishing the week in the red. For the week, the DJIA closed lower by 1.51% while the broader-based S&P 500 finished down 1.20%. International markets finished the week in the green with the MSCI EAFE up 0.22% and MSCI EM up 0.52%. Yields ended the week lower with the 10yr US Treasury closing at 2.85%, down from 2.90% the week prior. Short-term treasury yields, however, continue to push higher with the anticipation of additional FOMC hikes in 2018. The FOMC March meeting will conclude Wednesday with another 25bps hike in the Federal Funds rate likely. Oil ended the week at $62.35 a barrel.

On the economic front, CPI/PPI releases showed inflation of 2.2%/2.8% year over year. CPI (Consumer Price Index) is reported from the consumer’s side while PPI (Producer Price Index) comes from the provider of the services or goods. Both reports were roughly in-line with estimates showing a healthy economy. Housing starts came in below expectations in February. Most of this is probably attributed to a lack of supply available from a tight housing market. Permits are up 6.5% from a year ago which should forecast more supply hitting the market in the near-future.

A day doesn’t pass without drama being reported out of Washington. Last week’s headlines were dominated by changes once again in the West Wing. Lawrence Kudlow, former Wall Street economist, was named director of the National Economic Council. He is a long-time free-trade advocate and is likely to be a moderating voice against some of the president’s protective instincts. Also this week, Secretary of State Rex Tillerson was replaced with CIA Director Mike Pompeo. The move caught the attention of many publications because of the manor in which the change was made. The President and his Chief of Staff John Kelly have settled on some type of truce, leaving him in his current position when it looked like he might depart as well. Ultimately, markets will continue to disregard the Washington drama if earnings and the economy continue to chug along.

The year of the upsets –  according to the tens of millions of men’s NCAA Tournament brackets submitted online, none survived the opening round. For the first time in history, a 1-seed was upset in the first round with 16thseeded University of Maryland-Baltimore County beating 1st seeded University of Virginia on Friday.

“It’s never an upset if the so-called underdog has all along considered itself the better team.” – Woody Hayes

 

NDS Weekly Commentary(3/12/18) – Markets Push Higher … Wage Growth Slows

March 12, 2018

Stocks pushed nicely higher last week as the Labor Department reported that the economy added 313,000 jobs during the month of February (well ahead of estimates of 200,000). Unemployment remained unchanged at 4.1% for the fifth straight month. The report eased investors’ concerns that inflation was accelerating too quickly as year-over-year wage growth in February was 2.6% (less than January’s rate of 2.9%). Also tempering investors’ concerns was the fact that steel and aluminum tariffs imposed by the government were not as restrictive as originally thought (Canada and Mexico are excluded, for now). The synchronized global recovery continues.

For the week, the DJIA gained 3.34% while the S&P 500 finished higher by 3.59%. Developed international markets also pushed ahead as the MSCI EAFE index closed up 1.88% for the week. Emerging markets added-on 2.18% for the week. Despite the ‘correction’ experienced in early February, the DJIA is up 3.0% for the year-to-date period while the S&P 500 is higher by 4.6% for the same period. Fixed income, represented by the Bloomberg/Barclays Aggregate, finished the week relatively flat. As a result, the 10 YR US Treasury closed at a yield of 2.90% (up 4 bp from the previous week’s closing yield of 2.86%). Gold prices inched higher by $1.30 to close at $1,322.40/oz. Oil prices were relatively flat last week as oil closed at $62.05/bbl.

The week ahead has a number of economic releases – CPI/PPI, Retail Sales, NY/Philly Fed manufacturing surveys, Import prices, Housing starts, Industrial production and Preliminary Feb. consumer sentiment. Fourth-quarter earnings reports will continue as we expect earnings to be relatively positive versus expectations. Friday could prove to be a volatile day as ‘quadruple witching’ takes place where market index futures contracts, market index options contracts, stock options contracts and stock futures contracts all expire. Quadruple witching typically results in increased volatility. Fortunately this only happens 4 times per year – on the third Friday of March, June, September and December.

As always, we plan to look through the day-to-day news and focus on longer-term objectives. Investors should stay the course and stick close to their long-term asset allocation targets.

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

“The only difference between a good shot and bad shot is if it goes in or not.”Charles Barkley

 

Trade War Concerns

March 5, 2018

Market volatility continued again last week as Fed Chairman Jerome Powell addressed Congress making his first public comments since taking office. His remarks affirmed his commitment to gradually increasing rates while his optimistic view of the economy raised concerns that the FOMC might increase rates four times in 2018(expectations are for three rate hikes this year). In addition, President Trump’s pledge to impose tariffs on foreign steel and aluminum increased concerns by investors that a trade war could negatively impact global growth. This threat could pressure stocks in the near-term, but we feel the global economic expansion remains intact.

The S&P 500 and the DJIA declined 1.98% and 2.97% respectively. Internationally, the MSCI EAFE index was off 2.86% and emerging markets were down 2.80% as several European countries threatened retaliatory tariffs. Rates on the 10 year U.S. Treasury declined slightly from 2.88% to 2.86%. Oil moved lower for the week closing at $61.24 a barrel.

Economic news for the week was mixed – housing sales in January slowed to 593k missing estimates; durable goods declined 3.7%m/m missing estimates of a 2.0% decline; 4Q GDP was revised down to +2.5% from its preliminary estimate of 2.6%; ISM mfg. PMI which measures the manufacturing environment had a reading of 60.8 surpassing estimates. This week look for reports on Friday on February job growth and wage growth which could strengthen the Fed’s resolve in raising rates.

“No nation was ever ruined by trade.” – Benjamin Franklin

 

Rates on the Rise

February 26, 2018

Markets were volatile last week as investor focus was on the latest Federal Open Market Committee minutes released on Wednesday. The 10yr US Treasury hit a multi-year high (2.94%) after the release before ending the week at a yield of 2.88%. The FOMC acknowledged the strengthening growth outlook in the US with forecasts receiving a boost from tax cuts. They also indicated that the equity market’s recent correction earlier this month is unlikely to affect future hikes this year.

For the week, the S&P 500 closed higher by 0.58%, while the DJIA increased 0.36%. International equities were mixed with developed international closing down 0.44% and emerging markets up 1.42%. Oil pushed higher last week following news that inventories declined when expectations were for an increase. WTI closed at $63.55 a barrel.

Earnings season is coming to a close as 90% of S&P 500 constituents have reported Q4. Earnings have been positive relative to estimates with over 70% beating earnings estimates. Earnings have grown 16.3% year-over-year while revenues are up 7.9%.

Let’s make it a good week!

“I didn’t lose the gold. I won the silver.” Michelle Kwan

 

ND&S Weekly Commentary (2/20/18) … Bounce Back

February 20, 2018

Equity markets rebounded last week posting their best weekly return since 2013 … although we point out the week prior, the market’s decline was one of the worst in several years. History shows that sharp moves in the markets are typically clustered together and why market-timing is ultimately a fruitless endeavor.

For the week, the DJIA returned 4.36% while the broader-based S&P 500 closed higher by 4.37%. International equities also marched higher with the MSCI EAFE and MSCI EM up 4.28% and 5.04%, respectively. However, with equities bouncing back so fast, we are maintaining a bit of caution as history shows markets typically make a retest of the previous lows before moving structurally higher. For long-term investors, the bull market for equities remains intact.

Yields continued their move higher last week with the 10yr US Treasury trading as high as 2.94% before settling at 2.87%. The Barclay’s Aggregate (the most common bond proxy) is down over 2% on a total return basis YTD, but we are tempted to extend our duration at these levels. Inflation expectations have been the main cause for rising rates and the brief equity selloff which started on January 26th. The release of the Consumer Price Index (CPI) showed inflation rising 0.5% in January, exceeding expectations and now ahead 2.1% on an annual basis. So-called “core” inflation, which excludes food and energy, rose 0.3% in January and is up 1.8% y/y. The rise in inflation is bittersweet, on one hand it means the economy is strong and growing, but on the other hand consumer costs are on the rise. Despite the tough environment for bonds, it is important to remember that bonds will provide safety if equity markets disappoint.

Economic news in the week ahead will be fairly light due to the holiday-shortened week. 68 companies in the S&P 500 will report earnings this week. Key releases include Walmart (WMT), Home Depot (HD), Medtronic (MDT) and a number of utility companies. The release of the January FOMC meeting minutes will be on Wednesday. Current policy calls for 3 federal funds rate increases in 2018.

“Leave nothing for tomorrow which can be done today.”Abraham Lincoln

Weekly Commentary (2/12/18) – Volatility Returns … Just a Correction

February 12, 2018

Ouch! Last week saw stocks give up their 2018 gains … and then some. Markets have now officially ‘corrected’ as the S&P 500 was down 10.2% from the all-time closing high set on January 26th to the close on February 8th. After experiencing the least volatile year on record in 2017, investors are now experiencing a return to volatility in the markets. While never enjoyable, market pullbacks and corrections are quite normal. It is worthwhile to remember that the average intra-year decline for equity markets over the past 30 years has been roughly 14%. The good news is that the economy remains quite strong and earnings growth for 2018 is fairly robust. Lastly, valuations have come down as the forward price-to-earnings multiple is now close to 16X (down from 17.8X at year-end).

For the week, the DJIA lost 5.08% while the S&P 500 finished lower by 5.10%. Developed international markets gave back even more as the MSCI EAFE index closed down 6.19% for the week. Emerging markets were down the most as the MSCI EM index sank 7.14% for the week. Despite the unwelcomed pullback last week, the DJIA and S&P 500 are down just 2% on a year-to-date basis. Fixed income, represented by the Bloomberg/Barclays Aggregate, finished the week relatively flat. As a result, the 10 YR US Treasury closed at a yield of 2.83% (down 1 bp from the previous week’s closing yield of 2.84%). Gold declined $20.60 to close at $1,313.10/oz. Oil prices dropped $6.25 to close the week at $59.20/bbl.

The weeks ahead will most likely test investors’ patience as the markets attempt to find their footing. Past corrections have often led to a retest of the previous lows, and we suspect that last week’s lows will hold and markets will finish the year higher.

As always, we plan to look through the day-to-day news and focus on longer-term objectives. Investors should stay the course and stick close to their long-term asset allocation targets.

“You get recessions, you have stock market declines. If you don’t understand that’s going to happen, then you’re not ready, you won’t do well in the markets.”Peter Lynch

 

Good News Bad News

February 5, 2018

The U.S. equity markets capped their worst week in roughly two years on Friday, with the S&P 500 falling 2.1% and the DJIA down 2.5%. For the week, the indexes were down 3.9% and 4.1% respectively. International equities were only slightly better for the week as the MSCI EAFE closed lower by 2.74% and MSCI EM down 3.29%. Outside of some disappointing company specific earnings, positive economic news was the cause for concern.

The monthly jobs report on Friday was better-than-expected with 200,000 new jobs created and average hourly wages for private sector workers rose 2.9% in January, notching their largest year-over-year increase since June 2009. However, the news reinforced expectations of rising inflation and a growing market consensus that the Federal Reserve may raise short term interest rates more than 3 times this year. For the week, the rate on the 10 year U.S. Treasury rose from 2.66% to 2.84%.

Generally speaking, economic news continues to be good and corporate earnings continue to rise. With nearly half of S&P 500 companies reporting fourth quarter earnings, 80% have exceeded analysts’ revenue expectations and global economic growth looks stronger than it has been in years. Although markets seem overdue for a correction, there does not seem to be any signs of a recession. We believe any pullback will be likely short-lived. Stay the Course.

“Before anything else, preparation is the key to success.”Alexander Graham Bell

 

Groundhog Day

January 29, 2018

Before the opening bell on Friday, the US Gross Domestic Product (GDP) was reported at 2.6%, lower than the consensus estimate of 2.9%. The resilient market didn’t even flinch. Last week, the DJIA, Standard & Poor’s 500 and the tech heavy NASDAQ all climbed over2% to new record highs. International markets, benefitting from a weaker dollar, also performed well with EAFE up 1.5% and the MSCI Emerging Market climbing 3.3%.

The stock of the week was Intel (INTC), which was up over 9% on Friday after reporting fabulous 4th quarter earnings and guidance.

Rising interest rates remain a threat to future economic growth and stock market valuations. The yield on the 10 year US Treasury closed at 2.66% on Friday, a big jump from 2.40% where it ended last year. We continue to expect slightly higher rates as the Fed tactfully raises short-term rates and unwinds its colossal balance sheet.

This week is filled with economic news and earnings announcements. President Trump’s first State of the Union address is on Tuesday and he’ll be his supercilious self pushing his infrastructure plan and America first. On Wednesday, Janet Yellen, the Fed chairperson will bid farewell and probably hint that a March rate hike is on the way.

We continue to stress portfolio diversification with prudent asset allocation and quality holdings.

Happy Super Bowl week and GO PATS!

It’s the same thing your whole life: “Clean up your room. Stand up straight. Pick up your feet. Take it like a man. Be nice to your sister. Don’t mix beer and wine, ever.” Oh yeah: “Don’t drive on the railroad track.”

Phil Connors

 

Earnings Season Begins

January 24, 2018

Equity markets pushed higher last week in the face of a US government shutdown which stretched through the weekend. Fourth-quarter earnings began to pick up and so far have been mostly positive versus expectations. Expectations are for earnings to increase 12% against the same quarter a year ago while revenues are expected to increase 7%.

For the week, the S&P 500 climbed 0.88% while the DJIA closed higher by 1.08%. The Russell 2000 representing US small companies inched higher by 0.36%. International equities continued their advance with the MSCI EAFE and MSCI EM rising 1.25% and 2.02%, respectively. Yields moved higher as investors continue to move out of bonds in anticipation of higher inflation and continued global growth. The 10yr US Treasury closed at its highest yield since March 2017, closing the week at 2.64%. Oil markets saw little change last week closing at $63.38 a barrel.

Economic news for the week was mostly positive – industrial production came in at 0.9% month over month exceeding estimates of 0.4%; housing starts fell short of estimates (1.275mm) declining to a seasonally adjusted annual rate of 1.192 million; jobless claims were 220,000 as labor markets continue to show strength.

This week will continue with a deluge of company announcements with 44 S&P 500 companies scheduled to report. There will also be an advance estimate of 4q17 GDP and economic reports on durable goods and home sales.

Let’s make it a good week!

“It’s not what happens to you, but how you react to it that matters.” – Epictetus

 

Weekly Commentary (1/15/18) – Déjà Vu All Over Again

January 16, 2018

So what’s new? Markets finished higher last week. As Yogi Berra would say – “It’s déjà vu all over again.”

For the week, the DJIA gained 2.0% while the S&P 500 finished ahead by 1.6%. Developed international markets also moved higher as the MSCI EAFE index closed up 1.2% for the week. Emerging markets also gained as the MSCI EM index finished higher by 0.6%. Fixed income, represented by the Bloomberg/Barclays Aggregate, finished the week lower by 0.2%. As a result, the 10 YR US Treasury closed at a yield of 2.55% (up 8 bp from the previous week’s closing yield of 2.47%). Gold advanced $18.05 to close at $1,337.64/oz. Oil prices advanced $2.86 to close the week at $64.30/bbl.

Investors continue to show confidence in the markets as economic news once again points to a global economic recovery. The December consumer price index (CPI) showed headline CPI up 2.1% year-over-year (y/y) with core CPI up 1.8% y/y … all generally in-line with expectations. Despite energy prices being up 6.9% y/y, inflation numbers continue to be fairly tame. Ultimately the Fed’s easy money policies will produce higher prices, but stock prices should fare well in this low inflation, reasonable growth environment. The advance in bond yields will most likely be muted until inflation and economic growth pick up materially from today’s levels.

The week ahead will see more earnings and economic releases. We expect earnings releases to continue to beat expectations (as did JP Morgan, BlackRock and several other S&P 500 companies last week). Economic news this week will include housing starts, industrial production, NY/Philly Fed manufacturing surveys and January preliminary consumer sentiment.

As always, we plan to look through the day-to-day news and focus on longer-term objectives. Investors should stay the course and stick close to their long-term asset allocation targets.

We hope that everyone had a happy and reflective Martin Luther King Jr. Day.

“Life’s most persistent and urgent question is, ‘What are you doing for others?’”- Martin Luther King Jr.