ND&S Weekly Commentary (3.15.21) – Equities Cheer Stimulus
March 15, 2021
Equity markets returned to record levels last week supported by fiscal stimulus and tempered inflation fears.
For the week, the DJIA advanced 4.17%, the S&P 500 gained 2.69% and the tech-heavy Nasdaq closed higher by 3.12%. International markets were also positive as the MSCI EAFE index (developed markets) closed higher by 3.00% while emerging market equities (MSCI EM) increased 0.70%. Small U.S. stocks, represented by the Russell 2000, soared by 7.36% for the week. Fixed income, represented by the Bloomberg/Barclays Aggregate (AGG), finished the week lower as the yield curve continued to steepen. Year-to-date, the AGG is down 3.35%. The 10 YR US Treasury closed at a yield of 1.64% (up ~8 bps from the previous week’s closing yield of ~1.56%). Gold prices closed at $1,705/oz. – up 1.27% on the week. Oil (WTI) finished at $65.56/bbl., down 0.73%.
Congress passed another massive relief package along party lines last week bringing the total to $2.8 trillion in stimulus since December 2020. Markets are expecting accelerating U.S. growth in 2021 but one of the feared outcomes is higher inflation. The U.S. Bureau of Labor Statistics reported last week that the Consumer Price Index (CPI) increased 0.4% in February matching expectations. This follows a 0.3% advance in January. On Friday, they reported that the Producer Price Index (PPI) increased 0.5% also matching expectations. So far, the economic data has not signaled runaway inflation but the bond market has begun to discount higher inflation with the recent spike in rates. This week, look for reports on retail sales, housing starts, and consumer sentiment. Additionally, the Federal Open Market Committee (FOMC) will have their March meeting and will host a press conference Wednesday at 2pm. They will need to strike a balance between offering an optimistic assessment of the economy while also reassuring that the recovery doesn’t overheat the economy causing a rapid rise in inflation.
Equity markets have started 2021 strong as the world economy has continued to heal from the Covid-19 pandemic. A rotation has begun to take hold from tech-heavy equities that have benefited from a shutdown to more cyclical sectors that would benefit from a reopening. We have been broadening out equity exposure within the U.S. and also outside the U.S. (both developed and emerging markets). We will continue to hold below-average duration exposure within fixed income as the potential for higher rates will weigh on bond prices.
March Madness tips off this week … a nice diversion from the day-to-day noise of the markets and Covid-19. Good luck on all your bracket picks and let’s all root for some upsets!
“The secret of happiness is something to do.” – John Burroughs
Weekly Commentary (03/08/21) – Markets Finished Mixed on a Volatile Week
March 8, 2021
Markets were mixed last week as rising interest rates muted investors’ enthusiasm for high growth stocks.
For the week, the DJIA advanced 1.85% while the S&P 500 gained 0.84%. The tech-heavy Nasdaq gave back 2.05%. International markets were also mixed with the MSCI EAFE index (developed markets) closed lower by 0.47% while emerging market equities (MSCI EM) inched higher by 0.06%. Small company stocks, represented by the Russell 2000, finished lower by 0.38%. Fixed income, represented by the Bloomberg/Barclays Aggregate, finished the week lower as the yield curve continued to steepen. As a result, the 10 YR US Treasury closed at a yield of 1.53% (up ~9 bps from the previous week’s closing yield of ~1.44%). Gold prices closed at $1,698/oz – down 1.74% on the week. Oil prices rose 7.46% and closed at $66.09/bbl.
Economic news released last week confirmed an improving economy and jobs market. On Monday, the Institute of Supply Management (ISM) reported that the manufacturing purchasing managers’ index (PMI) for February increased 2.1 % to 60.8%, exceeding expectations for a 58.6% reading. Manufacturing has been in expansion mode for nine straight months. On Wednesday, the ISM reported that the Services PMI for February fell 3.4% to 55.3%, missing an expected reading of 58.7%. On Thursday, the U.S. Commerce Department reported that new orders for durable and non-durable manufactured goods for January advanced 2.6%, outpacing expectations for a gain of 2.1%. Adding to January’s favorable report was an upward revision to December’s reading from 1.1% to 1.6%. Also on Thursday, the Department of Labor reported weekly initial jobless claims (for the week ending February 27) of 745,000, below consensus of 750,000 claims. On Friday, the Labor Department reported that 379,000 jobs were added in February, much higher than expectations for a gain of 210,000 jobs. Unemployment declined slightly to 6.2% (consensus was for a 6.3% rate). The labor force participation rate remained unchanged at 61.4%.
Economic and market fundamentals remain reasonable, and the news on the vaccine front has been encouraging. We think interest rates will take a breather from their jump higher, and that should help to settle the weakness in growth stocks, particularly technology. We suggest investors stay close to their long-term target asset allocations (stay underweight fixed income and be market weighted to slightly higher-than market weight in equities). Let’s make it a good week!
“Sometimes things aren’t clear right away. That’s where you need to be patient and persevere and see where things lead.” – Mary Pierce
ND&S Weekly Commentary 3.1.21 – Higher Rates Rattle Equity Markets
March 1, 2021
Equity markets retreated last week as bond yields rose. The yield on the 10 year U.S. Treasury note settled at 1.45% on Friday from a weekly high of 1.51%. This represents an increase of 11bps from the previous week. For the month of February, the 10 year yield rose 0.37 percentage points, the largest one month increase in yield since November 2016. Investors’ concerns seemed to center around possible higher inflation and higher U.S. debt levels. As a result, equity prices for the week declined across the board with the DJIA, S&P 500 and NASDAQ down 1.7%, 2.4% and 4.9%, respectively. International equities also declined with the MSCI EAFE dropping 2.8% and the MSCI Emerging Markets index down 6.3%. The best performing sector last week was energy as oil prices continued to stay above $60 a barrel. The worst performing sector, as might be expected with rates rising, was utilities. Gold also declined last week to $1,743/oz. as a stronger dollar and higher yields weighted on gold prices.
Economic data released last week was mostly better than expected. The U.S. economic growth rate was revised higher for the 4th quarter to 4.1%. Durable goods orders increased 3.4% in January which easily beat estimates. Personal income surged 10%, while spending rose 2.4% as additional stimulus was received in January. This week’s economic news will include ISM services and manufacturing indexes. The highlight for the week will be the February jobs report which is expected to show continued improvement in jobs. Expectations are for an additional 150,000 jobs, an improvement over last months’ number of only 49,000 jobs. Moving forward economic numbers should start to strengthen as the vaccine rollout accelerates and additional stimulus is approved.
“I believe that every human mind feels pleasure in doing good to another.” – Thomas Jefferson
ND&S Weekly Commentary 2.22.21 – Bond Prices Thaw
February 22, 2021
Equities finished mostly lower during the shortened President’s Day week as investors focused on the post pandemic recovery and the pending stimulus plan. Though there were mixed economic signals reported, the Federal Reserve advocated that the proposed $1.9 trillion stimulus package be passed which they feel is desperately needed and would not overheat the economy.
For the week, the Dow Jones Industrials rose (DJIA) 0.16%, the broader-based S&P 500 dipped 0.68% and the tech-heavy Nasdaq slid 1.54%. International equities were modestly higher with developed (MSCI EAFE) and emerging markets (MSCI EM) up 0.28% and 0.09%, respectively. Smaller companies also weakened with the Russell 2000 declining 0.98%. However, since the small cap rally began last September, the Russell 2000 is up 55% while the S&P 500 returned 21%. Inflation expectations have been affecting the bond market, steepening the yield curve and eroding bond prices. The yield on the 10 year U.S. Treasury jumped to 1.34% from 1.20% the previous week. The iShares 20+ Treasury Bond ETF (TLT) is down 9% year to date. As a result of the big freeze in Texas, U.S. crude oil rose above $60 per barrel for the first time in over a year before closing at $59.
Thus far, 84% of the S&P 500 companies have reported 4th Quarter results with 71% beating revenue estimates and 79% beating on earnings. Analysts are now expecting a 21% increase in S&P 500 company earnings in 2021.
On the economic front, the weekly jobs report disappointed with 861,000 Americans having filed for unemployment, trending higher than the previous weeks. Existing home sales continued to increase in January rising 0.6% from December to a seasonally adjusted rate of 6.69 million annualized units according to the National Association of Realtors. January retail sales surged 5.8% YOY way above expectations thanks to additional fiscal stimulus and e-commerce. The purchasing manager’s index for services and manufacturing from IHS Markit rose to 58.8 in February from 58.7 last month, the strongest reading in nearly six years. As for the pandemic, inoculations are proceeding rapidly and a study shows that Pfizer’s vaccine is 85% effective with just one dose and it can be kept at warmer temperatures than originally thought.
Taking into account our improving economy, huge stimulus and a more than accommodating Fed, we remain cautiously optimistic. The markets have reached all-time highs, the speculative areas of the market are becoming more volatile and margin debt has soared over 40% since last year. We strongly recommend a well-diversified and balanced portfolio made up of high quality holdings.
This week’s economic reports include the January leading indicator index, consumer confidence, durable goods orders and personal income and spending.
“Worry is the interest paid by those who borrow trouble.” — George Washington
ND&S Weekly Commentary 2.16.21 – Equity Markets Grind to New Highs
February 16, 2021
Equity markets continued to grind higher last week. For the week, the DJIA increased 1.11% while the broader-based S&P 500 was up 1.28%. Small-cap U.S. equities (Russell 2000) continued their recent run to close higher by 2.54%. International markets also enjoyed a strong week as developed markets (MSCI EAFE) and emerging markets (MSCI EM) jumped 2.09% and 2.41%, respectively. The yield curve continued to steepen last week as the 10yr U.S. Treasury closed at a yield of 1.20, up slightly from 1.19 the week prior. Yields for longer maturity bonds had a slightly higher increase. Gold held steady on the week, closing at $1,816/oz. Oil (WTI) closed the week at $59.73/ barrel.
Macroeconomic updates were limited last week. On Wednesday, the Consumer Price Index (CPI) increased 0.3% in January, matching expectations. Over the 12 months, core CPI has risen a modest 1.4%. Weekly jobless claims have remained elevated, with last week’s number at 793,000. Federal Reserve chairman Jerome Powell gave a presentation to the Economic Club of New York last week. Powell indicated that the Fed has no plans to raise rates anytime soon, citing their focus on recovery in the labor market and inflation currently below their 2% target. Additionally, Dr. Tony Fauci spoke on the Today Show last week and shared his belief that there would be enough vaccines available by the middle of the summer for anyone who wants to get one.
Earnings season continued to progress largely characterized by better-than-expected results. With roughly 75% having reported so far, according to data from FactSet Research, blended earnings-per-share and revenues for the S&P 500 have increased 2.8% compared with the same quarter last year. Q4 earnings are exceeding expectations by 18%. There will be more announcements this week with CVS Health and Walmart among those scheduled.
Economic news and corporate earnings results have been encouraging. This week, there will be reports on retail sales, industrial production, housing and manufacturing. We believe a slight defensive stance is warranted in equity markets as they have moved meaningfully higher over the last several months. We will continue to add to opportunities down the U.S. market cap structure and to international markets as valuations are more reasonable and those areas are more exposed to an economic reopening.
“Truth will ultimately prevail where there are pains to bring it to light.”– George Washington
ND&S Weekly Commentary 2.8.21 – Markets Advance Smarty
February 8, 2021
Markets advanced smartly last week as investors keyed in on better-than-expected earnings and economic news as well as hopes for a massive $1.9T stimulus package from Washington.
For the week, the DJIA advanced 3.89% while the S&P 500 gained 4.65%. The tech-heavy Nasdaq jumped 6.01%. International markets were also strong. For the week, the MSCI EAFE index (developed markets) closed higher by 2.76%% while emerging market equities (MSCI EM) jumped 4.96% (January – March is a seasonably strong period for emerging market equities). Small company stocks, represented by the Russell 2000, finished ahead by 7.70% for the week. Fixed income, represented by the Bloomberg/Barclays Aggregate, finished the week lower as the yield curve continued to steepen. As a result, the 10 YR US Treasury closed at a yield of 1.19% (up ~8 bps from the previous week’s closing yield of ~1.11%). Gold prices closed at $1,810.90/oz – down 1.97% on the week. Oil prices jumped 8.91%.
Economic news released last week confirmed an improving jobs market and decent manufacturing and services output. On Monday, the Institute of Supply Management (ISM) reported that the purchasing managers’ index fell to 58.7% versus an expectation of 60.0%; however, the index pointed to the 8th straight month of expansion. On Wednesday the ISM reported that the Services PMI for January hit 58.7%, better than the expected 56.8% reading. On Thursday, the U.S. Commerce Department reported that new orders for durable and non-durable manufactured goods advanced 1.1%, outpacing expectations for a gain of 0.7%. Also on Thursday, the Department of Labor reported weekly initial jobless claims (for the week ending January 30) of 779,000, below consensus of 830,000 claims. On Friday, the Labor Department reported that 49,000 jobs were added in January, a slight miss against expectations for a gain of 50,000 jobs. Unemployment dropped to 6.3% (consensus was for a 6.7% rate); however, the labor force participation rate fell to 61.4% as 406,000 workers left the labor force.
Economic and market fundamentals remain reasonable, and the news on the vaccine front has been encouraging. We suggest investors stay close to their long-term target asset allocations with a slight defensive bias. The slight defensive bias is warranted in that U.S. markets have moved higher over the past few months without any meaningful setback.
“I just love working hard. I love being part of a team; I love working toward a common goal.” – Tom Brady
ND&S Weekly Commentary 2.1.21 – Volatility Spikes
February 1, 2021
Stock market volatility spiked last week as retail traders piled into stocks like GameStop and AMC in a battle with hedge fund short sellers. For the week, the S&P 500, DJIA and Nasdaq fell -3.3%, -3.3% and -3.5%, respectively. Small U.S. companies represented by the Russell 2000, declined 4.4%. Investors were concerned about volatility, new variants of the Coronavirus and the slow rollout of Covid-19 vaccinations in many states. The softness in the market lately is certainly not earnings related. So far, 50% of S&P 500 companies have reported 4th quarter earnings with 84% beating earnings estimates and 70% beating revenue estimates. This represents a year over year decline of 3.2%.
International equity markets also declined last week with the MSCI EAFE and emerging (MSCI EM) off -3.5% and -4.4%, respectively. International equity markets look attractive as valuations appear to be lower than U.S. markets. Given their more cyclical nature, international equities may have a stronger earnings recovery in the 2nd half of 2021.
Fixed income markets last week were quiet as the FOMC reiterated intentions to keep rates low for an extended period of time. Fed Chairman Jerome Powell also noted in comments that there have been upward blips of inflation, but communicated that the Fed will remain patient in its policy decisions. The yield on the 10 year U.S. Treasury Note remained unchanged at 1.11%.
The economy grew at a 4% pace in the fourth quarter 2020 according to the Bureau of Economic Analysis. The results missed expectations for a 4.2% increase. This week look for economic reports on manufacturing and services – both are expected to have expanded. On Friday, the monthly jobs report should show an increase in a turnaround from December’s decline in payrolls. However, forecasts range widely reflecting broad uncertainty among economists.
We are continuing to monitor asset allocations and rebalancing as necessary.
“Advice is like snow – the softer it falls, the longer it dwells upon, and the deeper it sinks into the mind.” – Samuel Taylor Coleridge
ND&S Weekly Commentary 1.25.21 – Inauguration Week
January 25, 2021
Stocks gained during the holiday-shortened week in observance of Martin Luther King Jr. Day. Investors and traders were optimistic about President Biden’s inauguration and his proposed $1.9 trillion stimulus package along with a solid start to the corporate earnings season. As the week went on, the market lost momentum amid Republican stimulus push back and increased concerns about the pandemic.
For the week, the Dow Jones Industrial Average (DJIA) rose 0.6%, the S&P 500 was up 1.9% and the tech-heavy Nasdaq surged 4.2%. International equities also advanced; developed markets (MSCI EAFE) returned 0.7% and emerging market (MSCI EM) stocks jumped 2.6%. U.S. stocks closed just shy of their all-time highs with communication services leading the way. The S&P 500 is now trading at nearly 23 times this year’s earnings, far exceeding the 25yr historical average of 16.5 times, which clearly indicates investors’ optimism. The pandemic concerns and its global economic impact pushed safe-haven assets slightly higher. The yield on the 10-year US Treasury declined fractionally to 1.10%. Gold prices closed the week up 1.5% and the price of WTI crude oil closed at $52.27 per barrel down 0.3%.
The weekly jobless claims declined but remained high at 900,000, while existing home sales and housing starts continued to gain and are at their highest levels since 2016. With record low mortgage rates and the lowest supply levels going back to 1982, new home construction will undoubtedly surge. Residential housing construction has always been a major catalyst to lift us out of recessionary periods. U.S. manufacturing showed improvement as the IHS Markit data came in better-than-expected. Corporate earnings drive the stock market and last week 86% of the S&P 500 companies reported fourth-quarter results exceeding analysts’ estimates according to FactSet Research.
The “shot in the arm” for the global economy will be the successful roll out of the vaccines. President Biden plans for 100 million shots in 100 days. In the U.S. daily cases of COVID-19 have declined over 10 consecutive days thanks to the vaccine rollout and pandemic restrictions. The CDC says that 41.4 million doses of vaccine have been distributed and 20.5 million administered. Johnson and Johnson is seeking emergency use authorization from the FDA for its vaccine candidate which is being tested for just one dose and can be stored at regular refrigerator temperatures unlike Pfizer’s vaccine. The virus is still infecting people at alarming rates around the world and has mutated into even more contagious variants.
The U.S. Bureau of Economics will report its initial GDP estimate on Thursday. The Federal Reserve is expected to announce a continued accommodative stance when it concludes its two day meeting on Wednesday. There will be a slew of economic reports with the S&P/Case-Shiller 20-City Composite Home Price Index and Consumer Confidence Index on Tuesday, durable goods orders on Wednesday, Leading Economic Index for the U.S. on Thursday and personal income and consumer spending, and consumer sentiment on Friday.
Investors’ jitters abound and with relatively high stock price valuations we recommend being cautious in the near term. A well-diversified portfolio with quality holdings will prove to carry on through these uncertain times.
“I have decided to stick with love. Hate is too great a burden to bear.” – Martin Luther King Jr.
ND&S Weekly Commentary 1.19.21 – Markets Pull Back Last Week
January 19, 2021
Markets pulled back last week despite U.S. President-Elect Joe Biden proposing a larger-than-expected relief package. The $1.9 trillion Covid-19 relief package was designed to garner bipartisan support but will likely require some adjustments as passage is far from assured which tempering enthusiasm.
The DJIA, S&P 500, and Nasdaq indices all closed lower on the week by 0.91%, 1.46%, and 1.54%, respectively. The lone bright spot for US equity markets was the Russell 2000, bucking the trend to close 1.51% higher. International equities finished the week mixed with developed international (MSCI EAFE) giving back 1.36% and emerging markets (MSCI EM) ticking higher by 0.36%. Interest rates settled lower last week providing a reprieve for bond investors. The 10 year U.S. Treasury closed at a yield of 1.11%, which is down from 1.13% the week prior. Gold finished lower last week to close at $1839/oz.
Economic news released last week came in mostly below consensus. The Consumer Price Index (CPI) increased 0.4% in December, matching expectations. Over the last 12 months, inflation has increased 1.4%, which is not yet a concern but worth keeping close eyes on given the current monetary and fiscal policies. Jobless claims last week were 965k, a big increase from the previous week but slightly better than estimates. The producer price index (PPI) measuring final demand increased 0.3% in December, missing estimates of 0.4%. Also disappointing economists and equity markets was the retail sales report released Friday. The report showed retail and food-services sales declining 0.7% in December, marking the second consecutive monthly decline driven by the uptick in confirmed Covid-19 cases and restrictions.
President-Elect Joe Biden will be sworn into office this week, hopefully bringing some calmness to Washington. However, the tough work will begin for his administration as focus will need to be on the vaccination rollout and continued fight against Covid-19.
“Life’s most persistent and urgent question is, ‘What are you doing for others?” – Martin Luther King Jr.
ND&S Weekly Commentary (3.22.21) – Happy Spring
March 22, 2021
Last week investors pulled back on conflicting economic data, an uptick in interest rates and concerns over relatively high financial asset valuations. For the week, the DJIA slid 0.45%, S&P 500 lost 0.74% and the tech-heavy Nasdaq declined 0.77%. International stocks were mixed with developed (MSCI EAFE) up 0.61% while emerging (MSCI EM), which flew the prior week, lost some steam down 0.80%. Gold closed at $1,741/oz., up 1.27% for the week. Oil (WTI) finished at $61.42/bbl., dropping 6.39%.
The second round of stimulus payments of $1,400 went out to roughly 90 million adults last week. All in, the relief checks for the year total over $800 billion. Investors are worried that such a jolt of liquidity will spur inflation and a huge federal debt overhang. There will undoubtedly be upward pressure on interest rates.
The Federal Reserve reiterated its dovish comments at last week’s FOMC meeting. The Fed reaffirmed their projection that there should be no short-term rate hikes before 2024 and agreed to be more tolerant of slightly higher inflation. On Friday, the Fed also decided not to extend the rule that allowed banks to relax capital levels afforded during the pandemic. The 10yr U.S. Treasury yield surged to 1.74% up from 1.64% the previous week and from 0.93% where it was at year-end.
Economic data released last week fell short of expectations. February retail sales declined sharply by 3% from January missing estimates for a modest 0.5% decline. Jobless claims unexpectedly rose 45,000 to 770,000 in the week of 3/13 and are higher than they were during the 2007-2009 recession. Industrial production declined 2.2% in February, manufacturing output slid 3.1% and overall capacity utilization declined to 73.8%. Housing starts are down 9.3% from the same time last year as a result of inflated building costs and recent adverse weather conditions. Economic reports will be plentiful this week: existing and new home sales, durable goods orders, GDP, personal consumption expenditures and income will be reported.
On the pandemic front, Covid-19 vaccine manufacturing companies are ramping up production as they become more efficient and are teaming up with other manufacturers. According to Eversource ISI, the increased output should fully vaccinate 76 million people in the U.S. in March, another 75 million in April and 89 million in May.
We expect market volatility as a result of higher consumer spending and challenged supply chains causing inflationary pressures. Though it’s always a good time for spring cleaning, please stay focused on your long-term goals and targets.
“From you have I been absent in the Spring
When proud-pied April, dressed in all his trim
Hath put a spirit of youth in everything”
– William Shakespeare