ND&S Weekly Commentary 3.25.19 – Fed Guidance Throws Market for Loop

March 25, 2019

Markets sold off sharply into the close Friday to close the week in the red. The DJIA closed lower by 1.34%, while the broader-based S&P 500 moved lower by 0.75%. Smaller US companies gave back the most closing down 3.05% on the week. International stocks were mixed with the MSCI EAFE declining 0.33% and emerging increasing a modest 0.24%. Yields had a strong move lower following the Fed’s dovish guidance. The 10yr Treasury yield closed the week at a yield of 2.44%, down from 2.59% the week prior. Gold increased to $1312/oz.

The Federal Reserve dialed back their rate hike outlook and surprised the market by projecting zero interest rate increases in 2019, down from the committee’s December projection of two. Futures markets are beginning to price-in a cut in rates later this year. Additionally, the committee announced that it would end its balance sheet run-off in September with its primary goal of owning only treasuries. In an effort to stimulate the economy during the financial crisis, the Fed purchased mortgage-back securities (which are more risky than US Treasuries) to prop up the US housing market. The Fed’s projections for economic growth and inflation were trimmed to 2.1% and 1.8%, respectively.

Weak manufacturing data fueled growth worries last week. Factory activity in Europe fell deeper into contraction territory, slipping to 47.6. Sentiment weakened in the US as well with the flash manufacturing reading falling to 52.5 in March. An index reading below 50 is considered to be contraction. This week, look for economic reports on housing, consumer confidence, and inflation.

Let’s make it a great week!

“Excellence is the gradual result of always striving to do better.” – Pat Riley

ND&S Weekly Market Commentary (3.18.19) – Markets Continue March Higher

March 18, 2019

Equity markets roared back last week after suffering their worst week of 2019. For the week, the DJIA increased 1.10%, despite pressure on shares of Boeing after the tragic loss of 157 lives in another Boeing 737 Max 8 crash in Ethiopia, prompting countries to respond by grounding the new series of planes around the world. The broader-based S&P 500 jumped 2.95% and the tech-heavy NASDAQ increased 3.81%. International markets also experienced a strong week with the MSCI EAFE increasing 2.81% and emerging markets closing higher by 2.67%. Mixed economic data for the week pushed yields lower on US Treasuries. The yield of the 10yr Treasury closed at 2.59%, down from 2.62% the week prior. Gold prices rebounded to about $1,300oz. while WTI crude pushed above $58 a barrel.

The week began with Monday’s release of both retail sales and food-services which increased 0.2% in January, beating estimates. However, December’s estimate was revised lower showing a 1.6% decline. On Tuesday, the consumer price index (CPI) was released showing an increase of 0.2% in February, matching expectations. Over 12 months, the CPI increased 1.5% giving the Fed plenty of reason to proceed with caution ahead of this week’s FOMC meeting. On Thursday, data was released showing that new home sales in January decreased 6.9% m/m coming in below estimates. On Friday, industrial production ticked up 0.1% in February missing expectations for a 0.4% increase.

The British Parliament undertook a series of votes last week to clear the path toward a “Brexit” deal, which is scheduled to happen on March 29th. Lawmakers rejected the latest agreement potentially setting the stage for a withdrawal without an agreement. The political theater will continue this week with a third vote on the withdrawal agreement, this ahead of the European summit later in the week. Eurozone industrial production rose a stronger-than-expected 1.4%. Manufacturing activity tends to be more sensitive to the economic cycle than services.

Investors will be looking ahead to this week’s meeting of Federal Reserve policy makers. The FOMC is expected to leave rates unchanged when they conclude their two-day meeting on Wednesday. Most expectations are for the Fed to hike rates once in 2019 and once more in 2020, while maintaining their “wait and see” stance adopted in January.

Don’t forget to watch March Madness … a nice diversion from the day-to-day noise of the markets and headline news!

“It’s not how big you are, it’s how big you play.”John Wooden

Weekly Commentary (03/11/19) –Markets Retreat on Global Growth Concerns

March 11, 2019

Markets were weak last week as investors focused on continuing signs of slowing global growth. China reduced its target GDP for 2019 from 6.5% to a range of 6.0% to 6.5%. Most investors attributed China’s slowdown to ongoing trade tensions with the U.S., but investors should remember that China is transitioning to a consumption-based economy that will necessarily lead to structurally lower growth.

For the week, the DJIA gave back 2.17% while the S&P 500 lost 2.12%. The volatile Nasdaq declined 2.43%. Developed international markets retreated as the MSCI EAFE index dropped 1.91% for the week. Emerging markets also lost ground as the MSCI EM index retreated 1.99%. Small company stocks, represented by the Russell 2000, were the biggest losers as the index dropped 4.23% for the week. Fixed income, represented by the Bloomberg/Barclays Aggregate, finished the week higher (+0.68%) as investors seeking safety flocked to U.S. bonds. As a result, the 10 YR US Treasury closed at a yield of 2.62% (down 14 bps from the previous week’s closing yield of 2.76%). Gold prices closed at $1,297/oz – up 0.05% on the week. Oil prices inched higher as oil closed at $56.07 – up by 0.48% on the week.

Perhaps the U.S. markets have moved a bit too far too fast. We would not be surprised by continued volatility, but underlying economic conditions in the U.S. remain reasonable. We have likely seen peak GDP and earnings growth for the time being, but domestic valuations are still in-line with historic metrics. International economic conditions are slowly deteriorating, but valuations have come down quite a bit to reflect softening conditions.

It is our intention to look through the day-to-day noise of the markets and focus on fundamentals.

Enjoy the week ahead, and let’s hope that Punxsutawney Phil was right … maybe spring will be right around the corner.

“Spring is nature’s way of saying, ‘Let’s Pary!’ “ – Robin Williams

ND&S Weekly 3.5.19 – GDP Report – Better Than Expected

March 5, 2019

The initial estimate for 4Q18 GDP was reported last week and showed the U.S. economy grew 2.6%, beating analyst expectations. For 2018 as a whole, the economy grew at a solid 2.9% rate up from 2017’s 2.2% pace. Consumption and business fixed investment were the main contributors at 1.8% and 0.9%, respectively, aided by the tax cuts. Housing’s contribution was close to zero reflecting the dampening effect of higher mortgage rates.

Stock markets continued to advance last week with the S&P 500 up 0.46%, the DJIA up 0.07% and the NASDAQ 0.93%. Internationally, the MSCI EAFE advanced 0.58% while emerging markets declined 0.65%. The best performing S&P 500 sectors last week were energy, technology and financials. Bond prices slipped last week as the rate on the 10-year U.S. treasury rose from 2.65% to 2.76%.

This week, look for economic reports on productivity, housing starts and February jobs numbers. Expectations are for 185,000 new jobs versus 304,000 reported in January. For 2019, we look for a slowing in GDP growth to a pace of 2.0%- 2.5%. Expectations for the first quarter have been revised lower to reflect the negative impact due to the government shutdown.

“Snow brings a special quality with it – the power to stop life as you know it dead in its tracks.” – Nancy Hatch Woodward

Weekly Commentary 02.25.2019 – A Home Run or Ball 4

February 25, 2019

With baseball season starting it’s only fitting that the market closed on Friday with a “ninth” straight week of gains. Federal Reserve concerns were calmed by the release of their “dovish” January meeting minutes. There were positive trade resolutions with China, and fourth quarter earnings season has been better than the “bears” expected.
The shortened President’s Day week was fairly positive for equity markets. The DOW industrials and the S&P 500 rose 0.6% and the tech heavy Nasdaq advanced 0.74%. The Russell 2000 was the winner increasing 1.27%. The best performing sectors were Utilities 2.4%, Basic Materials 2.4%, and Tech 1.4%.
China’s leaders and President Trump along with his key negotiators, met and cited progress from the latest round of talks. President Trump said he would be willing to extend the March 1st new tariff deadline and the delegation will remain in Washington a few more days to continue negotiations. The global markets reacted favorably with Developed equity markets advancing 1.5% and Emerging increasing 2.7% for the week.
The Federal Reserve, disclosed in minutes of their Jan. 29-30 meeting, confirmed earlier statements that they are willing to be patient in raising rates and flexible in shrinking its balance sheet. US Treasuries rallied with the yield on the 10 year dropping 4bps to 2.65%.
Another driver of the week’s gains was better than expected corporate earnings and revenues. Thus far 89% of the companies in the S&P 500 have reported fourth quarter results, 69% of S&P 500 companies reported a positive EPS surprise and 61% reported a positive revenue surprise. The forward 12-month price to earnings ratio for the S&P 500 is now 16.2 which is in line with the five year average of 16.4.
Along with trade talks and Washington political haggling there will be a slew of important economic data released this week. On Wednesday housing starts, Thursday fourth-quarter GDP and on Friday ISM manufacturing, consumer confidence, and auto sales will be reported.
Though the drivers of the markets were in place last week, we continue to have our eyes on the strength of the US and global economies going forward. We recommend staying diversified and take advantage of a potential market sell-off, favoring dividend growth to help mitigate volaltility.
“Baseball is 90% mental and the other half is physical.”–Yoga Berra

ND&S Weekly Commentary 2.19.19 – Crisis Averted

February 19, 2019

The equity markets’ resilience continued last week as trade progress with China and a government-spending bill that averted another shutdown provided the lift. For the week, the DJIA jumped higher by 3.21% while the broader-based S&P 500 closed up 2.56%. Smaller US companies continued their surge closing the week up 4.22%. However, international equities were mixed with the MSCI EAFE up 2.04% and emerging markets down 0.49%. Yields pushed higher on the week with the 10yr US Treasury yield settling at 2.66%, up 3bps from the previous week.

With roughly two weeks remaining in the US-imposed 90-day negotiating window with China, media suggested that President Trump is considering extending the deadline for another 60 days as progress is being made. There are plenty of thorny issues still to be ironed out, but optimism over a potential deal helped support markets last week. Additionally, congressional negotiators cobbled together a spending package to fund the government through the end of the fiscal year. The agreement did include some funding for barriers, but much less than the White House requested. No doubt this removed some uncertainty in the short-term.

With roughly 80% of the constituents of the S&P 500 Index having reported for Q4 2018, forecasted earnings growth is running at a 13.1% year-over-year pace while revenues are seen rising 7% compared with the same quarter a year ago, according to FactSet Research. However, estimates for Q1 continue to be lowered with analysts now expecting earnings per share to decline around 2.5% this quarter. There is plenty of talk in the financial media about the potential “earnings recession” but that doesn’t necessarily mean equities will be negative in that environment. We are monitoring this closely as the bar has been set low with potential upside surprises looming.

In the week ahead, the minutes of January’s FOMC meeting will be released as well as economic reports on durable goods order and existing home sales. Let’s make it another good week!

“In preparing for battle I have always found that plans are useless, but planning is indispensable.”Dwight D. Eisenhower

Weekly Commentary (02/11/19) – A Mixed Bag: Will February Make Us Shiver?

February 11, 2019

Markets were mixed last week as heightened global growth concerns dominated the headlines. Fed Chairman Jerome Powell reiterated that the Fed would remain ‘patient’ … excellent news for investors.

For the week, the DJIA gained 0.32% while the S&P 500 tacked-on 0.11%. The volatile NASDAQ advanced 0.53%. Developed international markets retreated as the MSCI EAFE index dropped 1.38% for the week. Emerging markets also lost ground as the MSCI EM index declined 1.34%. Small company stocks, represented by the Russell 2000, finished 0.32% for the week. Fixed income, represented by the Bloomberg/Barclays Aggregate, finished the week slightly higher (+0.38%) in a quiet week for bonds. As a result, the 10 YR US Treasury closed at a yield of 2.63% (down 7 bps from the previous week’s closing yield of 2.70%). Gold prices closed at $1,313.70/oz – down 0.24% on the week. Oil prices sold off as oil closed at $52.72 – lower by 4.60% on the week.

February is off to a reasonable start, but will February make us shiver? It all depends on a few key events. The weeks ahead will be filled with uncertainty in the run-up to the important March 1 trade deadline with China that could see trade tariffs increase from 10% to 25%. Rhetoric out of the White House will likely downplay the event, but investors know that a deal with China is crucial for further gains in worldwide markets. Not to be forgotten, a potential second government shutdown still looms. Let’s hope that Congress and the president can find a reasonable path forward.

In the meantime, Newman Dignan & Sheerar, Inc. does not plan to add to risk assets in any meaningful way until the drama in Washington subsides.

“But February made me shiver
With every paper I’d deliver
Bad news on the doorstep
I couldn’t take one more step”

– Don McLean

NDS Weekly Commentary 2.4.19 – 2019 Off to a Good Start

February 4, 2019


ND&S Weekly Update – 1.28.19 – “Come Together – The Beatles Song”

January 28, 2019

Last week, the markets were very close to extending their four-week winning streak that saw them gain 11%. For the week, the Standard & Poor’s 500 declined 0.21%, while the Dow (DJIA) and the Nasdaq rose a meager 0.12% and 0.11%, respectively. International equities fared well with developed moving 0.48% and emerging 1.42%.
As leaders gathered at the World Economic Forum last week, investors contemplated and digested better-than-expected US corporate earnings and indications of slower global economic growth. China reported an estimated 6.6% GDP, its slowest annual pace since 1990. Commerce Secretary Wilbur Ross stated that the US is “miles and miles away from a trade deal with China.” President Trump has promised to increase the existing 10% tariff on over $200 billion in Chinese imports to 25%, if a deal is not reached. Monty Hall: “Let’s Make A Deal.”

Fortunately, an interim reprieve to end the government shutdown after 34 days was agreed to on Friday. However, lawmakers have until February 15th to agree to an extended deal. Economic advisors are warning that the shut-down could lead to near zero growth in the first quarter. The European Central Bank backed off from increasing interest rates, citing the “cooling off” of the European economy, as countries including Germany have lost some strength. U.S. fixed income markets were rather tame with the yield of the 10 year Treasury staying about the same at 2.77%. The government shutdown has caused delays in the reporting of economic data somewhat deferring bond investors’ trades.

Three-fourths of the ninety seven S&P 500 companies reporting have reported higher quarterly profit estimates. There’s nothing like better corporate earnings to soothe investors’ worries. Earnings will kick into high gear this week with 153 S&P 500 companies reporting quarterly results.

We desperately need improved negotiations to resolve the US-China trade conflict, the battle of Brexit and the US government shutdown. This week will be eventful with the Federal Reserve’s first policy meeting of the year, US jobs data, more trade talks and Senate meetings as well as impactful corporate reports including Apple, Microsoft, Facebook and Amazon.

“As a player, it says everything about you if you made the Hall of Fame. But then again, boy….there’s something about winning a Super Bowl”Terry Bradshaw


Markets Push Higher as Shutdown Continues (1.22.19)

January 22, 2019

Markets pushed higher for the week as sentiment continued to shift away from fear and pessimism that have dominated markets for the past few months. Equities have now retraced 50% of the peak-to-trough decline that began in September 2018. A definitively more dovish Fed, positive U.S./China resolution, and continuation of US earnings growth (albeit lower than 2018 …) are the likely catalysts to keep the rally alive.

For the week, the DJIA increased 3.0% while the broader-based S&P 500 was up 2.9%. Smaller US companies representing the Russell 2000 closed 2.4% higher on the week. International equities also finished the week in the green with the MSCI EAFE and MSCI EM up 1.1% and 1.7%, respectively. 10yr US Treasury yields ended the week higher at a yield of 2.79%. Oil (WTI) continued to press higher closing at $53.80 a barrel despite record production levels in the U.S.

Company earnings reports and guidance will likely drive the market in the short-term as the reporting of economic data has been disrupted by the partial US government shutdown. Fourth-quarter earnings season kicked off last week with mostly positive reports from a number of Wall Street money center banks. This week, 65 companies in the S&P 500 are scheduled to report. Fourth-quarter earnings are expected to increase 10.3% compared with the same quarter a year ago. Analysts are expecting revenues to rise 5.75% for the quarter, according to FactSet Research.

It is too soon to determine the impact of the longest partial government shutdown in history. We do know, however, that a shutdown will be a negative drag on economic growth. A resolution this week will certainly be welcomed. The impact of the shutdown combined with earnings season will keep market volatility elevated.

“If you can’t fly then run, if you can’t run then walk, if you can’t walk then crawl, but whatever you do you have to keep moving forward.” – Dr. Martin Luther King Jr.