ND&S Weekly Commentary 10.05.20 – President & First Lady Test Positive to Covid-19

October 5, 2020

The big story of the week was President Trump and First Lady tested positive for Covid-19. The news only added to the uncertainty and turmoil around the election. September’s job growth was by far the lowest since the recovery from last March. A $2.2 trillion Democratic stimulus plan was passed by the House on Thursday evening in a 214-207 vote. Senate Majority Leader Mitch McConnell has opposed the plan and hopefully more negotiations will follow.

For such a distressful week, the financial markets performed surprisingly well. The Dow Jones Industrials rose 1.9%, the S&P 500 and the Nasdaq each gained 1.5%, and small companies, as measured by the Russell 2000, gained 4.4%. Foreign markets had similar gains as developed equities (EAFE) returned 1.6% and emerging equities (EM) were up 2.2%. The yield on the 10YR U.S. Treasury rose slightly to 0.70% from 0.66% the previous week. Gold prices closed at $1,903/oz. which was up over 2% on the week.

The U.S. economy added 661,000 jobs in September, missing estimates of 800,000 new jobs. However, the unemployment rate came in better than expectations improving to 7.9% from 8.4% in August. The labor force participation rate decreased 0.3% which serves as a sign people are leaving the labor force. Personal income decreased 2.7% in August slightly missing estimates as pandemic related assistance programs slowed down. Lawmakers are still struggling to reach an agreement for injecting more fiscal stimulus into the economy. Airlines, hospitality companies and banks continue to announce furloughs and job cuts. On the positive side, consumer confidence remained strong followed by a decent ISM manufacturing PMI release.

U.S. stock valuations remain historically high with a forward price-to-earnings (P/E) multiple for the S&P 500 at 23x. Technology and consumer discretionary companies have led the way for markets in 2020 while more cyclical companies have been struggling. Energy companies have really been hurt by sluggish global oil demand and concerns about a new stimulus package that has sent crude oil prices down below $38.00 per barrel.

There will be a few economic data releases to keep an eye on this week. On Monday the ISM services index will be reported, the JOLTS job openings on Tuesday, and on Wednesday, the minutes of the September Federal Reserve meeting.

We hope and pray for the president and first lady and all those affected by the coronavirus a speedy and full recovery. We remain a bit cautious about financial markets near-term as focus should remain on asset allocation, valuations and high-quality assets.

“Although the world is full of suffering, it’s full of also overcoming it.” – Helen Keller

ND&S Weekly Commentary 9.28.20 – Markets Pull Back on an Uptick in COVID-19 Cases

September 29, 2020

Market volatility continued last week with equity markets pulling back for a fourth consecutive week. Equity markets made several attempts to rebound with investors’ hopes tied to another stimulus package. Complicating the outlook are an uptick in coronavirus cases in the U.S. and Europe, social unrest and the upcoming election season.

For the week, the S&P 500 declined 0.61% while the DJIA was down 1.75%. Foreign markets struggled on the week with developed markets, as measured by the MSCI EAFE index, falling 4.21% and emerging markets (MSCI EM) down 4.42% for the week. Fixed income, represented by the Bloomberg/Barclays Aggregate, finished the week slightly lower by 0.09%. The 10 YR US Treasury closed at a yield of 0.66%. Gold prices declined last week to $1,860/oz.

It was a quiet week for economic releases. On Tuesday, the IHS Markit Flash U.S. Composite Outlook PMI for September registered a reading of 54.4. Both U.S. manufacturing and services readings signified an expansion from the previous month. On Friday, new orders of manufactured durable goods increased 0.4% in August, which missed expectations. In congressional testimony last week, US Federal Reserve Chairman Jerome Powell said, “we remained committed to using our tools to do what we can, for as long as it takes, to ensure that the recovery will be as strong as possible, and to limit lasting damage to the economy.” Chair Powell also noted that, “economic activity has picked up from its depressed second-quarter level”. Interest rates are likely to remain low for the foreseeable future as a result of the monetary policy backdrop.

Equity markets have pulled back almost into correction territory during the month of September. We strongly believe that investors should stay diversified across a variety of asset classes with a slight defensive bias to long-term targets.

“The past always looks better than it was. It’s only pleasant because it isn’t here.”Finley Peter Dunne

ND&S Weekly Commentary 9.21.20 – Selling Continues for a Third Straight Week

September 21, 2020

Stocks sold off last week helping to push all three major U.S. indexes to a third consecutive weekly loss. Investors continued to take profits in technology stocks as the Nasdaq officially entered correction territory with the index now over 10% below its most recent high set on September 2nd. Anxiety surrounding the upcoming elections, geopolitical tensions, the lack of containment for covid-19, absence of a new stimulus package and tepid economic growth have investors on edge. The Fed added a dose of realism as they continued their guidance for easy monetary policy and low interest rates for the foreseeable future.

For the week, the DJIA closed lower by 0.03% while the S&P 500 gave back 0.64%. The Nasdaq declined 0.56%. Small company stocks, represented by the Russell 2000, bucked the trend and finished higher by 2.64% for the week. International stocks provided a bit of ballast last week. For the week, the MSCI EAFE index gained 0.79% while emerging market equities (MSCI EM) jumped 1.59%. Fixed income, represented by the Bloomberg/Barclays Aggregate, finished the week slightly lower by 0.09%. As a result, the 10 YR US Treasury closed at a yield of 0.70% (up ~3 bps from the previous week’s closing yield of ~0.67%). Gold prices closed at $1,952.10/oz – up 0.74% on the week. Oil prices moved materially higher as oil closed at $41.11 – up over 10% on the week.

Economic news released last week was mixed. On Tuesday, the Federal Reserve reported that industrial production for August increased 0.4%, missing expectations for a 1.0% increase. On Thursday, the U.S. Census Bureau reported that housing starts decreased 5.1% month-over-month to a seasonally adjusted annual rate of 1.416 million. Overall, housing starts are up 2.8% from the same time last year. Housing continues to be a bright spot for the U.S. economy. Also on Thursday, the Department of Labor reported that initial jobless claims for the week ending September 12 were 860,000, better than expectations for 875,000 claims. Data released Friday showed that consumer sentiment increased to 78.9 in early September, better-than-expected.

Second quarter earnings season for the S&P 500 is mostly complete with 83.2% of companies reporting a positive earnings surprise. For the 2nd quarter, earnings were down 30.1% year-over-year (in-line with expectations) while revenues were down 8.7% y/o/y (also in-line with consensus). The impact of covid-19 on the worldwide economy is quite obvious in the above numbers.

Markets seem to be fatigued. The passing of Justice Ginsburg will add more drama to the already-contentious presidential election and stock market outlook. With covid-19 deaths in the United States approaching 200,000 and fears of an upcoming spike in cases, any encouraging news on the vaccine front will certainly be welcomed. We urge investors not to overthink the current wall of worry and to stick close to long-term target asset allocations with a slight defensive bias.

RIP Ruth Bader Ginsburg – a true icon and trailblazer whose contributions to equality and justice were enormous.

ND&S Weekly Commentary 9.14.20 – Markets Pull Back

September 14, 2020

U.S. stocks capped off a roller coaster week with a second straight week of declines. For the week, the S&P 500, DJIA and NASDAQ were all down 2.5%, 1.6% and 4.1%, respectively. This pullback has largely been driven by technology stocks which previously led the U.S. markets to all-time highs and elevated valuations. In the last 2 weeks, the S&P 500 and the NASDAQ have lost 4.8% and 7.2%. Thankfully, economic news and corporate earnings have generally surprised to the upside. The worst performing sectors last week were energy and technology and the best sectors were materials and industrials as value stocks outperformed (at least for the week). Challenges still lie ahead for U.S. stocks in the form of economic recovery, U.S./China tensions, economic stimulus, a presidential election and prospects for a Covid-19 vaccine. As a result, expectations are for continued volatility. International equities were mixed on the week as the MSCI EAFE index rose by 1.5% and emerging markets declined 0.7%.

Fixed income markets have been relatively stable with the 10 year U.S. Treasury trading in a narrow range. Last week, the 10 year Treasury rate dropped from 0.72% to 0.67% as investors sought shelter from volatility. One risk to fixed income is an increase of inflation. The Consumer Price Index (CPI) increased 0.4% in August, outpacing expectations. Over the last 12 months, CPI has increased 1.3% and remains low. This week will bring economic reports on retail sales, housing starts and jobless claims. The Federal Open Market Committee (FOMC) meets this week and will perhaps give some guidance on how long they will remain accommodative.

We continue to preach diversification and urge investors to stay close to long-term asset allocations with a slight defensive bias.

Stay Safe

“Perfection is not attainable, but if we chase perfection we can catch excellence.”Vince Lombardi

ND&S Weekly Commentary 9.8.20 – Happy Labor Day

September 8, 2020

U.S. stocks reversed a five week winning streak as investors woke up to the over valuations of large Tech companies. The stock market downturn on Thursday and Friday erased $1.7 trillion in market value. The S&P 500 on Thursday fell 3.5%; however, it is still up 53% from its March lows. The CBOE market volatility index (VIX) surged close to a 10 week high.

For the week, the S&P 500 declined 2.3%, the DJIA was down 1.8% and the tech heavy NASDAQ fell 3.3%. Foreign markets slipped as well with developed markets, as measured by the MSCI EAFE index, falling 2.1% and 6.2% year-to-date. Emerging markets (MSCI EM) lost 1.9% for the week.

The Labor Department reported that the economy regained 1.4 million jobs in August and unemployment declined to 8.4% from 10.2%, which was better-than-expected. The Congressional Budget Office (CBO) released its update to the budget outlook on Wednesday. As expected, there was a sharp deterioration to public finances due to the Covid-19 response with the budget deficit expected to triple to $3.3 trillion. At 16% of U.S. GDP, this would mark the highest deficit since WWII. Much of the deficit are one-time expenses but it will funded by the ever increasing national debt now over $26 trillion. This is a medium to long-term issue that may lead to higher taxes, inflation or a decrease in government spending. This would result in lower economic growth and likely softer equity and bond returns in the future.

US Treasury yields were slightly lower while the US dollar was relatively flat. The yield on the 10 year US Treasury declined to 0.72% from 0.74% the previous week. The Bloomberg gold spot price rose $3.07 to $1,933.98 per ounce and WTI crude oil fell $1.60 to $39.77 per barrel.

The financial markets are faced with several major uncertainties and they may be starting to frighten investors and traders. The uncertainties include the divisive upcoming election, the pandemic, developing a vaccine, and US and China trade relations. A resolved and favorable stimulus bill and the Federal Reserve providing more liquidity through open market bond purchases, would soothe investors’ worries.

We have been concerned about the valuation and concentration of large technology stocks and their effect on the equity markets. With all the unknowns, we expect market volatility to continue so please, stay the course, remain diversified and hold quality assets. During this shortened holiday week, economic data reports will include Consumer Credit, CPI data, and hourly earnings.

“Pleasure in the job puts perfection in work.”-Aristotle

August 31, 2020

Markets continued grinding to new heights last week on strong corporate earnings announcements, emergency FDA approval of a 15 minute rapid Covid-19 test, and a dovish policy shift from the Federal Reserve. For the week, the DJIA increased 2.64%, the S&P 500 rose 3.29%, and the tech-heavy NASDAQ climbed 3.4%. International stocks were also positive on the week with developed country stocks (MSCI EAFE) and emerging markets stocks (MSCI EM) adding 1.69% and 2.76%, respectively.

Federal Reserve Chairman, Jerome Powell, announced last week slight changes on how the Fed views inflation. From their release, “our new statement indicates that we will seek to achieve inflation that averages 2 percent over time. Therefore, following periods when inflation has been running below 2 percent, appropriate monetary policy will likely aim to achieve inflation moderately above 2 percent for some time.” The takeaway from his remarks was the Fed will likely let the economy run hot before raising rates. The immediate result was the yield curve steepened with intermediate and longer term yields moving higher while short-term rates stayed the same or moved slightly lower. The 10yr U.S. Treasury closed at a yield of 0.74%, which is up from 0.64% the week prior.

Economic news was mostly positive last week. New home sales in July, increased 13.9% month over month which greatly exceeded expectations. Manufactured durable goods orders increased 11.2% (230.7 billion) in July, which beat expectations. Lastly, US 2nd Quarter GDP was adjusted higher to -31.7% from last month’s advance estimate of -32.9%. Looking ahead, August’s non-farm payrolls will be released on Friday.

Apple’s 4 for 1 stock split will go into effect on Monday, August 31st which has prompted as change to the price-weighted Dow Jones Industrial Average (DJIA). The diversified industrial, Honeywell (HON), will replace Raytheon Technologies (RTX); biotech, Amgen (AMGN), will replace the pharmaceutical company, Pfizer (PFE). An excellent representation for the last five years and maybe even the past decade, Salesforce (CRM), will replace the oil giant, Exxon Mobil (XOM), which has been a DJIA component since 1928.

Let’s make it a good week!

“Attitude is a little thing that makes a big difference.” – Winston Churchill

ND&S Weekly Commentary 8.24.20 – Markets Mostly Higher, again

August 24, 2020

Markets were mixed last week with most U.S. indices moving higher while international indices gave back a bit of ground. Technology led the way, once again, last week as investors questioned the value/cyclical trade given a lack of progress on fiscal stimulus (it must be an election year …) and disappointing jobless claims. The Fed added a dose of realism as they released minutes from their July meeting – the minutes highlighted the Fed’s concerns for the lack of strength in the broader economy.

For the week, the DJIA eked out a 0.09% gain while the S&P 500 advanced 0.77%. Noteworthy is the fact that the S&P 500 climbed to a record high thanks to its top-heavy weighting in technology stocks. The Nasdaq jumped 2.69%. Developed international markets lost a bit of ground. For the week, the MSCI EAFE index lost 0.99% while emerging market equities (MSCI EM) were lower by 0.10%. Small company stocks, represented by the Russell 2000, finished in the red by 1.59% for the week. Fixed income, represented by the Bloomberg/Barclays Aggregate, finished the week higher by 0.27%. As a result, the 10 YR US Treasury closed at a yield of 0.64% (down ~7 bps from the previous week’s closing yield of ~0.71%). Gold prices closed at $1,934.60/oz – down 0.12% on the week. Oil prices were relatively flat last week as oil closed at $42.34.

Economic news released last week was mixed. On Tuesday, the U.S. Census Bureau reported that housing starts jumped 22.6% month-over-month to a seasonally adjusted annual rate of 1.496 million, exceeding expectations for a rate of 1.25 million. Housing continues to be a bright spot for the U.S. economy. On Thursday, the Department of Labor reported that initial jobless claims for the week ending August 15th were 1,106,000, missing expectations for 923,000 claims. On Friday, the HIS Markit Group reported that the Composite PMI Output Index for August hit an 18-month high at 54.7, up from 50.3 in July. Also on Friday, the National Association of Realtors reported that existing homes sales rose 24.7% in July, exceeding expectations.

The markets seem to be at a crossroad … with some markets hitting an all-time high, investors are rightly concerned about extended valuations and the upcoming election. Of course, any encouraging news on the vaccine front will likely push markets higher. We urge investors not to overthink the current wall of worry and to stick close to long-term target asset allocations.

Enjoy the last week of August!

“Success is how high you bounce when you hit bottom.” – George S. Patton


NDS Weekly Commentary (8.17.20) – Market Advance Broadens

August 17, 2020

Equity markets continued their advance last week. In the U.S., the DJIA and S&P 500 were up 1.9% and 0.7%, respectively. The NASDAQ was basically flat as technology stocks, which have been leading the markets, took the week off. So far in August, economically sensitive sectors like financials, industrials and energy have been bouncing back on signs the economy is starting to recover. Industrials and energy were the best performing sectors last week, while utilities and real estate were the worst. A broadening in the stock market is a good sign. International equity markets also advanced last week with the MSCI EAFE up 2.5% and emerging markets up 0.4%.

Economic news was mostly positive as initial jobless claims fell below 1million for the first time since March and retail sales were up 1.2%, a third consecutive monthly gain. Most economists are expecting the 3rd quarter GDP to rebound at an 18.3% annual rate. Consumers are still cautious, however, as there are still regional spikes in the Coronavirus and uncertainty over the return to schools. Data shows that credit card spending slowed in late July and early August compared to a year ago. Core CPI rose 0.6% in July, tripling expectations for a 0.2% monthly gain. Fixed income markets reflected the stronger economic numbers with the 10 year U.S. Treasury yield increasing from 0.57% to 0.71%.

We still expect markets to be volatile and dominated by Coronavirus news and election headlines. A diversified portfolio should continue to serve you well.

“Well done is better than well said.” – Benjamin Franklin

ND&S Weekly Commentary 8.10.20 – Second Round of Stimulus Hopes Lifts Stocks

August 10, 2020

US stocks recorded solid gains last week on hopes that another round of stimulus would be announced and as employment data showed that the economy added more jobs than expected last month. Washington continues to haggle over the amount of stimulus and its beneficiaries. Without question, fiscal and monetary stimulus have been the drivers of our economic progress and the stock market’s amazing rebound since the pandemic began. More relief is needed for businesses and consumers until Covid-19 is better under control.

The economy added 1.8 million jobs in July and unemployment fell to 10.2% from 11.1% in June, much better than expected. Despite the improved jobs report, unemployment is near its peak of 10.6% reached during the recession of 2008. With Washington unable to agree on a stimulus package, President Trump, on Saturday, preemptively used executive powers to extend unemployment benefits, provide a payroll tax holiday and other relief measures. Democrats claim foul and question the legalities of the executive orders, while Republicans declare that the Democrats are holding back the desperately needed financial relief for political gain.

The US leads the world in COVID-19 infections and deaths. Over 5 million people have been infected and the virus continues to spread. The development of vaccines and better treatments and care, offer hope that we can manage through this crisis. However, with schools and businesses reopening the fear of a second wave is a major concern.

For the week, the Dow Jones Industrial Average rose 3.8%, the S&P 500 gained 2.5% and the tech-heavy Nasdaq was up 2.5%.The Nasdaq topped the 11,000 level for the first time on Thursday. The big winner was small US companies as the Russell 2000 surged 6%. Foreign markets have been benefiting from a weakening US dollar. Developed market stocks, as measured by EAFE, increased 2% while emerging markets rose 1%. The 10 year US Treasury ended the week at a historic low yield of .57%.

There are also renewed concerns over trade with China. On Thursday, President Trump signed executive orders which in effect impose a deadline for a US company, possibly Microsoft, to purchase TikToK’s U.S. operations. China is opposed to US companies taking advantage of the situation. Our economic concerns, political instability and tensions around the globe are reflected in the market for safe-haven investments like gold. The price of gold continues to rise at $2,031/oz., the ninth consecutive week of gains.

We are surprised by the resiliency of the financial markets and are cautious about the near term. Nevertheless, a globally diversified portfolio with a bias towards dividend income, and keeping a close eye on risks, will pave the way to reasonable investment returns.

The week ahead inflation numbers will be reported on Tuesday and Wednesday, weekly unemployment claims on Thursday and retail sales, business inventories and consumer sentiment on Friday.

“The leader is one who, out of clutter, brings simplicity….and out of discord, harmony…., and out of difficulty opportunity.” —Albert Einstein

Big Tech Survives the Week Pushing Major Indexes Higher

August 3, 2020

Major indices pushed higher last week on the back of positive earnings from tech titans – Amazon, Apple and Facebook. Despite contentious anti-trust hearings Wednesday on Capitol Hill, the mega-tech companies came through earnings relatively unscathed even with high expectations coming in.

On the week, the S&P 500 increased 1.75% while the DJIA slipped 0.15%. Small companies represented by the Russell 2000 increased 0.89%. International markets were volatile with developed markets giving back 2.12% and emerging markets increasing 1.77%. The yield on the on the 10yr US Treasury declined to 0.55%. Gold prices continued to advance closing at $1965/oz. marking a 3.3% advance on the week. Oil (WTI) pulled back to $40.25 per barrel.

U.S. economic data varied last week. Manufactured durable goods orders increased 7.3% in June, beating expectations. The Bureau of Economic Analysis reported that the economy contracted a “post-depression” record 32.9% in the 2nd quarter which was actually better-than-feared. Analyst expectations were for a 34.5% contraction. The economy likely bottomed out at the end of April/beginning of May so expectations are for a record advance in GDP in the 3rd quarter. Consumer spending increased 5.6% in June, outpacing expectations for a 5.2% increase. On the negative side, jobless claims increased for the second week in a row while personal income declined 1.1% in June. There will be reports released this week on manufacturing and services PMIs and July U.S. employment.

Earnings continue to come in well ahead of expectations. 83.9% of companies have reported a positive EPS surprise. Earnings growth is down roughly 33.4% year over year vs expectations of an overall decline of 37.7%. Revenues have declined 9% year over year versus expectations of a 10.5% decline. Earnings season will continue this week with CVS and Disney among those scheduled to report.

We anticipate markets taking a breather here. With earnings season more than half way over, investor attention will begin turning to COVID-19 response and the upcoming election. We are sticking close to our investment policy targets and selectively adding to dividend growth opportunities where prudent.

“If all economists were laid end to end, they’d never reach a conclusion.” – George Bernard Shaw