Good Jobs Numbers
December 11, 2017
Last week the monthly jobs report helped lift large cap stocks to weekly gains. Both the S&P 500 and the DJIA rose after the November jobs report confirmed that economic growth remains strong. Nonfarm payrolls rose 228,000 and the unemployment rate remained at 4.1% a 17 year low, putting GDP growth on track for a 3rd straight quarter of 3% growth. Small cap and emerging market equities fell for the week while developed international equities were flat. Bonds were essentially flat last week as the yield on the 10 year U.S. Treasury went from a 2.37% to 2.38%. One of the largest decliners last week was gold which fell 2.64%. Higher interest rates and a stronger dollar are not good for the precious metal as it increases the opportunity cost of holding gold.
This week the FOMC meets and is widely expected to raise short term rates another .25% especially after last week’s strong jobs report. Observers will closely watch the Fed’s “dot plot” to gauge the number of rate hikes next year. Additionally, look for reports on CPI, retail sales and industrial production.
The annual Army-Navy football game is a celebration well beyond the playing of the game. The annual Army-Navy game held this weekend did not disappoint. Army beat Navy for the second year in a row, and, for the first time in 21years, was able to capture the Commander-in-Chief’s Trophy.
“There is nothing new in the world except the history you do not know.” – Harry S. Truman
Tax Plan Pushing Through
December 4, 2017
Equities pushed higher last week amid optimism that a US tax reform bill will make its way through Congress. Last week was certainly not without fireworks both literally and figuratively; “Rocket Man” fired off his most powerful missile yet, while former national security advisor Michael Flynn pleaded guilty for lying to the FBI. Flynn’s willingness to provide testimony sent markets into a tailspin early in trading on Friday but mostly recovered by market close.
For the week, the DJIA finished higher by 3.00%, while the broader-based S&P 500 closed up 1.60%. Smaller US companies representing the Russell 2000 also closed the week in the green up 1.22%. International equities were disappointing last week with the MSCI EAFE finishing down 0.94% and MSCI EM off 3.30%. Yields closed slightly higher last week with the 10 Treasury closing at 2.37%. Oil prices were little changed last week as OPEC extended production caps through 2018.
Equity investors are certainly cheering the prospects of tax reform … as they should. At this point, tax reform is just a bill and will still have to work its way through the reconciliation process in Congress. It’s estimated that cutting the corporate tax rate to 20% would likely bump earnings for S&P 500 companies close to $10 per share. Earnings per share (EPS) estimates for 2018 earnings on the S&P 500 are $140 without tax reform.
“Thinking is one thing no one has ever been able to tax.” – Charles Kettering
Post-Thanksgiving Market Recap
November 27, 2017
We hope everyone had a happy Thanksgiving! Global equities were modestly higher during the holiday-shortened week.
For the week, the DJIA closed higher by 0.89% while the broader-based S&P 500 moved up 0.93% to close above 2600 for the first time. Small Cap US equities were higher as well with the Russell 2000 up 1.77%. International equities also continued their advance with both the MSCI EAFE and MSCI EM finishing higher by 1.88% and 1.57% respectively. International equities were helped last week from better-than-expected November PMIs for the Eurozone with both the manufacturing & services sectors posting their highest readings since 2011. Treasury yields closed slightly lower for the week with the 10yr Treasury closing a yield of 2.34%, down from 2.35% the week prior. Oil (WTI) finished the week at its highest level in over two years closing the week at $58.97/barrel.
Economic news released last week included: existing home sales rose 2% in October to an annual rate of 5.48M, beating expectations; manufactured durable goods came in below expectations as it fell 1.2% in October; jobless claims for the week ending November 18 came in at 239k. Jobless claims have remained below 300k for 142 consecutive weeks, the longest streak since 1970 underscoring the strength of the US labor market.
Earnings season is nearly complete and has been mostly positive with over 70% of companies reporting positive EPS surprises. Earnings growth for the broader market has increased roughly 7.5% y/y with revenues up 5.5%. Technology, financials, and consumer staples surprised positively while utilities and telecom posted weaker results.
In the week ahead, look for reports on home sales, 3Q17 GDP, Personal Income and PCE, and ISM & Markit PMIs. Let’s make it a good week!
“In three words I can sum up everything I’ve learned about life: it goes on.” – Robert Frost
Weekly Commentary (11/20/17) – Thanksgving …
November 20, 2017
A strange thing happened last week – the markets finished mostly lower. Yes, it does happen.
For the week, the DJIA dropped 0.19 while the S&P 500 finished lower by just 0.06% after being down last week as well (marking the first time since May that the S&P 500 finished lower two weeks in a row). Developed international markets also dropped as the MSCI EAFE index closed down 0.59% for the week. Emerging markets bucked the trend last week as the MSCI EM index finished higher by 0.72%. Fixed income, represented by the Bloomberg/Barclays Aggregate, finished the week up 0.24%. As a result, the 10 YR US Treasury closed at a yield of 2.35% (down 5 bp from the previous week’s closing yield of 2.40%). Gold advanced $23.40 to close at $1,295.80/oz. Oil prices were essentially flat (down 19 cents) as they closed the week at $56.55/bbl. Recent events in Saudi Arabia have had little impact on prices as the real driver of higher prices lately points to a normalization of global inventories (ongoing production cuts) and reasonably steady demand.
Economic news released last week reinforced investors’ beliefs that the economy is solid. The Bureau of Labor Statistics (BLS) announced that October’s PPI advanced 0.4%, ahead of expectations of a 0.1% increase. Additionally, the BLS reported that the October CPI rose 0.1%, in-line with expectations. On Thursday, the Fed reported that industrial production rose a healthy 0.9% in October, nicely ahead of expectations for a 0.5% jump. Weekly jobless claims for the week ending November 11 failed to meet expectations, but jobless claims continued to be impacted by the slow recovery in Puerto Rico. Lastly, Friday saw that the Census Bureau report that October housing starts surged 13.7% (after three consecutive months of declines).
The holiday-shortened week ahead will see more economic releases – Leading Indicators, Existing Home Sales, Chicago Fed Activity Index, Weekly Jobless Claims, Univeristy of Michigan Sentiment, Durable Goods Orders, the Markit US Manufacturing PMI and the release of the FOMC November meeting minutes.
As always, we plan to look through the day-to-day news and focus on longer-term objectives. Investors should stay the course and stick close to their long-term asset allocation targets. But most importantly, let’s give thanks for the many blessings in our lives.
Best wishes for a Happy Thanksgiving!
“Be thankful for what you have; you’ll end up having more. If you concentrate on what you don’t have, you will never, ever have enough.” – Oprah Winfrey
Weekly Gains Come to End
November 13, 2017
Last week all three major U.S. equity indexes had declines with the DJIA, S&P 500 and NASDAQ falling 0.35%, 0.14% and 0.14% respectively. Investors’ concerns about the status of a U.S. tax overhaul pressured stock prices as a Senate version of the tax cut program indicated that the corporate tax cuts would not take effect until 2019. This raises concerns over earnings projections for 2018 and pressures GOP leadership further as they have failed to enact any major initiatives despite controlling majorities in both chambers. The best performing sectors last week were real estate and consumer staples.
Results for international equities were mixed as the EAFE index declined -0.40% while emerging markets rose by 0.22%.
U.S. interest rates also rose last week as a potential December rate hike by the FOMC gained attention. The 10 year U.S. Treasury rate rose to 2.40% from 2.34% the previous week.
This week look for economic reports on retail sales, industrial production and inflation readings from reports on CPI and PPI. In addition, earnings season is winding down with reports expected from HD, TGT, and CSCO to name a few.
On this Veterans Day, we thank all those who have honorably served our great nation. We are especially grateful for all those service members who never returned home as we are reminded of the inscription on the Tomb of the Unknown Soldier – “Here rests in honored glory an American soldier known but to God”
Trick or Treat
November 6, 2017
The stock market remained strong last week, as corporate earnings (EPS) growth continues to exceed analysts’ expectations. With over 81% of the S&P 500 companies having reported, average EPS is expected to surge 8.0% with revenues up 5.2%.
Last week, the DJIA and the S&P 500 rose 0.45% and 0.23% respectively. With regards to quarterly earnings, several large tech companies flexed their muscles reporting solid numbers. The tech sector finished the week up 1.8%. Another winner was the energy sector returning 1.7%, benefitting from the 3.3% increase in crude oil prices. The tech-heavy NASDAQ climbed 1.09% while small companies declined with the Russell 2000 finishing down 0.06% for the week. The international equity markets felt the effect of the increasing dollar. Developed equities (MSCI EAFE) declined 0.34% and emerging markets stocks (MSCI EM) lost 0.84%.
US Treasuries moved higher after the recent jobs report indicated a decline in average wages and less-than-expected job gains. Inflation is also below the Fed’s 2% target. The 10year Treasury yield settled at 2.34%, down from the previous week’s 2.43%.
Trump picked Jerome “Jay” Powell to replace Janet Yellen as Fed Chair at the end of her term which ends on February 3rd. Powell is seen as an experienced conservative and is not expected to change current Fed Policy. The Fed’s meeting left interest rates unchanged, citing rising economic activity despite the hurricane and fire devastations. Next month, the Fed is expected to increase short-term interest rates with three increases likely in 2018.
The House’s tax reform bill was released on Thursday and it provides sweeping changes. Corporate tax rates would be lowered from 38% to 20% while several deductions would be reduced or eliminated. We expect some additional changes as the bill moves through Congress.
We once again favor diversified portfolios among asset classes with lower duration fixed income holdings and look towards international equities to maintain outperformance.
“My sorrow, when she’s here with me, thinks these dark days of autumn rain are beautiful as days can be; she loves the bare, the withered tree; she walks the sodden pasture lane.” – Robert Frost
New Fed Chair Likely
October 30, 2017
Large Cap US equities continued their advance last week on the heels of better-than-expected company earnings and a positive GDP reading. With a little less than half of the S&P500 constituents having reported, the blended estimate of aggregate y/y earnings growth is 5.3%. The revenue projection for the quarter is 4.8%. The US economy grew at a faster-than-forecast pace of 3.0% in the third quarter, easily beating economists’ estimates of 2.5%. Hurricanes Harvey and Irma were expected to have a negative impact of growth.
For the week, the DJIA increased 0.45% while the broader-based S&P 500 climbed 0.23%. Growth oriented equities provided the boost as a number of mega-cap technology stocks reported strong earnings including AMZN, GOOG, and MFST. Small Cap US companies representing the Russel 2000 finished the week slightly down. International equities also finished the week in the red with the MSCI EAFE 0.34% lower and emerging markets down 0.84%. Yields again pushed higher with the 10YR Treasury closing at a yield of 2.42% … which is up from 2.38% the week prior. Yields should remain volatile as the nomination of the next Fed chair is expected any day.
As mentioned above, the nomination of the next Fed chair (and possibly vice chair as well) is expected any day. The nomination appears to be down to four candidates (there are some reports than current chair Janet Yellen is no longer in the running). Stanford University economist John Taylor and Former Governor and Hoover Institute Fellow Kevin Warsh are perceived to be on the more hawkish end of the spectrum and their nomination could pressure rates in the short-term; while Fed Governor Jerome Powell and current chair Janet Yellen are seen as more dovish and a continuation of current policy. None of the candidates to this point are likely to make a knee-jerk direction change to current policy but their perceived biases could increase market volatility in the short-term.
“Out of difficulties grow miracles.” – Jean de la Bruyere
ND&S Weekly Commentary (10/23/2017) – Chaos, Calm & The Markets …
October 23, 2017
It is said that markets climb a wall of worry. Hurricanes, floods, fires, mass shootings and threat of nuclear war haven’t deterred investors from pushing market averages higher. As Alfred E. Neuman would say, “What, me worry?“
For the week, the DJIA rose 2.04% while the S&P 500 finished higher by 0.88%. Developed international markets finished the week a bit lower as the MSCI EAFE index closed down 0.31%. Emerging markets lost ground as well with the MSCI EM index finishing lower by 0.54% for the week. Fixed income, represented by the Bloomberg/Barclays Aggregate, finished the week in the negative territory (down 0.45%). As a result, the 10 YR US Treasury closed at a yield of 2.39% (up 11 bp from the previous week’s closing yield of 2.28%). Gold declined $24.10 to close at $1,277/oz. Oil prices were essentially flat as they closed the week at $51.47/bbl. Cheap oil prices continue to be a boon to businesses and consumers.
Markets got a boost last week as the Senate passed a $4 trillion budget resolution that increased the odds of tax reform (eventually …). In economic news released last week, the US Empire State Manufacturing Survey jumped to 30.2 – easily beating consensus of 20.4 and finishing at its highest level since 2014. US initial jobless claims were also better-than-expected.
The week ahead will see more earnings reports with Alphabet, Microsoft, Amazon, Exxon and others reporting. Third quarter earnings have been largely ahead of expectations so far. Several economic reports are due out this week – flash PMI composite, durable goods orders, new home sales, international trade and the first estimate of 3rd quarter GDP. Meanwhile, saber rattling out of North Korea has been fairly quiet lately … let’s hope it stays that way!
As always, we plan to look through the day-to-day news and focus on longer-term objectives. Investors should stay the course and stick close to their long-term asset allocation targets.
Let’s make it a good week!
“There is nothing permanent except change.” – Heraclitus
Markets Continue to Advance
October 16, 2017
Last week, equity markets advanced against a backdrop of improving global growth and expectations for improving corporate earnings. The S&P 500, DJIA and the NASDAQ were up 0.17%, 0.43% and 0.24% respectively. International equities advanced the most for the week with the MSCI EAFE up 1.63% while emerging markets up 2.08%. Financial stocks declined last week 0.9% despite of earnings reports that mostly exceeded expectations but are still being pressured by lower interest rates. Health care stocks also declined 0.6% for the week as the Trump administration ended payments to insurers under the Affordable Care Act.
On the fixed income front, U.S. bond prices rose and the yield on the 10 year U.S. Treasury Note dropped from 2.37% to 2.28% for the week largely because of a lower-than-expected core CPI reading … it was unchanged at 1.7% y/y. Still, most economists expect the FOMC to increase short term-rates at the December meeting. Futures markets are pricing an 85% probability for an increase in December.
This week look for a continuing flood of corporate earnings with 59 companies in the S&P500 reporting. In addition, there will be reports on industrial production, housing starts and existing home sales.
“Greatness is a road leading towards the unknown.” – Charles de Gaulle
Trending Higher…again
December 18, 2017
December 18, 2017
Markets trended higher last week as the Fed raised rates, as expected, for the third time this year. Markets were bolstered by the apparent willingness of Congress to move forward on tax reform … a vote is expected this week.
For the week, the DJIA gained 1.3% while the S&P 500 finished ahead by 0.92% . Developed international markets also moved higher as the MSCI EAFE index closed up 0.14% for the week. Emerging markets also gained as the MSCI EM index finished higher by 0.71%. Fixed income, represented by the Bloomberg/Barclays Aggregate, finished the week up 0.29%. As a result, the 10 YR US Treasury closed at a yield of 2.35% (down 3 bp from the previous week’s closing yield of 2.38%). Gold advanced $9.10 to close at $1,254.30/oz. Oil prices were essentially flat (down 6 cents) as they closed the week at $57.30/bbl.
Economic news released last week reinforced investors’ beliefs that the economy remains solid. The Bureau of Labor Statistics (BLS) reported that the November Producer Price Index rose 0.4%, exceeding expectations of 0.3%. Core PPI advanced 0.4%, twice the expected increase of 0.2%. The BLS also reported that the November Consumer Price Index rose 0.4%, in-line with expectations. Food service sales jumped 0.8% in November, far exceeding expectations of a 0.3% advance. The Department of Labor reported initial jobless claims for the week ending December 9 of 225,000, below expectations of 239,000 … yet another sign of a healthy job market. Industrial production numbers released on Friday pointed to a gain of 0.2% in November … just short of expectations of a monthly increase of 0.3%. Offsetting November’s slight miss was an upward revision to October’s increase from 0.9% to 1.2%. Lastly, capacity utilization moved slightly higher by 0.1% to 77.1% – the highest reading since April 2015.
The week ahead will see more economic releases – housing starts, current account balance, existing home sales, final GDP, new home sales, durable goods orders and PCE. We expect more good news from economic releases as the current synchronized global recovery marches on.
As always, we plan to look through the day-to-day news and focus on longer-term objectives. Investors should stay the course and stick close to their long-term asset allocation targets. But most importantly, please enjoy the holiday season and reflect on the many blessings in our lives.
Best wishes for a Happy Holiday season!