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

ND&S Weekly Commentary 7.27.20 – Markets Quiver Last Week

July 27, 2020

Markets gave some back last week over renewed tensions between the US and China. The US ordered China to close its consulate in Houston which prompted Beijing to revoke the license of the US consulate general in Chengdu, China. Adding to the uncertainty last week, US jobless claims came in at 1.4 million, snapping a 15-week run of declining claims, brought on from the Covid-19 spike. Plans to reduce business restrictions continue to be delayed as a result of the recent outbreak in confirmed cases around the US.

On the week, the S&P 500 declined 0.27% while the DJIA gave back 0.74%. The NASDAQ weakened 1.33% on the week as debate grows over technology stocks and their stretched valuations. The Russell 2000 which represents small/midsized US companies also moved lower as it declined 0.38% for the week. International markets were a bright spot on the week as developed international markets (MSCI EAFE) gained 0.42% while emerging markets (MSCI EM) increased 0.57%. Bonds were a bit higher as the Bloomberg Barclays Aggregate finished ahead by 0.41% on the week. The 10yr US Treasury ended last week at a yield of 0.59%. Gold prices continued their rapid ascent closing at $1,902 marking a 4.99% advance on the week as investors continue to seek out the safe-haven metal. Oil increased to $41.29 per barrel from $40.59 the week prior.

Economic news on the week was mixed. As mentioned above, jobless claims were a disappointing 1.4m which was a 109k increase from the week prior. It was noted on the release, “The Covid-19 virus continues to impact the number of initial claims and insured unemployment.” Housing continues to be a bright spot in the recovery as existing home sales jumped 20.7% in June. The median existing home prices have increased 3.5% year-over-year as housing inventory remains tight in a historically low-rate environment. New home sales in June also jumped 13.8%, greatly exceeding expectations. Worth noting, the Conference Board reported leading indicators increased 2.0% month-over-month in June after a 3.2% improvement in May.

Earnings season continues this week as a of number companies which includes Apple, Facebook, Amazon, Mastercard and Alphabet are scheduled to report. Earnings so far have come in better-than-feared as close to 80% of companies have reported earnings-per-share (EPS) better than analyst estimates while revenues have been generally in-line with expectations. Analysts’ forecasts were for a 10.9% decline in EPS with a 40% drop in revenues due mainly to the Covid-19 impact and restrictions.

Company results and guidance will likely drive the markets this week. We continue to recommend staying close to investment policy targets with an investment bias towards quality and safety.

“I never think of the future – it comes soon enough.” – Albert Einstein

NDS Weekly Commentary 7.20.20 – Earnings Season Starts to Ramp Up

July 20, 2020

Equity markets were somewhat mixed last week as the S&P 500 and DJIA advanced 1.3% and 2.3%, respectively. However, investors appeared to be taking profits in the technology sector, which has been the best performing sector YTD, as the NASDAQ was down -1.1% for the week. Also, value stocks outperformed last week as the Russell 1000 Value Index rose 3.4% vs the Russell 1000 Growth which was -0.8%. Reflecting that shift, the best performing sectors were industrials and materials and the worst were technology and consumer discretionary. International equities were mixed as the EAFE index rose 2.2% and emerging stocks declined 1.2%. Fixed income markets were relatively flat last week as the rate on the 10 year U.S. Treasury declined slightly to 0.64%.

In economic news last week, CPI for June was announced at 0.6%, a slight increase over expectations. Retail sales advanced 7.5% also exceeding expectations of 5.0% and housing starts were up 17.3% month over month. The Labor Dept. reported initial jobless claims of 1.3 million. This week look for economic reports on mfg. and srvs. PMI and new/existing home sales. Earnings season also ramps up this week with major companies Coca Cola, Microsoft, Intel, Tesla and Verizon to report. Last week major banks reported better-than-expected earnings in spite of large increases in loan loss reserves.

We expect going forward that investors will focus on the surge of confirmed cases of the Coronavirus in the southern and western U.S., its impact on the re-opening of the U.S. economy, and the upcoming election.

Don’t forget to wear your masks and stay safe.

“Nothing great in the world has ever been accomplished without passion.” – Georg Wilhelm Friedrich Hegel

ND&S Weekly Commentary 7.13.20 – Let The Earnings Season Begin

July 13, 2020

Last week stocks finished modestly higher with a resurgence of COVID-19 cases causing uncertainties and market volatility. The pandemic is spreading in several US states at record levels and its effects will continue to be the primary driver of the financial markets for the rest of the year. There are some bright spots from improving economic data, historically low interest rates and tremendous financial liquidity. However, the uncertainties over the rise of COVID cases, the political outcome of the US elections and an expected very weak earnings season have investors on edge.

The Dow Jones Industrials gained 1.0%, the S&P500 rose 1.8% and the tech heavy Nasdaq climbed 4.0%. Foreign markets also increased with developed markets as measured by the MSCI EAFE index up 0.3% and emerging markets gaining 4.7% with China’s markets leading the way.

Investors are preparing for a terrible earnings season next week. According to FactSet, estimated earnings for the S&P 500 for the second quarter will plummet 45% from the same period last year and revenues will be down by 10%. The major banks will report this week and all eyes will be on net interest margins, loan loss reserves and guidance. The S&P 500 is only down 0.4% this year and is selling at over 22 times forward twelve month earnings estimates which is expensive. The market could be in for some choppy times ahead.

The 10-year US Treasury note traded down to a yield of 0.57% but finished the week at 0.65% which indicates that rates should remain near zero for quite some time. If the Covid-19 cases continue to surge, the confidence of investors will suffer, increasing the demand for safe assets. The price of gold is already up nearly 20% for the year and gold mining shares are soaring.

The Institute for Supply Management’s (ISM) Non-Manufacturing Index which tracks the service sector of the economy rebounded into expansionary territory in June at 57.1, handily beating estimates of a reading of 50.0. Employment figures continue to improve as 4.8 million jobs were added in June. New drug treatments by Gilead Sciences showed good results and Pfizer and BioNtech expressed optimism that their mRNA vaccine candidate could be ready for approval by the end of the year.

All eyes will be on second quarter earnings announcements this week. Economic data to be reported are inflation on Tuesday, retail sales on Thursday and housing starts on Friday. With so many uncertainties and headwinds, we strongly encourage investors to not chase momentum stocks or higher yielding assets, and stay close to their long-term asset allocation.

“Together we can face any challenges as deep as the ocean and as high as the sky.” — Sonia Gandhi

Recovering Labor Market Pushes Stocks Higher

July 6, 2020

Despite record numbers of new daily Covid-19 cases in the United State and near-record cases globally, equity markets continued higher last week. For the week, the S&P 500 and DJIA rose 1.55% and 0.36%, respectively. The Russell 2000 increased 1.37%. International stocks were also strong with developed international (MSCI EAFE) up 1.62% and emerging markets up 2.16%. Treasury yields increased slightly last week with the 10yr US Treasury settling at a yield of 0.68%. Oil prices (WTI) rose to around $40 a barrel.

A strong labor market report, improving manufacturing PMIs globally and surging pending home sales propelled markets last week. The improving data has some momentum behind it but economic activity is still well below pre-coronavirus. More than 4.75 million workers returned to payrolls in June, which was well ahead of consensus estimates of about 3 million. The May payroll number was also revised higher. As a result, the unemployment number declined to 11.1%, down from 13.1% a month ago. Economic activity in manufacturing grew in June according to the The Institute for Supply Management (ISM) manufacturing purchasing managers’ report. The June PMI reading came in at 52.6%, up 9.5 percentage points from May’s reading of 43.1%. Pending home sales posted a record comeback in May with a 44.3% increase from April. This week, there will be reports on non-manufacturing, car sales, job openings and inflation.

Banks are set to kick off the second-quarter of earnings season in less than 2 weeks. Estimates are for an earnings decline in the Q2 2020 of 43%. It is anyone’s guess how accurate the estimates will prove to be, as over 400 S&P 500 companies failed to guide over the last 3 months. Stocks are coming off their best quarter in decades, so there is pressure to deliver good news or at least some clarity in company strategy to navigate the current Covid-19 environment.

We wouldn’t be surprised to see markets take a pause here. Continuing spikes in cases or temporary shutdowns on a local level will likely begin impacting markets. The uncertainty around company results won’t be answered for at least 3-4 weeks so some caution may be warranted.

“What then is freedom? The power to live as one wishes.” – Marcus Tullius Cicero


Weekly Review – 06/29/2020

June 29, 2020

Global stocks retreated last week on concerns that a recent surge of covid-19 cases will hamper economic growth.  Adding to the uncertainty last week, the Fed released the results of this year’s stress tests on banks and announced that bank buybacks are suspended through September and dividend growth will be capped and payouts based on a formula tied to trailing earnings … not unexpected.

On the week, the S&P 500 lost 2.9% while the DJIA gave back 3.3%. The Russell 2000 which represents small/midsized US companies also moved lower as it declined 2.8% for the week.  International markets were a bit better, but they still lost ground as developed international markets (MSCI EAFE) lost 1.3% while emerging markets (MSCI EM) closed lower by 0.1%. Bonds were a bit higher as the Bloomberg Barclays Aggregate finished ahead by 0.2% on the week. The 10yr Treasury ended last week at a yield of 0.64%.  Gold prices closed at $1,772.50 for a 1.5% advance for the week as investors fled to the safe-haven metal.  Oil prices dropped 3.4% to $38.49 per barrel as soft demand failed to dent more-than-adequate supply. Oil prices are down 37% year-to-date – a boom to consumers and most businesses.

Economic news last week was mixed.  On Monday, the National Association of Realtors reported that existing home sales for May dropped 9.7% to a seasonally adjusted annual rate of 3.91 million, missing expectations of 4.09 million.  On Tuesday, the U.S. Census Bureau reported that May new home sales jumped 16.6% month-over-month to a seasonally adjusted annual rate of 676,000, far exceeding consensus for 640,000.  On Thursday, initial jobless claims were 1.5 million, exceeding expectations by 150,000 while continuing claims dropped 1 million to 19.5 million (beating expectations of 20.0 million).  The Bureau of Economic Analysis reported on Thursday its final reading of first quarter GDP … results showed that economic growth contracted at a seasonally adjusted annual rate of 5.0%, in line with expectations.  Also on Thursday, the Commerce Department released its reading of new orders for manufactured durable goods in May; orders surged 15.8% versus expectations for a 10.45% gain.  Also on Thursday, U.S. initial jobless claims for the week ending June 20 declined from 1.54 to 1.48 million.

Investors will be watching the results of the re-openings in most states and countries around the world.  Continuing spikes in covid-19 cases will likely cause investors to take profits until the path forward becomes less murky.  We expect a bit of volatility during this holiday-shortened this week as the second quarter comes to a close.

Happy Fourth of July!

“Those who expect to reap the blessings of freedom must, like men, undergo the fatigue of supporting it.”     Thomas Paine


ND&S Weekly Commentary 6.22.20 – Re-openings Continue

June 22, 2020

Despite some volatility during the week, as investors continued to assess the reopening of the economy, equity markets rebounded posting their fourth weekly gain out of the past five weeks. Last week the S&P 500, DJIA and NASDAQ were up 1.9%, 1.1% and 3.7%, respectively. For the week, the strongest sectors were health care, technology and consumer staples. Technology stocks continued to be among the leaders and the sector is the best performing year-to-date in the S&P 500 up 12.1%. There is some evidence that the stock market advance is starting to broaden out as earlier this month more than 97% of stocks in the S&P 500 traded above their 50 day moving average … it is a fairly rare occurrence for breadth to be so strong and it usually forecasts good markets ahead. International equities also advanced last week with MSCI EAFE up 2.1% and emerging markets up 1.5%. Going forward, investors will continue to be focused on economic recovery signs, virus hot spots and increasingly on the upcoming Presidential election.

Fixed income markets also advanced slightly as the Fed continues to ensure that sectors of the bond market function normally. The 10yr Treasury closed at a yield of 0.70%, unchanged from the prior week. Interest rates are likely to remain quite low for the months ahead. Bonds should offer investors some protection in the event of a shock to the equity markets. Investors should continue to monitor their asset allocation targets and re-balance as appropriate.

The U.S. Commerce Department reported last week that retail and food-services sales rebounded 17.7% in May, greatly exceeding estimates for an 8.4% advance. This after retail sales plunged a combined 21.8% in March and April. Jobless claims from the previous week were 1,508K which missed estimates although continue to trend in a positive direction. This week we’ll get fresh numbers on durable goods orders, personal income and spending and existing/new home sales.

“It always seems impossible until it’s done.” – Nelson Mandela