ND&S Weekly Commentary 6/24/19 – Easing Ahead
June 24, 2019
Last week at the June FOMC meeting the Federal Reserve decided to maintain the target range for Fed funds at the 2.25%-2.50% rate. However, they did abandon the word patience in the minutes and replace it with “will act as appropriate to sustain the expansion” implying easing ahead. Most economists now are predicting a rate cut at the July meeting with a possible second cut later in the year. As a result, global equity markets continued their advance with the S&P 500, DJIA and NASDAQ up 2.22%, 2.41% and 3.0%, respectively. International developed markets and emerging markets advanced 2.22% and 3.84%. For the week, the best performing sectors were energy, technology and healthcare. Energy stocks got a boost last week as Iran continues to rattle the Mid-East by shooting down a U.S. drone over the Strait of Hormuz. Look for volatility to continue for the near-term and maintain your diversified asset allocations.
In fixed income, bond prices also got a boost from easing comments from the Fed and the ECB. The 10 year U.S. Treasury finished the week at a yield of 2.07%, which was down from 2.09% and at one point traded below 2.0%. This week look for economic reports on consumer confidence, new home sales and durable goods orders.
“There is no risk-free path for monetary policy.” – Jerome Powell
NDS Weekly Commentary (6.17.19) – Equities Grind Higher
June 17, 2019
Last week the markets were rather tame in quiet trading. All eyes will be on the Federal Reserve’s comments following Wednesday’s meeting. The recent tepid economic data is seen as a positive step for the Fed to signal a dovish stance and possibly lower the Federal Funds rate. Recent tensions in the Middle East, together with ongoing tariff battles, have weighed heavily on investors’ minds.
The S&P 500 gained 0.53% and the tech-heavy NASDAQ rose 0.73%. International equities were mixed with the MSCI EAFE Index down 0.26% and emerging markets up 0.90%. Holding up the markets were a lower than expected inflation outlook, increasing merger and acquisition (M&A) activity, and a surge of initial public offerings. Additionally, the recent strength of the US stock market can be attributed to investors rotating into utilities, consumer staples, and real estate. These sectors are all trading above their 50 day moving average, according to FactSet data.
The yield on the 10-year Treasury note remained at 2.09%. Market pundits and economists are at a loss as to why inflation remains low when the economy is growing with historic low unemployment. It will be very interesting to hear the Feds economic analysis and posture.
Investors are worried about the prolonged trade tensions between the U.S. and China and their effect on the global economy. China, the world’s second leading economy, showed further signs of weakness. The National Bureau of statistics reported that China’s industrial production slowed in May to its lowest level in 17 years.
Prices of oil have declined 12% in the last four weeks, another indicator of slower global economic growth. The uncertainty of global financial markets and slower growth together with rising tensions in the Middle East have rallied gold prices.
We strongly feel that a well-diversified portfolio with quality holdings in equities and fixed income will provide solid returns. Hopefully, trade tensions will ease and the Fed will assuage investors’ concerns.
“It does not matter how slowly you go as long as you do not stop.” – Confucius
ND&S Weekly Market Commentary (6/10/19) – Stocks Roar Back
June 10, 2019
Markets surged more than 4% last week despite many current challenges and uncertainties. Storylines last week included antitrust probes of some of the largest companies that comprise the market, global service and manufacturing PMIs which show a slowing economy and the ongoing challenges with China on the trade front. It appears that a resolution with Mexico has been reached so at least one issue is now on the back burner. However, disappointing employment figures for May fanned expectations of loosening monetary policy.
For the week, the DJIA gained 4.77% while the S&P 500 tacked-on 4.46% notching their best week of 2019. The volatile NASDAQ jumped 3.91%. Developed international markets were also higher as the MSCI EAFE index increased 3.24% for the week. Emerging markets increased 1.04% on the week but should benefit more if we have some trade resolutions with China. Small company stocks, represented by the Russell 2000, jumped 3.36% last week. Fixed income, represented by the Bloomberg/Barclays Aggregate, also finished the week higher as speeches from Fed Officials were quite dovish last week. As a result, the 10 YR US Treasury closed at a yield of 2.09% (down 5 bps from the previous week’s closing yield of 2.14%). Gold prices increased to $1341/oz. and oil prices contracted to close at $53.94/b.
One thing that has perplexed professional investors and forecasters is the sharp decline in yields. Hopefully the bond market isn’t foretelling economic weakness in the back half of the year … This WSJ chart illustrates just how wrong economists were in their January survey. Based on the results, not one economist predicted the 10yr US treasury would fall below 2.5%. The consensus was that rates would be flat to slightly higher at year-end but so far this year they have been anything but that. The big drop in rates has certainly helped core bond funds and high-duration assets as the Bloomberg/Barclays Aggregate is up 5.17% year-to-date.
There are certainly some small signs of slowdown in the economy. Last week, it was reported that the manufacturing PMIs came in at 52.1%, missing estimates … any reading above 50 is considered an expansion. On Friday, it was reported that 75k jobs were added in May, which missed expectations for a 185k gain. Eyes will be on this week’s economic reports on inflation, retail sales, and consumer sentiment.
We continue to recommend that investors stay close to their intended asset allocation targets and remain patient. Let’s make it another good week!
“With the new day comes new strength and new thoughts.” – Eleanor Roosevelt
Weekly Commentary (06/03/19) –Another Tweet, Another Down Week
June 3, 2019
Markets pulled back for the 6th consecutive week as the trade rhetoric with China intensified and an unexpected threat of tariffs on Mexican imports weighed on an already frazzled investor psyche. The Trump administration reported that they would impose 5% tariffs on all Mexican imports beginning June 10th unless Mexico stepped up its efforts to thwart the illegal immigration issue. Very few people anticipated this blurring of social and economic policies, and this recent threat could hold up the ratification of the USMCA (United States-Mexico-Canada Agreement).
Economic news continues to be mostly reasonable. On Thursday, the Bureau of Economic Analysis reported that real GDP (GDP adjusted for inflation) rose a very respectable 3.1% in the 1st quarter. Also reported on Thursday, Pending Home Sales fell 1.5% (missing expectations of an increase of 0.5%) in April and marking the 16th straight month of year-over-year declines. Also on Thursday, the U.S. Labor Department reported initial jobless claims for the week ending May 25 were 215,000 – in-line with expectations. Claims have been below 300,000 (a level which indicates a healthy jobs market) for 221 consecutive weeks, the longest streak on record. On Friday, the Bureau of Economic Analysis (BEA) reported that Personal Income for April rose 0.5%, exceeding expectations for a gain of 0.3%. Personal disposable income also advanced a healthy 0.4% in April. Bottom line – the economic backdrop remains decent, but the trade rhetoric and political posturing will most certainly translate into economic challenges unless they are resolved shortly.
For the week, the DJIA fell 2.93% while the S&P 500 dropped 2.58%. The volatile Nasdaq declined 2.39%. Developed international markets fared better. For the week, the MSCI EAFE index retreated 1.85% while emerging market equities were the bright spot as the MSCI EM index advanced 1.24%. Small company stocks, represented by the Russell 2000, moved lower by 3.18% for the week. Fixed income, represented by the Bloomberg/Barclays Aggregate, finished the week higher as investors fled to bonds as a safe haven. As a result, the 10 YR US Treasury closed at a yield of 2.14% (down ~18 bps from the previous week’s closing yield of 2.32%). Gold prices closed at $1,305.80/oz – up 1.73% on the week. Oil prices dropped as oil closed at $53.50 – down by 8.75% on the week.
Markets are certainly on edge, and we suggest investors remain patient and continue to stick close to long-term asset allocation targets (with slightly higher levels of cash). This period of heightened volatility will most certainly end … it always does.
Enjoy the week ahead!
“Hope is independent of the apparatus of logic.” – Norman Cousins
NDS Weekly 5.28.19 – Trade Concerns Continue
May 28, 2019
Equity prices declined for the 5th consecutive week as concerns about trade and tariffs continued to worry the markets. In the U.S., the DJIA, S&P 500 and NASDAQ declined 0.63%, 1.14% and 2.3%, respectively. The best performing sectors last week were utilities, health care and real estate as investors sought shelter in dividend paying stocks. International stocks also declined with the MSCI EAFE down 0.5% and MSCI EM off 0.9%. Investors continued a flight to safety trend as bonds continued to rally. As a result, the rate on the 10 year U.S. Treasury note dropped from 2.39% to 2.32% last week.
In economic news last week, durable goods orders dropped 2.1% in April which missed expectations for a 2.0% decline. Additionally, March’s reading was revised lower to a 1.7% advance painting a weaker picture for U.S. factory demand. New and existing homes sales for April came in at 5.19mm and 673k as both missed analysts’ estimates. JPMorgan last week also reduced its 2nd quarter estimate for GDP growth.
This week economic news is on the light side as only reports on consumer sentiment, personal spending and a 3rd revision to 1st quarter GDP are expected. Dividend paying stocks and non-cyclicals such as consumer staples will probably offer some protection if trade uncertainties continue to make equity markets volatile.
Another Memorial Day has come and gone. The official start of summer is here, and the charcoals from cookouts and barbecues are still warm. But let us never forget the real meaning of Memorial Day – to honor those who have gone before us and paid the ultimate price to ensure our freedom and to secure the blessings of liberty.
“We do not know one promise these men made, one pledge they gave, one word they spoke; but we do know they summed up and perfected, by one supreme act, the highest virtues of men and citizens. For love of country they accepted death. And thus resolved all doubts, and made immortal their patriotism and their virtue.”
– James Garfield
May 30, 1868 Arlington National Cemetery
ND&S Weekly 5.20.19 – Stay Calm
May 20, 2019
The equity markets were a bouncing ball last week as continuing trade tensions weighed down the Dow Jones Industrials (DJIA) for a fourth straight week of losses, its longest losing streak in three years. The DJIA shed 0.61%, the S&P 500 declined 0.69% and the NASDAQ gave up 1.22%. US small caps suffered with the Russell 2000 losing 2.32%. Emerging market stocks fell 3.55% while developed international equities squeezed out a 0.23% gain.
The increasingly rancorous trade conflict has made investors nervous about the two economic powers damaging global supply lines and putting the brakes on an already slowing global economy. However, there was a positive trade development with the US lifting tariffs on Canadian and Mexican steel and aluminum.
It is important to note that corporate earnings fuel stock prices. With first-quarter earnings season almost over, 460 constituents of the S&P 500 companies have reported and 75% of them beat analyst expectations. The impact of trade conflicts will be on center stage again as large retailers, Home Depot, Nordstrom, Kohls, and Target report this week. According to the American Apparel and Footwear Association, 41% of apparel and 72% of footwear produced is manufactured in China.
Economists, analysts, and market pundits are recalibrating their data. Investors, meanwhile, have sought safe-haven assets as US Treasury yields fell, money market inflows surged and utility and telecommunication stocks rose. Overall yields on US Treasuries fell to their lowest levels in over a year. The benchmark 10 year US Treasury yield closed the week at 2.39%, down from 2.47% the week prior.
Though we expect President Trump tweeting about trade and China’s bellicosity to continue, Wall Street consensus is that there will be a trade deal with China. In another escalation with China last week, the US put Chinese hardware company Huawei and 26 of its affiliates on an export blacklist causing a number of US tech giants to halt business with them. The US and others have accused Huawei of committing espionage on behalf of the Chinese government. Hopefully, President Trump and Xi Jinping can settle things at the end of next month at the meeting of the Group of 20 nations. There are other geopolitical risks to take into account including, escalating tensions with Iran, Venezuela’s instability, Europe’s parliamentary elections and North Korean missile launches.
Economic news in the week ahead include reports on new and existing home sales, manufacturing PMIs, and durable goods orders. Despite all of the headline news we strongly feel that investors should remain diversified, not chase the momentum up or down and try to stay calm.
“A pessimist sees the difficulty in every opportunity; an optimist sees the opportunity in every difficulty.” – Winston Churchill
ND&S Weekly Commentary (5/13/19) – Trade Tensions Escalate
May 13, 2019
Markets had a rocky week as trade war concerns weighed heavily on investor sentiment. As is it appeared a trade agreement was close, China allegedly walked back on some of their prior commitments resulting in President Trump’s decision to increase tariffs on $200 billion worth of Chinese imports from 10% to 25%. China vowed to take “appropriate countermeasures” which will likely result in additional levies against US exports to China. The trade uncertainty will likely remain a headwind for the market in the near-term as investor expectations adjust to the reality that there might not be an agreement.
For the week, the DJIA lost 1.96% while the S&P 500 gave back 2.10%. The volatile Nasdaq declined 2.96%. Developed international markets were also weak as the MSCI EAFE index dropped 2.59% for the week. Emerging markets lost ground as well with the MSCI EM index ceding 4.51%. Small company stocks, represented by the Russell 2000, were beaten-down by 2.52% for the week. Fixed income, represented by the Bloomberg/Barclays Aggregate, finished the week higher (+0.31%) in a flight to safety. As a result, the 10 YR US Treasury closed at a yield of 2.47% (down 7 bps from the previous week’s closing yield of 2.54%). Gold prices closed at $1,287/oz. Oil prices were flat on the week as oil closed at $61.66.
With 90% of the constituents of the S&P500 having reported for Q1 2019, blended earnings show a less than 1% decline with the same quarter a year ago. Revenues are expected to rise 5.3% year over year, according to FactSet. This week, 13 companies of the S&P 500 index are scheduled to report results.
There will be economic releases on retails sales, manufacturing, housing starts, and consumer confidence in the week ahead. However, most investor focus will be on the US-China trade front as negotiations remain ongoing.
“There are no secrets to success. It is the result of preparation, hard work, and learning from failure.” – Colin Powell
Weekly Commentary (05/06/2019) – Jobless Rate Hits 50-year High
May 6, 2019
Markets were mostly positive last week as investors cheered better than expected 1st quarter earnings and bullish jobless news. 1st quarter earnings reports are nearly complete and have been mostly solid. In addition to solid earnings, the U.S. Labor Department reported that the economy added 263,000 jobs in April – far exceeding an expected gain of 190,000 jobs. The unemployment rate fell to 3.6%, the lowest level in nearly 50 years. Average hourly earnings rose $0.06 to $27.77, or 3.2%, for all nonfarm payrolls. More encouraging news was found in Monday’s release of inflation data as the Core PCE price index (personal consumption expenditures – a measure of personal spending) rose 1.6% in March. With inflation fairly tame, it is unlikely the Fed will need to raise rates this year.
For the week, the DJIA fell 0.14% while the S&P 500 gained 0.22%. The volatile Nasdaq jumped 0.23%. Developed international markets also gained as the MSCI EAFE index pushed ahead 0.33% for the week. Emerging markets equities saw increased demand as the MSCI EM index advanced 0.48%. Small company stocks, represented by the Russell 2000, were the biggest gainers as the index moved higher by 1.42% for the week. Fixed income, represented by the Bloomberg/Barclays Aggregate, finished the week lower (-0.06%) as investors took profits in bonds. As a result, the 10 YR US Treasury closed at a yield of 2.54% (up ~3.0 bps from the previous week’s closing yield of 2.51%). Gold prices closed at $1,279.20/oz – down 0.49% on the week. Oil prices dropped as oil closed at $61.94 – down by 2.15% on the week.
So much good news is now reflected in the markets. Next up is a resolution, or not, regarding the trade issue with China. Any setback in negotiations with China will likely have a short-term negative effect on the markets. With the underlying strength of the economy, however, any setback will eventually be met with buying. We remain cautiously optimistic.
Enjoy the week ahead!
“Life is 10% what happens to you and 90% how you react to it.” – Charles R. Swindoll
NDS Weekly Commentary (4/29/2019) – Economic Growth Surpasses Expectations
April 29, 2019
1Q GDP surprised investors on the upside last week – growing at an annualized quarterly rate of 3.2% and surpassing consensus estimates of 2.3%. The strong reading was the result of an increase in net exports and inventories of 1.0% and 0.7%, respectively. However, final sales to domestic purchasers grew by only 1.4%. Chances are that exports and inventories will grow more slowly in the 2nd quarter cutting GDP growth to about 2%. Economists expect consumer spending to pick up this spring as retail sales were strong in March. The unemployment rate remains low, wages are rising and consumer sentiment remains strong so economic growth should continue. The most recent GDP report certainly alleviated any recession fears in the short-term.
U.S. markets responded positively for the week with S&P 500 and the NASDAQ up 1.2% and 1.9%, respectively. The best performing sectors last week were health care (+3.7%), which has been a laggard, and communications services (+2.7%). The fixed income market was also positive for the week as the rate on the 10yr U.S. Treasury dropped from 2.57% to 2.51%. Globally, equity markets were weak with developed markets off 0.2% and emerging markets down 1.3%. The international outlook seems to be improving as the ECB is providing additional monetary stimulus and Japan recently passed a fiscal stimulus package.
Corporate earnings continue to come in better than expected. So far, almost 80% of companies that have reported have beaten expectations. This week 190 companies of the S&P 500 index are scheduled to report results. In addition, look for economic reports on factory orders, productivity and March jobs that are expected to be 185,000.
“He has achieved success who has worked well, laughed often, and loved much.” – Elbert Hubbard
Weekly Commentary (7/1/19) – Trade Uncertainty Continues / Don’t Fight the Fed
July 1, 2019
Markets were mixed to slightly down last week as trade uncertainty with China raised concerns about the potential for a broad-based global slowdown. At the same time, the U.S. Federal Reserve and other central banks around the world gave investors reason for hope as they intimated that a round of interest rate cuts is right around the corner. The old expression – Don’t Fight the Fed – is alive and well.
For the week, the DJIA fell 0.45% while the S&P 500 dropped 0.27%. The volatile Nasdaq declined 0.30%. Developed international markets fared better. For the week, the MSCI EAFE index gained 0.67% while emerging market equities (MSCI EM) advanced 0.43%. Small company stocks, represented by the Russell 2000, improved nicely and finished ahead by 1.16% for the week. Fixed income, represented by the Bloomberg/Barclays Aggregate, finished the week higher as investors reacted to comments by the Fed that interest rates would likely remain low for the foreseeable future. As a result, the 10 YR US Treasury closed at a yield of 2.00% (down ~07 bps from the previous week’s closing yield of 2.07%). Gold prices closed at $1,409.70/oz – up 0.89% on the week. Oil prices advanced as tensions with Iran pushed oil to close at $58.47 – up 1.81% on the week.
Negotiations with China over the weekend resulted in an agreement to continue talks with no immediate jump in tariffs. We expect markets to cheer the news, but a final resolution to trade with China will be necessary for markets to continue their advance through the summer. In the meantime, the Fed will continue to provide investors with a reason to stay in the game.
Most importantly, we wish our clients and friends a happy Fourth of July as we all celebrate the many blessings bestowed on our great country.
Enjoy the week ahead!
“They who can give up essential liberty to obtain a little temporary safety deserve neither liberty nor safety.” – Benjamin Franklin, Memoirs of the life & writings of Benjamin Franklin.