ND&S Weekly Market Commentary (1.27.20) – The Threat of Virus

January 27, 2020

During the holiday shortened week, investors and traders were shocked by the news of China quarantining two cities and locking down nearly 18 million people to prevent the coronavirus from spreading. As a result, the Dow Jones Industrials (DJIA) declined 1.2%, the S&P 500 dropped 1.0% and the tech-heavy NASDAQ also slipped 0.8%. Emerging markets stocks (MSCI EM) which includes China, slid 2.4% and developed international (EAFE) lost 0.6%.

The global growth fears as a result of the virus have also hit commodities especially metals, oil and refined fuels. On Friday, copper prices recorded their largest weekly decline in five years. For the week, the price of US crude oil plunged over 7.5% to $54.14 per barrel. Gold closed the week 1.3% higher as fears of a global economic slowdown sent investors to safe haven assets.

Corporate earnings for the 4th quarter of 2019 have mostly come in ahead of analysts’ expectations. Over 70% of the companies that have reported beat their expectations according to FactSet. The sector dragging down earnings results is again energy. Over the last 5 years, energy stocks in the S&P 500 are down roughly 24% and are by far the worst performing sector.

US Treasury yields continued their downward trend as a result of concerns about the coronavirus outbreak triggering a flight to safety. The 10-year U.S. Treasury finished at 1.70% down from 1.92% at the beginning of the year.

On the economic front, December existing home sales climbed 3.6% to 5.540 million, surpassing the 5.430 million consensus. Though jobless claims rose modestly to 211,000, they were still lower than the 215,000 expected. The January IHS Markit Flash U.S. Manufacturing PMI fell to 51.7 from a reading of 52.4 in December. However, the PMI reading on Services activity advanced to 53.2 from 52.8.

This coming week we will see major economic data reported: Q4 GDP, new home sales, durable goods orders, consumer confidence and personal income/consumer spending. Leading companies, Apple, Facebook, Microsoft and many more will be reporting their quarterly results.

In addition to the impeachment hearing, geopolitical conflicts and the virus threats to the global economy, there are concerns that market valuations are a bit extended. The forward price-to-earnings (PE) ratio of 18.5 is the highest since June 2002, aside from a brief period in early 2018. We recommend raising cash levels for foreseeable needs while maintaining longer term asset allocations. Remember that dividend growth will continue to provide substantial returns for patient investors. In the fourth quarter investors added $10 billion to dividend exchange traded funds and we expect dividend focused investing will continue.

“Courage is an inner resolution to go forward despite obstacles” – Martin Luther King, Jr.

NDS Weekly Commentary (1/21/20) – Positive Momentum Continues

January 21, 2020

Markets continued to grind to new record highs last week due to positive bank earnings and commentary, another round of analyst price target revisions, and the official agreement of the China-US phase one trade deal.

For the week, the DJIA advanced 1.84% while the S&P 500 gained 1.99%. The tech-heavy Nasdaq was up 2.29%. International markets were also strong as the MSCI EAFE index gained 0.86% while emerging market equities (MSCI EM) increased 1.17% (January – March is a seasonably strong period for emerging market equities). Small company stocks, represented by the Russell 2000, jumped ahead by 2.54% for the week. Fixed income, represented by the Bloomberg/Barclays Aggregate, finished the week flat as the yield curve remained roughly the same. As a result, the 10 YR US Treasury closed at a yield of 1.84% (up ~1 bps from the previous week’s closing yield of ~1.83%). Gold prices closed at $1,558/oz. Oil prices pulled back under $59 per barrel last week as oil remains mostly range bound due to sufficient supply and tepid demand.

Economic data released last week was mostly in-line with expectations. The U.S. Bureau of Labor Statistics (BLS) reported that the Consumer Price Index (CPI) advanced 0.2% in December, missing expectations of a 0.3% advance. CPI has increased 2.3% year over year. The BLS also reported that the Producer Price Index (PPI) for final demand edged higher by a modest 0.1%. Inflation remains well under control and of little risk to the market. Retail and food services increased 0.3% (month over month) in December to $529B, matching expectations. It increased 3.6% in 2019 showing consumer’s willingness to continue to spend and companies’ ability to pass on modest price increases.

We acknowledge that valuations on the market are elevated at current levels and momentum clearly has control of the market following a very strong 2019. Earnings season kicked off last week and so far the results have been positive versus consensus. Earnings reports will continue this week with 39 companies comprising the S&P 500 scheduled to report results. Over the next few weeks, earnings will be critically important for the positive momentum to continue. We continue to recommend investors stay close to their long-term target asset allocations and with a slight defensive bias.

“Life’s most persistent and urgent question is, ‘What are you doing for others?’ “Martin Luther King, Jr.

Weekly Commentary (01/13/20) – Markets up as Tensions Ease

January 13, 2020

Markets advanced last week as geopolitical tensions between the U.S. and Iran eased. Also helping the market move higher were multiple stock upgrades and mostly better-than-expected economic news.

For the week, the DJIA advanced 0.67% while the S&P 500 gained 0.98%. The tech-heavy Nasdaq jumped 1.76% following the upgrade of several FANG stocks and other bellwether tech names. International markets were mixed. For the week, the MSCI EAFE index (developed markets) inched lower by 0.08%% while emerging market equities (MSCI EM) jumped 0.88% (January – March is a seasonably strong period for emerging market equities). Small company stocks, represented by the Russell 2000, finished lower by 0.18% for the week. Fixed income, represented by the Bloomberg/Barclays Aggregate, finished the week slightly lower as the yield curve continued to steepen. As a result, the 10 YR US Treasury closed at a yield of 1.83% (up ~3 bps from the previous week’s closing yield of ~1.80%). Gold prices closed at $1,557.50/oz – up 0.54% on the week. Oil prices fell 6.35% on receding geopolitical tensions.

Economic news released last week confirmed a resilient jobs market, moderate economic output and still moderate inflation. On Tuesday, the Institute of Supply Management (ISM) reported that the non-manufacturing index (services) increased 1.1% in December to 55.0%, ahead of consensus of a 54.3% level. New orders for manufactured goods in November declined 0.7% (slightly better than the expected 0.8% drop) as reported by the Commerce Department on Tuesday. On Wednesday, ADP released its employment report for the month of December. The report showed a 202,000 increase in private sector jobs, beating expectations for 160,000 additional jobs. On Thursday, the Department of Labor reported weekly initial jobless claims (for the week ending January 4) of 214,000, 6,000 below consensus of 220,000. Layoffs remain quite low and reflect a resilient labor market. On Friday, the Labor Department reported that 145,000 jobs were added in December – slightly below expectations for 160,000. Nevertheless, the unemployment rate held firm at 3.5% while the labor force participation rate was a 63.2% (close to its highest rate in over 6 years). This week will see the release of CPI, PPI, retail sales, industrial production, consumer sentiment, the Philly Fed survey and the Empire manufacturing survey. On the trade front, the U.S. and China are expected the sign the phase one trade agreement this week (fingers crossed …).

Economic and market fundamentals remain reasonable. 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 nicely higher over the past year and haven’t experienced a 1% daily pullback in over three months.

“Beware of little expenses. A small leak will sink a great ship.”Benjamin Franklin

NDS Weekly Commentary 1.6.20 – Volatility Ahead

January 6, 2020

Following 2019’s strong gains and momentum, stocks began 2020 and last week with a sense of optimism. However, by the end of the week, markets were rattled by increased tension in the Middle East resulting from the death of Iranian General Soleimani from a U.S. drone strike. Stocks finished down on Friday erasing gains from earlier in the week. For the week, the S&P 500 was off -0.1%, the DJIA and MSCI EAFE were flat with emerging equities up 0.48%. As a result of the increased volatility, investors sought safety in government bonds and gold. The rate on the 10 year U.S. treasury fell from 1.88% to 1.79% and gold rose 2.15% for the week. The best performing equity sectors last week were industrials, energy and technology.

Economic reports scheduled to be released this week include both the ISM and Markit non-mfg. Purchasing Manager’s Indexes (PMI), international trade, and the monthly jobs report. Geopolitics will likely grab headline news especially relations regarding Iraq and Iran. For 2020, most economic projections look for the year to have modest GDP growth of around 2% with no recession. A well-diversified portfolio should help you weather a volatile period in the markets.

Let’s make it a good year!

“We must stop politics at the water’s edge.” – Arthur Vandenberg

ND&S Weekly Commentary 12.30.19 – Happy New Year!

December 30, 2019

Santa brought investors a positive holiday-shortened week. The Nasdaq reached all-time highs on Thursday and the Dow Jones Industrial Average (DJIA) and S&P 500 finished at their highest levels as well. For the week, the tech-heavy Nasdaq gained 0.91%, while the S&P 500 and DJIA returned 0.60% and 0.67%, respectively. So far this year, technology stocks in the S&P 500 have risen 48%. Investor enthusiasm spread internationally with developed equity markets (MSCI EAFE) gaining 0.77% and developing markets (MSCI EM) surging 1.16%. Interest rates declined as the yield on the 10yr U.S. Treasury came down from 1.92% the previous week to end at 1.87%.

Investors felt better about improving trade relations between the U.S. and China, positive economic data and booming retail sales from November 1st through Christmas Eve. According to the MasterCard Spending Pulse™, online spending grew 18.8% compared to 2018 with 14.6% of all retail sales taking place online.

Oil prices continue to see support from OPEC efforts to curb supply as well as hopes that the U.S./China trade deal will bolster global oil demand. West Texas Intermediate (WTI) and International Brent Crude markets were both up over 2% on the week. Gold prices also rallied 2.25%, which is a sign investors are hedging a little against equities.

On New Year’s Eve, consumer confidence will be reported and the Federal Reserve’s December meeting minutes will be released Friday along with an ISM Manufacturing report.

Without question it has been an eventful and prosperous year. We continue to recommend staying diversified and favoring dividend income and growth. Dividends have accounted for approximately 33% of the S&P 500 total return since 1960.

Wishing the very best for the New Year!

NDS Weekly Commentary 12.23.19 – December Equity Rally Continues

December 23, 2019

Equities reached new milestones last week as all three major US indices touched new all-time highs. The rally persisted due to abating concerns on trade and geopolitics. Work continues on the details of the preliminary phase one trade deal struck between the US and China a week ago. US Treasury Secretary, Steve Mnuchin, said he expects the pact to be signed in early January. This, along with the imminent passage of the USMCA (revised trade deal with US-Mexico-Canada), has removed anxieties that weighed on the market throughout 2019.

For the week, the DJIA increased 1.1%, the S&P 500 rose 1.7%, and the tech-heavy NASDAQ climbed 2.2%.  International stocks were also positive on the week with developed country stocks (MSCI EAFE) and emerging markets stocks (MSCI EM) adding 0.6% and 2.0%, respectively. As expected, fixed income assets struggled on the week with the 10yr U.S. Treasury closing 9bps higher at a yield of 1.92%.

As is well known by now, the US House of Representatives passed two articles of impeachment against the US President. This is the third time in history a sitting US President has been impeached by the US House of Representatives. Without additional information, the equity markets will remain unfazed as it seems unlikely the President will be removed in a Republican-led senate.

Economic data on the week was quite positive. The Markit Flash U.S. Composite PMI Output Index for December registered a reading of 52.2, up from 52.0 in November. The improved reading was helped by services sector growth and improving manufacturing conditions. Industrial production increased 1.1% in November, which beat expectations of a 0.8% increase.  On Friday, the Bureau of Economic Analysis (BEA) reported that real U.S. Gross Domestic Product (GDP) increased to 2.1% (in-line with expectations) in the 3rd quarter. The BEA also reported that personal income rose 0.5% in November, which outpaced estimates of a 0.3% increase.

As a reminder, the U.S. markets will close at 1:00pm EST Tuesday and the full day Wednesday in observation of Christmas Day. Most importantly, we wish to extend to all a peaceful and enjoyable holiday season!


Weekly Commentary (12/16/19) – Markets up on Trade Deal

December 16, 2019

Markets advanced last week in anticipation of and on news that the U.S. and China have agreed on a Phase One trade deal. While the deal has not been officially signed, the Office of the United States Trade representative issued a press release saying that the deal “achieves meaningful, fully-enforceable structural changes and begins rebalancing the U.S. – China relationship.” Also supporting the markets was continued dovish news from the Fed as they decided at their December meeting to leave interest rates unchanged.

For the week, the DJIA advanced 0.43% while the S&P 500 gained 0.73%. The tech-heavy Nasdaq added on 0.91%. International markets moved higher on renewed hopes for a pickup in global growth. For the week, the MSCI EAFE index gained 1.72% while emerging market equities (MSCI EM) jumped 3.63% (January – March is a seasonably strong period for emerging market equities). Small company stocks, represented by the Russell 2000, finished ahead by 0.25% for the week. Fixed income, represented by the Bloomberg/Barclays Aggregate, finished the week slightly higher as the yield curve continued to steepen. As a result, the 10 YR US Treasury closed at a yield of 1.82% (down ~2 bps from the previous week’s closing yield of ~1.84%). Gold prices closed at $1,475.60/oz – up 1.13% on the week. Oil prices jumped 1.47% last week as oil remains mostly range bound due to sufficient supply and tepid demand.

Economic news released last week confirmed a strong jobs market and still moderate inflation. On Wednesday, the U.S. Bureau of Labor Statistics (BLS) announced that the Consumer Price Index (CPI) advanced 0.3% in November and 2.1% year-over-year. Core CPI advanced 0.2% in November and 2.3% over the past 12 months (in-line with expectations). On Thursday, the BLS reported that the Producer Price Index (PPI) was unchanged in November, lower than expectations for a 0.2% advance. The PPI advanced 1.1% year-over-year which was lower than consensus for a rise of 2.0%. Neither the CPI nor the PPI point to unreasonable or out of control inflation, and this gives the Fed more time to remain accommodating. On Thursday, the Department of Labor reported that initial jobless claims for the week ending December 7 were 252,000, above expectations of 213,000. The labor market remains quite resilient, and jobless claims remain under the 300,000 threshold for the longest streak of weekly records for data reaching back to 1967. On Friday, the U.S. Commerce Department reported that retail and food-service sales moved ahead by 0.2% in November, below expectations for a 0.5% advance.

Economic and market fundamentals remain reasonable. We suggest investors stay close to their long-term target asset allocations with a slight defensive bias.

“The measure of who we are is what we do with what we have.”Vince Lombardi

ND&S Weekly Commentary 12.09.19 – The Week Ends on a Positive Note

December 9, 2019

A strong U.S. jobs report released Friday mostly wiped out stock losses from earlier in the week. The U.S. Labor Department reported that employers added 266,000 jobs in November, well above estimates for 184,000. The report also showed unemployment dropped to 3.5%, a 50 year low. Separately, a report on consumer sentiment showed an increase from the prior month. This week look for economic reports on CPI, PPI and retail sales. Based on reports for black Friday and on-line sales, retail sales should continue to be a positive for the U.S. economy as the consumer remains healthy and supportive of the economy.

Stocks ended the week little changed with the S&P 500 up 0.21% and the DJIA and the NASDAQ down 0.06% and 0.08%, respectively. Historically December has been one of the best months of the year. The DJIA, S&P 500 and Russell 2000 indexes have ended higher in December more than another month. International equities ended the week on a positive note with developed markets up 0.38% and emerging markets up 0.88%. For the week, the best performing sectors were energy, consumer staples and healthcare. The worst sector was industrials. In fixed income, interest rates rose last week as the rate on the 10 year U.S. Treasury went from 1.78% to 1.84%.

The Federal Reserve will hold its final meeting of the year this week and is expected to leave interest rates unchanged. Investor attention will also have an eye on trade relations with China as Sunday’s December 15th deadline for increased tariffs on Chinese goods takes effect.

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

Let’s Give Thanks

December 2, 2019

Investors and traders should be thankful for the financial markets that keep on giving. Once again the US stock market reached all-time highs during the Thanksgiving Day holiday week. Improving economic data and progress towards a US and China Phase 1 trade deal created a positive and optimistic tone throughout the week.

The DJIA rose 0.75%, the S&P 500 added 1.04% and the Nasdaq finished up 1.72%. Developed international markets, as measured by the MSCI EAFE, also fared well increasing 0.52%. Emerging market equities were the only laggard down 0.80%. Despite recession worries and political turmoil in Washington, consumers, representing 70% of our GDP, are still spending. 3Q19 GDP was increased to 2.1% outpacing expectations for a 1.9% increase. The solid job market with historically low unemployment, a 3% increase in wages, and lower debt burdens have given consumers a lot to be thankful for and optimistic about their future. As a result, Black Friday hit a record $7.4 billion in US online sales with $2.9 billion in purchases made directly from smartphones.

For the week, consumer discretionary was the best sector climbing 1.78% with info tech coming in next up 1.73%. The energy sector continues to lag down 1.55% due to oversupply worries and US and China trade tensions. Fixed income assets moved sluggishly with the 10 year US Treasury remaining at around a 1.78% yield. The safe haven investment, gold, also was down 0.3% and declined 4% in November, its worst month in three years.

There will be economic reports on employment, consumer confidence, and Markit/ISM manufacturing and service PMIs. We would not be surprised if the markets paused for a while given the market’s healthy advance recently.

“Feeling gratitude and not expressing it is like wrapping a present and not giving it.” – William Arthur Ward

ND&S Weekly Commentary 11.25.19 – Trade Comes Back Into Focus

November 25, 2019

Equities finished the week modestly lower as trade came back into focus. President Trump appears reluctant to reduce tariffs without further concessions from China. On Friday, Chinese President Xi Jinping sounded hopeful the sides could reach a “phase one” trade deal with the U.S. that is based on “mutual respect and equality”. Complicating matters is a bi-partisan bill supporting pro-democracy activists in Hong Kong that was passed by the Senate and House and is awaiting the President’s signature. Beijing has voiced displeasure with the bill. Thus far, they have kept the issue in Hong Kong separate from trade talks, however, that could change the longer the trade issue carries on.

The S&P 500, DJIA, and Nasdaq were all negative on the week as they finished down 0.29%, 0.41%, and 0.20%, respectively. International equities also finished lower with the MSCI EAFE off 0.57% and emerging markets down fractionally. Bonds were positive on the week with yields moving lower. The 10 Year US Treasury closed at a yield of 1.77%. Gold prices continued to hover around the $1,470/oz level. Oil prices rebounded last week closing at $57.88/barrel, the highest level in 2 months.

Economic data released last week was mixed. U.S. housing starts advanced 3.8% month over month in October which came in slightly below expectations. However, existing home sales advanced 1.5% in October which beat expectations. Flash purchasing managers’ indices (PMIs), released on Friday, showed that the global manufacturing sector continued to stabilize with improved readings in the US, Europe and Japan. The upcoming holiday-shortened week includes economic data reports on 3Q19 real GDP (2nd estimate), trade balance, durable goods orders, and personal consumption expenditure (PCE/Core PCE).

Best wishes for a Happy Thanksgiving!

“Vegetables are a must on a diet. I suggest carrot cake, zucchini bread, and pumpkin pie.” Jim Davis