Weekly Commentary (10/21/19) – Markets Tread Water

October 21, 2019

Markets continued to tread water last week as the general economic backdrop remains mostly positive. Headline news, as usual, seems to be holding the markets back from moving higher.

We are right in the midst of 3rd quarter earnings season, and 81% of companies reporting have reported better-than-expected earnings. Last week saw positive commentary from the banks as they got the 3rd quarter earnings season started.

Economic news released last week was mixed. On Wednesday, the U.S. Commerce Department reported that retail and food-services fell 0.3%; however, August’s number was revised upward. On Thursday, the U.S. Census Bureau reported that housing starts fell in September to a seasonally adjusted annual rate of 1.387 million – up 1.6% from the same time last year. Building permits were better-than-expected and are up 7.7% year-over-year. Also on Thursday, the Federal Reserve reported that industrial production fell 0.4% in September (missing expectations of a 0.2% decline) while August’s reading was revised higher to a 0.8% advance versus the previous reading of a 0.6% increase. Lastly, initial jobless claims for the week ending October 12 were 214,000 and below expectations of 215,000. Claims remained under 300,000 (threshold for a typically healthy jobs market) for 240 consecutive weeks.

For the week, the DJIA slipped 0.13% while the S&P 500 gained 0.55%. The volatile Nasdaq increased 0.40%. Developed international markets fared better. For the week, the MSCI EAFE index jumped 1.24% while emerging market equities (MSCI EM) advanced 1.27%%. Have international equities found a bottom? Small company stocks, represented by the Russell 2000, finished higher by 1.57% for the week. Fixed income, represented by the Bloomberg/Barclays Aggregate, finished the week slightly higher as investors trimmed bond positions. As a result, the 10 YR US Treasury closed at a yield of 1.76% (in-line with the previous week’s closing yield of ~1.76%). Gold prices closed at $1,488.20/oz – up 0.37% on the week. Oil prices dropped $0.92 (or 1.68%) as supply appears to be more than adequate for current demand.

Don’t forget that October has been a traditionally difficult month for the markets, and we expect this October to be no different. The week ahead will see a host of potential challenges – earnings, Brexit, China trade issues, Washington histrionics, and Middle East geopolitics, etc… We suggest investors stay close to their long-term target asset allocations with a slight defensive bias.

“Keep your eyes on the stars, and your feet on the ground.”Theodore Roosevelt

NDS Weekly Commentary 10.14.19 – Earnings Reports Begin

October 14, 2019

Equities finished last week on a positive note as U.S. markets rallied Friday on news that the U.S. and China had reached a truce on trade. Washington announced Friday that it would postpone planned increases in tariffs and China said it would increase purchases of U.S. agricultural products with hopes that more details could be worked out in the months ahead. In response, the DJIA traded up 319 points on Friday and for the week the DJIA, S&P 500 and NASDAQ advanced 0.93%, 0.66% and 0.94%, respectively. International markets were also strong last week with the MSCI EAFE jumping 2.31% and emerging markets closing up 1.53%. In addition to positive news on trade, core CPI rose a modest 0.1% and consumer sentiment numbers improved. With better news on trade, the materials and industrial cyclical sectors were strongest for the week and the defensive sectors of utilities and consumer staples were the weakest. Conversely, fixed income markets declined with the rate on the 10 year U.S. Treasury soaring to 1.76% from 1.52% during the week. This week look for economic reports on retail sales, housing starts and industrial production.

Earnings season starts in earnest this week with major banks, Johnson & Johnson, Coca Cola and others scheduled to release earnings. Consensus earnings expectations for the 3rd quarter are forecast to decline as much as 4.3%, however, if you factor in stock buybacks and the tendency of companies to beat forecasts, earnings are likely to come in better than anticipated. We believe the economy will continue to grow modestly and that the Fed will continue to be supportive with a 0.25% rate cut at their December meeting.

“But he that dares not grasp the thorn Should never crave the rose.” – Anne Bronte

Weekly Commentary 10.7.19 – Fight to Zero

October 7, 2019

For the third straight week, the Dow Jones Industrials (DJIA) and S&P 500 declined. Investors and traders created a volatile week as dismal manufacturing data, disappearing trading commissions, and new tariffs on the European Union were announced. The DJIA lost 0.9%, the S&P 500 declined 0.3%, while the NASDAQ Composite rose 0.6%. The strength of the US dollar, worsening trade tariff issues, and weakening global economic growth hit developed international equities (MSCI EAFE), which declined 2.2%. Emerging market equities were down 0.5%. After sliding in the beginning of the week, financial markets rebounded on Thursday and Friday as sluggish employment data was released renewing confidence that the Federal Reserve would maintain their dovish stance and lower rates.
So far, global central banks have been more than accommodative with their monetary policies. There have been 33 interest-rate cuts by global central banks over the last three months. The dovish and accommodative global monetary policies should help lessen further economic declines and cushion the downside of financial asset prices.
The U.S. employment report on Friday showed that there were 136,000 jobs added in September, just slightly below the 150,000 consensus. The good news was that the jobless rate declined from 3.7% in August to 3.5%, the lowest rate in 50 years.

Investors should not get overly concerned about the media’s announced claims and counter-claims regarding the impeachment inquiries of President Trump. There have only been two presidents impeached by the House of Representatives, Andrew Johnson in 1868 and Bill Clinton in 1998. Both were not convicted by the Senate and allowed to remain in office.

We should remember that one year ago the 10-year US Treasury yield was above 3%. Last week, it declined 15 basis points to 1.53%, a result of the concern of a slowing economy. Interest rates are expected to remain low and possibly be further reduced by Federal Reserve dovish policy later this year.

We recommend that investors remain diversified, retaining a portfolio of safe, low duration bonds, a slightly higher cash position, and quality equities. We will be closely watching the upcoming earnings season and would be enticed to add to stocks with a bias toward dividends on short-term weakness. Please keep in mind that 60% of stocks in the S&P 500 index have a dividend yield higher than the 10-year US Treasury. Also, for most investors the federal income tax rate on qualified dividends is 15% and no higher than 20%. Dividends matter!

There will be important inflation data released this week: the Producer Price Index (PPI) on Tuesday and the Consumer Price Index (CPI) on Thursday. Also, the Federal Open Market Committee will release their minutes from its September meeting on Wednesday.

“People who succeed in the stock market also accept periodic losses, setbacks and unexpected occurrences. Calamitous drops do not scare them out of the game.” – Peter Lynch

ND&S Weekly 9.30.19 – Economic Growth Slowing?

September 30, 2019

Major stock indexes declined for the second consecutive week as economic data indicated that consumer spending slowed and businesses pulled back on investment. Also, mixed signals on the U.S. – China trade dispute weighed on the financial markets. The S&P 500, DJIA and the NASDAQ declined 0.98%, 0.43% and 2.18%, respectively. U.S. consumer spending only edged up 0.1% after surging 0.5% in July and orders for core capital goods declined 0.2%. International markets were also negative with the MSCI EAFE down 0.62% and emerging markets down 1.86% as concerns over persistent weakness in global manufacturing continue. The best performing sectors last week were the more defensive ones of consumer staples, utilities and real estate.

U.S. Treasuries did well last week as headlines about the White House considering limits on U.S. corporate investment in China and House Democrats initiating an impeachment inquiry into President Trump’s involvement with Ukraine pushed risk-averse investors into the perceived safety of bonds. The yield on the 10 year U.S. Treasury  declined from 1.74% to 1.69%.

This week should be a busy week for economic data with reports on ISM mfg., factory orders, and ISM non-mfg. On Friday, the closely watched employment report which is estimated to be for 140,000 new jobs will be released.

“Success seems to be largely a matter of hanging on after others have let go.”William Feather

Weekly Commentary (09/23/19) – Déjà vu – Trade Tensions Weigh on Markets

September 23, 2019

Markets were within reach of all-time highs last week until news broke on Friday that a Chinese delegation had canceled a visit to U.S. farms thus adding more drama to the ongoing trade battle with China. As Yogi Berra was fond of saying – It’s like déjà vu all over again.

Economic news released last week was mostly positive. On Tuesday the Federal Reserve announced that industrial production jumped 0.6% – well in advance of the expected increase of 0.2%. Capacity utilization was also better than expected. On Wednesday the Fed cut interest rates by 25 bps, as expected. Also on Wednesday, the U.S. Census Bureau reported that housing starts for the month of August surged 12.3% m/m to a 12-year high as low interest rates attracted new home buyers. On Thursday the National Association of Realtors reported that existing home sales jumped 1.3% in August (better than expected). Lastly, initial jobless claims for the week ending September 14 came in better than expected as claims remained under 300,000 (threshold for a typically healthy jobs market) for the longest streak since 1967. Despite headline news, economic data does not point to a recession any time soon.

For the week, the DJIA fell 1.05% while the S&P 500 dropped 0.49%. The volatile Nasdaq declined 0.71%. Developed international markets fared better. For the week, the MSCI EAFE index lost 0.35% while emerging market equities (MSCI EM) gave back 0.46%. Small company stocks, represented by the Russell 2000, finished lower by 1.14% for the week. Fixed income, represented by the Bloomberg/Barclays Aggregate, finished the week higher as investors continued to flee to the perceived safety of bonds. As a result, the 10 YR US Treasury closed at a yield of 1.72% (down ~18 bps from the previous week’s closing yield of ~1.90%). Gold prices closed at $1,507.30/oz – up 1.10% on the week. Oil prices jumped $3.24 (or 5.91%) last week on what is believed to be an Iranian attack on Saudi Arabia’s oil infrastructure.

Don’t forget that September and October are traditionally difficult months for the markets – so expect continued volatility. We suggest investors stay close to their long-term target asset allocations with a slight defensive bias.

“If you don’t know where you are going, you might wind up someplace else.” – Yogi Berra

NDS Weekly Commentary 9.16.19 – Markets Advance as Rates Move Higher

September 16, 2019

Equities advanced last week as money rotated out of bonds and high flying tech names into value stocks and sectors that had been previously out of favor. What otherwise was a quiet week for stocks, a huge discrepancy occurred beneath the surface between the Russell 1000 Value (2.47%) and the Russell 1000 Growth (-0.45%). Improving trade relations with China and a jump in interest rates provided fuel for last week’s move. We caution looking too much into one week’s performance, but a wide gap in performance between the two indexes has been present for years.


On the week, the S&P 500 increased 1.02% while the DJIA finished up 1.65%. Smaller US companies represented by the Russell 2000 jumped 4.90%. International equities were also strong with developed (MSCI EAFE) and emerging (MSCI EM) closing higher by 1.99% and 1.91%, respectively. Bonds really struggled with the benchmark Barclay’s US Aggregate Index shedding 1.66% on the week. Bonds prices move inversely to the direction in yields. Treasury yields jumped higher across the board with the 10yr US Treasury closing at 1.90%, which is up from 1.55% just last week (see image below).


Economic data last week was relatively positive. On Wednesday, the Producer Price Index (PPI) for final demand ticked up 0.1% which exceeded expectations of unchanged. On Thursday, the Consumer Price Index (CPI) increased 0.1% which was in-line with estimates. Over the last 12 months, CPI is up 1.7%. On Friday, retail and food-services sales rose 0.5% in August, doubling expectations of a 0.2% monthly advance. The U.S. consumer continues to be healthy. There will be reports this week on housing, industrial production and manufacturing.
The FOMC gears up for their two-day meeting this week. The Fed is expected to cut its policy rate by another 25bps … this despite political pressure to reduce rates farther. Views are divided on what the Fed’s monetary path will look like for the rest of the year. Rising core-inflation, solid economic activity, and thawing trade relations with China support a wait and see approach for further shifts after the conclusion of this meeting. There will likely be dissent on both sides among members of the FOMC.

“If you can dream it, you can do it.” – Walt Disney

ND&S Weekly Commentary 9.9.19 – The Endless Summer

September 9, 2019

Despite data clearly showing global manufacturing slowing, and below expected job numbers, investors showed a sigh of relief when news on trade talks were back on the table. For the holiday shortened week, the DJIA rose 1.53%, the S&P 500 gained 1.83% and the NASDAQ was up 1.78%. International equities were especially strong with developed markets (MSCI EAFE) rising 2.23% and emerging markets (MSCI EM) advancing 2.44%.

The department of labor was busy announcing jobs data for August which showed mixed results. The US economy added 130 thousand jobs, which missed consensus estimates of 163 thousand. The unemployment rate remained historically low at 3.7%. The total number of Americans employed increased by 590,000, setting a record of 157.9 million workers.

Federal Reserve Chairman Jerome Powell also soothed investor worries stating that fundamentals of the US economy remain strong and there’s no chance of an immediate recession. The market expects another Fed Funds Rate reduction of 25bps at their next meeting.

Further whetting the appetite for equity investing, is the rising S&P 500 dividend yield. It is nearing 2% and soundly beats the 10yr US Treasury yield of 1.55%. When taking into account the expected inflation rate and the after tax yield, dividend paying equities are a relative bargain.

We are not out of the woods yet. The economies of China and the Euro-zone could continue to slow more sharply and we never know what the President’s next move will be. Consumers are spending while inventories have been declining. A sudden surge in hiring workers and increasing wages could spark inflation above the Federal Reserve’s 2% target.

Nevertheless, we strongly feel that a well-diversified portfolio with slightly higher money market balances and a bias for dividend growth will continue to provide happy returns.

There will be a slew of economic data reported this week including the producer, consumer, and import price indices. August retail sales will also be of significant interest as consumer spending is expected to continue to increase.

“Genius is 1% inspiration and 99% perspiration”Thomas Edison

ND&S Weekly Commentary 9.3.19 – Equities Rally Into September

September 3, 2019

Global equities snapped a four week losing streak to end the month on a high note. Cooling trade tensions and better-than-expected economic data were the catalysts last week, but much of the core concerns regarding trade still remain. According to comments from the Chinese commerce ministry, the talks between the US and China will continue in Washington in September. The rhetoric has been toned down with China vowing not to retaliate on the latest tariff hike.

The Dow Jones Industrial Average (DJIA) jumped 3.1%, while the S&P 500 climbed 2.8% and the NASDAQ rose 2.7% on the week. International equities were also positive with the MSCI EAFE and MSCI EM finishing up 0.9% and 1.2%, respectively. The 10Yr and 2Yr US Treasuries inverted again last week, and both closed the week at yields of 1.50%. Oil continues to trade in the mid-$50 per barrel range as lower supply due to geopolitics has so far offset economic concerns and weaker demand.

Economic data on the week was generally positive versus expectations. On Monday, manufactured durable goods advanced 2.1% in July which beat expectations. On Thursday, real GDP, which adjusts for inflation, increased 2.0% in the second quarter. This follows a 3.1% advance in the first quarter of the year. On Friday, it was reported that personal consumption expenditures increased 0.6% in July, which was an increase from the previous two months. It is important to remember, consumption makes up roughly 70% of the US economy.

Earnings reports for the second quarter are mostly complete. Many analysts and forecasters were calling for an earnings decline as recently as 2 months ago. However, earnings growth for the quarter slowed to 4.9% (well ahead of estimates) from a robust 20% pace seen in 2018. On the surface it is concerning, but last year’s jump was mostly attributed to the Tax Cuts and Jobs Act which lowered the corporate tax rate from 35% to 21%. For the quarter, roughly 75% of companies reported a positive earnings surprise. On the top line, revenue has increased 3.6% versus expectations of a 3.16% increase.

We expect markets to remain volatile until more certainty regarding trade is established. We suggest investors stay close to their long-term target asset allocations with a slight defensive bias.

“The world of ours … must avoid becoming a community of dreadful fear and hate, and be, instead, a proud confederation of mutual trust and respect.”Dwight D. Eisenhower

Weekly Commentary (08/26/19) –Trade Tensions Weigh on Markets

August 26, 2019

Markets were fairly calm for most of last week until China announced on Friday that they would impose tariffs of 5% to 10% on $75 billion worth of U.S. goods to be implemented in two stages – September 1st and December 15th. Not to be outdone, President Trump responded in-kind by saying he would raise the tariff rate by 5% on existing and planned tariffs. He also directed U.S. companies to immediately look for alternatives to China while tweeting “We Don’t Need China.” Wasting no time, the media used the chaos and uncertainty to reiterate their battle cry that a recession is looming. While the probability of a recession has increased lately, it is unlikely that we will see one in the near term. We will likely see a recession within the next 18 months or so, but recessions are quite normal and happen, on average, about once every five years.

Economic data released last week was mostly positive. Existing home sales jumped 2.5% in July (better than expected) while existing home pricing increased 4.3% year-over-year. Initial jobless claims for the week ending August 17 were better than consensus as claims remained below 300,000 (level considered for a healthy jobs market) for 233 consecutive weeks. New homes sales were reported on Friday as levels were slightly less than expected; however, June’s level was revised sharply higher which makes up for July’s slight miss. Trade tensions and headline news about a looming recession certainly have investors on edge, but the U.S. consumer (2/3rds of GDP) remains mostly upbeat.

For the week, the DJIA fell 0.98% while the S&P 500 dropped 1.42%. The volatile NASDAQ declined 1.81%. Developed international markets fared better. For the week, the MSCI EAFE index advanced by 0.86% while emerging market equities (MSCI EM) inched higher by 0.38%. Small company stocks, represented by the Russell 2000, finished lower by 2.27% for the week. Fixed income, represented by the Bloomberg/Barclays Aggregate, finished the week slightly higher as investors continued to flee to the perceived safety of bonds. As a result, the 10 YR US Treasury closed at a yield of 1.52% (down ~3 bps from the previous week’s closing yield of 1.55%). Not surprisingly, Gold prices closed at $1,526.60/oz – up 0.93% on the week. Oil prices dropped $0.64 last week as signs of slowing global growth lowered future demand expectations.

We wish the markets were calmer and less frenetic, but that is not the case. We expect the markets to continue to overreact to headline news regarding trade with China. We suggest investors stay close to their long-term target asset allocations with a slight defensive bias.

“All you need is the plan, the road map, and the courage to press on to your destination.”Earl Nightingale

NDS Weekly Commentary 8.19.19 – Volatility Continues

August 19, 2019

Stock markets worldwide were lower last week as weak economic data out of China and Germany rattled investors. Chinese industrial production slowed to 4.8% year-over-year, the weakest since 2002, while German GDP contracted -0.1% for the 2nd quarter of 2019. Trade worries continued to hang over the markets as China and US exchanged threats. However, hidden behind all of the negative global headlines were July retail sales that rose a healthy 0.7% month-over-month and new home permits were up 8.4% month-over-month and now up 1.5% year-over-year. It’s important to remember consumption is two-thirds of U.S. GDP and retail sales are 43% of consumption.

Despite an 800 point selloff in the DJIA on Wednesday, markets bounced back and finished the week modestly lower. For the week, the DJIA, the S&P 500, and the NASDAQ were down -1.4%, -0.9% and –0.9%, respectively. Developed international and emerging markets declined -1.5% and -1.0%. The best performing sectors for the week were the more defensive (albeit overvalued) consumer staples, utilities, and real estate.

The increased volatility has benefited fixed income markets as investors sought shelter in U.S. Treasury securities. Interest rates continued to fall for the week. During the week, the 30 year U.S. Treasury bond briefly dipped below 2.0%. At one point during the week, the yield on the 2 year and 10 year U.S. Treasury briefly inverted raising recessionary concerns. However, by the end of the week the 10 year ended at 1.55% down from 1.74% and the 2year was at 1.48%. While recessionary fears are rising we do not anticipate a recession in the near-term.

This week is a slow week for economic news with only reports on existing home sales, new home sales and preliminary mfg. PMI.

We would remind investors to maintain a well-diversified portfolio to help weather periods of market volatility.

“Failure will never overtake me if my determination to succeed is strong enough.”Og Mandino