ND&S Weekly Commentary 10.26.20 – Markets Take a Breather
October 26, 2020
U.S. equity markets pulled back last week as investors weight the uncertainties surrounding the election and rising Covid-19 infections around the globe. Additionally, a lack of fresh stimulus will likely further weigh on the economy in the short-term.
For this past week, the S&P 500 declined 0.51% while the DJIA gave back 0.90%. The tech-heavy NASDAQ finished the week -1.06% as money moved out of more growth areas. Small company stocks, represented by the Russell 2000, again bucked the trend as the index closed higher by 0.42% for the week. International equity markets also finished in the green as the MSCI EAFE and emerging markets (MSCI EM) added on 0.11% and 1.11%, respectively. Bonds took it on the chin for the week as the Bloomberg/Barclays Aggregate, finished the week down 0.42%. As a result, the 10 YR US Treasury closed at a yield of 0.85% (up 9 bps from the previous week’s closing yield of 0.76%). Gold prices closed at $1,904/oz. – up fractionally on the week. Oil (WTI) moved lower to close at $39.88 – down 2.5% on the week.
Economic news released last week was mixed. The U.S. Census Bureau reported that housing starts increase 1.9% to a seasonally adjusted rate of 1.415 missing estimates for September. Conversely, existing home sales jumped 9.4% for the month which far outpaced estimates. Overall, existing home sales are up 21% from the same time last year reflecting the strength of the housing market. Weekly jobless claims were 787,000, marking a 55,000 improvement from the week prior. On Friday, the IHS Markit Flash U.S. Composite PMI registered a reading of 55.5 for October. The “flash” reading is a preview to the official release with any reading over 50 representing expansion. The week ahead will have reports on personal income and expenditure, durable goods orders, new home sales, and the initial release of 3Q20 real GDP.
Third quarter earnings season is in full swing this week with Apple, Microsoft, Mastercard, Pfizer, and Facebook among the many scheduled to report. Although it is early, thus far, results have generally surprised to the upside with 83% beating on EPS and 74% on revenues according to data from FactSet. Much of the market reaction to releases will be the result of guidance from the respective companies.
We are thankfully in the final stretch of the election season. The hyper partisanship will likely lead to a record turnout at the polls. The election aside, the volatility in equity markets will likely increase this week due to spikes in Covid-19 globally and the busy week for company results and updates. As always, investor focus should remain on long-term goals.
“Out of difficulties grow miracles.” – Jean de la Bruyere
ND&S Weekly Commentary 10.19.20 – Markets Mostly Higher on Hopes of Stimulus
October 19, 2020
Stocks moved slightly higher last week as investors focused, yet again, on hopes of another stimulus package and optimism over 3rd quarter earnings. Talks between the White House and Congress continued last week with both sides expressing optimism about a new round of stimulus, yet politics continue to weigh heavily on the process as the finger pointing continues. With the election just two weeks away it seems unlikely that a deal will get done before then.
For the week, the DJIA closed higher by 0.07% while the S&P 500 gained 0.21%. The Nasdaq closed higher by 0.79%. Small company stocks, represented by the Russell 2000, bucked the trend and gave back some ground as the index closed lower by 0.22% for the week. International stocks were mixed. For the week, the MSCI EAFE index lost 1.45% while emerging market equities (MSCI EM) tacked-on 0.15%. Fixed income, represented by the Bloomberg/Barclays Aggregate, finished the week higher by 0.24%. As a result, the 10 YR US Treasury closed at a yield of 0.76% (down ~3 bps from the previous week’s closing yield of ~0.79%). Gold prices closed at $1,900.80/oz. – down 0.97% on the week. Oil prices moved higher as oil closed at $40.88 – up 0.69% on the week.
Economic news released last week was mixed. On Tuesday, the U.S. Bureau of Labor Statistics reported that the Consumer Price Index (CPI) advanced 0.2% in September, matching expectations. Core CPI, which excludes food and energy, also gained 0.2% (in-line with expectations). On Wednesday, the U.S. Bureau of Labor Statistics reported that the Producer Price Index (PPI) gained 0.4% in September, ahead of expectations for a 0.2% advance. On Thursday, the Department of Labor reported that initial jobless claims for the week ending October 10 were 898,000, outpacing expected claims of 830,000. On Friday, the Federal Reserve announced that September’s industrial production fell 0.6%, missing expectations for a 0.5% decrease. Total industrial production is down 7.3% from the same time last year. In the week ahead look for news on housing starts, weekly jobless claims, existing home sales and Markit PMI.
Third quarter earnings season for the S&P 500 is off to a good start. With only 13% of S&P 500 companies reporting thus far, the largest twelve companies that have already reported have beaten estimates by over 20%. We see third quarter earnings as supportive of further gains in the market. However, offsetting earnings optimism will likely be spikes in Covid-19 around the world and continued bickering in Washington.
Expect increased volatility in the weeks ahead. The upcoming election will keep investors and markets on edge. 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.
‘The will to succeed is important, but what’s more important is the will to prepare.” – Bobby Knight
ND&S Weekly Commentary 10.12.20 – Market Continues Rally
October 12, 2020
Markets bounced around last week on news of additional stimulus. On Monday, President Trump tweeted that he had instructed his representatives to stop negotiations until after the elections driving equity markets down. By week end, that appeared to have been a negotiating tactic as President Trump indicated that he would be amenable to a stimulus package totaling $1.8 trillion (still short of the Democrats’ request of $2.2 trillion). For the week, U.S. equity markets finished solidly up with the S&P 500, DJIA and NASDAQ up 3.9%, 3.3% and 4.6%, respectively. So far, the month of October has started on a strong note with 2 consecutive up weeks for equities. The strongest sectors last week were materials, energy and technology as stocks continued to broaden out. The weakest sectors were staples, communication services and real estate. International equities also advanced despite a “second wave” of Covid-19 cases in Europe. The MSCI EAFE index and emerging markets finished up 3.0% and 3.8% for the week.
It was a very light week in terms of economic releases. On Monday, the Institute of Supply Management (ISM) reported their non-manufacturing index increased to 57.8% for September, exceeding expectations. This week, look for reports on CPI/PPI, retail sales, industrial production and consumer sentiment. Also, 3rd quarter earnings season begins this week with reports from major banks. Investors will be looking to see if bank loan loss reserves taken earlier in the year are sufficient. Analysts expect companies in the S&P 500 to report a median per-share drop of 20% in earnings. However, analysts have actually grown more optimistic during the past three months raising estimates by 4.1%.
In fixed income markets, rates generally rose as the Fed has been indicating that it would let inflation run above 2% for an extended period of time. The yield on the 10 year U.S. Treasury note rose to 0.79% from 0.70% the week prior.
Look for volatility to continue as we approach the election. While it is important to monitor potential policies, there are many dynamics at play. So continue to stay diversified and rebalance as necessary.
“Kind words do not cost much. Yet they accomplish much.” – Blaise Pascal
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 Update: The Election – Here We Go!
November 2, 2020
Last week was a wake-up call for investors as Wall Street closed out its worst month since March. The market’s largest tech companies reported solid earnings but muted guidance, the election heated up and the resurgence in coronavirus infections continued in the U.S. and Europe (where lock-down restrictions are being implemented).
For the week, the DJIA closed down 6.47%, the S&P 500 declined 5.62%, and the tech-heavy NASDAQ shrunk 5.50%. Foreign markets also took it on the chin with Developed Markets (MSCI EAFE) dropping 5.51% and emerging markets (MSCI EM) slipping 2.89%. The technology sector slid 6.5% for the week. The price of oil also declined by 10.2% per barrel and gold was off by 1.3%.
There has been upward pressure on interest rates with the yield curve continuing to steepen on the intermediate and long-end. The yield on the 10 Yr. U.S. Treasury ticked higher to 0.88% from 0.86% the week prior.
Despite the U.S. economy growing at a record pace, increasing 7.4% in the third quarter and at a 33% annual rate, the concerns over the elections and potentially overvalued large tech companies took hold. In other economic releases, durable goods orders increased 1.9% in September beating estimates, Core PCE (personal consumption expenditures) advanced 3.5% quarter-over-quarter, and pending home sales contracted 2.2% in September missing estimates.
The earning season so far has been solid with 60% of companies in the S&P500 having reported, with 80% of them beating their estimates. Though earnings are off 12.55% from a year ago, they are much better than predicted and overall guidance is improving. Still all eyes are on revenues and investors are willing to pay up for companies with sustainable sales growth.
There is no question that our economy needs another major stimulus program. Congressional leaders failed to agree on roughly a $2 trillion stimulus package which covered enhanced unemployment benefits, more government backed loans and stimulus for households.
The results of Tuesday’s election will determine the political direction of the U.S. and its effect on our economy and global financial markets. We strongly suggest that investors maintain a well-diversified portfolio with a slight conservative bias favoring dividend income and growth.
“George Washington is the only President who didn’t blame the previous administration for his troubles.” – Author Unknown