ND&S Weekly Commentary 10.22.18 – Play Ball!

October 22, 2018

Market volatility continued last week as gains from Tuesday’s big rally were washed away as the week progressed. For the week, the DJIA closed higher by 0.45% while the broader-based S&P 500 finished up a modest 0.05%. Smaller companies representing the Russell 2000 closed lower by 0.29%. International equities also finished in the red with the MSCI EAFE and MSCI EM down .06% and .88%, respectively. Treasury yields pushed higher across the board as anticipation of additional Fed action grew. The 10yr US Treasury closed the week at a yield of 3.20%, up from 3.15% the week prior.

The equity markets and economy appear to be experiencing a bit of indigestion over the past few weeks. Economic data for the week, again, was a little soft. Retail sales rose 0.1% in September, less than an expected 0.5% increase. Industrial production rose 0.3% in September coming in slightly ahead of estimates. Housing starts fell 5.3% month over month to a seasonally adjusted 1.201M missing estimates. Housing starts is one of economist’s favorite leading indicators as it can offer a timely glimpse into the health of an economy. This week’s economic releases include reports on durable goods orders, manufacturing, consumer sentiment, and the 1st estimate of 3Q GDP.

Earnings season is well underway, and so far has been relatively positive versus expectations. 75% of companies have posted above expected earnings per share with y/y growth having increased to 24%. Revenues are up 7.6%, which is slightly below expectations and warrant monitoring. This week, 202 companies in the S&P 500 are scheduled to report. We will be watching earnings reports closely this week especially Amazon AMZN, Alphabet GOOGL, Verizon VZ, and Merck MRK to name a few.

We anticipate volatility to remain present through the remainder of earnings season and through the mid-term elections. For clients, be on the lookout for Q3 reports and our 3rd Quarter newsletter titled Fed Up.

Let’s Go Red Sox!

“Baseball is the only field of endeavor where a man can succeed three times out of ten and be considered a good performer.” – Ted Williams

ND&S Weekly Commentary (10/15/18) – Earnings Reports Begins

October 15, 2018

Equity markets declined for a second week as the S&P 500 fell for six consecutive sessions before a rally on Friday. It was its longest losing streak in nearly two years. For the week, the S&P 500 was off 4.07% and the DJIA and the NASDAQ were down 4.17% and 3.74%, respectively. International markets also declined with developed markets down 3.9% and emerging markets were off 2.0%. A combination of factors led to these declines including fears of inflation, a slowing Chinese economy, tariffs, FOMC rate hikes and elevated equity valuations. However, in spite of these concerns the outlook for the U.S. economy and corporate earnings is still positive. Inflation rose a modest 0.1% in September, which came in below expectations for a 0.2% increase. Year-over-year CPI is now 2.3%, which is a deceleration from August’s 2.7% reading. Third-quarter earnings are officially underway with positive reports on Friday from (C) Citigroup and (JPM) J.P. Morgan. This week, corporate earnings announcements continue with 68 companies in the S&P 500 scheduled to report.

Fixed income markets rose as investors looked for a safe haven during last week’s volatility. As a result, the rate on the 10 year U.S. Treasury closed the week at a yield of 3.15%, down from 3.23% the week prior. This week look for economic reports on retail sales and existing home sales.

Investors should resist the urge to try to time the market and instead ensure that portfolios are well balanced and diversified.

“Greatness is a road leading towards the unknown.”Charles de Gaulle

 

Rates Continue to Rise

October 8, 2018

What a wild week on Wall Street!

As a result of rising interest rates, the US Stock Market fell sharply to close out the week after notching record highs on Tuesday and Wednesday. The S&P 500 closed lower by 0.95% for the week while the DJIA finished flat. In addition, a Bloomberg News article claims China hacked and infiltrated several top US Companies. This resulted in a selloff in tech firms (which also makes up a large portion of the S&P 500) and further complicates trade negotiations with China. The tech-heavy NASDAQ struggled closing the week down 3.18%. The international equity markets continued to suffer from the combination of a stronger US dollar, slowing global trade, high emerging market debt levels and China’s slowing growth rate. The MSCI EAFE declined 2.34% while the emerging market index lost 4.48% for the week.

The yield on the 10yr Treasury closed the week at 3.24% compared with 3.06% the week prior. This marks its highest level since 2011. There are concerns that inflation will continue creeping higher which will force the Fed to continue to respond with rate increases. There will be reports on inflation in the week ahead.

The unemployment rate declined to 3.7% in September, marking the lowest level since December 1969. Hurricane Florence contributed to a slightly less-than-expected addition of jobs … the US economy added 134,000 in September slightly below expectations of 185,000. Wage growth, a possible precursor of inflation, grew 2.8% from last year. Also worth noting: Amazon announced last week it would raise the minimum wage they pay their employees to $15hr. This will likely pressure other employers to take similar actions in an effort to compete for talent in a tight labor market.

There is still good news about dividend growth. So far this year, nearly 400 companies in the S&P 500 raised their dividends $117.2 billion, a 6.9% increase from a year ago.

We expect volatility to continue with the upcoming mid-term election, rising interest rate fears, and 3rd quarter earnings season. Earnings season kicks off this week with (C) Citigroup and (JPM) JP Morgan scheduled to report. We are expecting another strong quarter of earnings growth although it could be a slight decline from the two previous quarters of 24% year-over-year growth. Initial estimates according to FactSet are for earnings growth of 19.2%. Stay Diversified!

“Patriotism is supporting our country all the time, and your government when it deserves it.” – Mark Twain

 

NDS Weekly Commentary 10.1.18 – Fed Continues to Raise Rates

October 1, 2018

Markets closed the third quarter on a sour note with global equities declining modestly for the week. The DJIA closed lower by 1.07% while the broader-based S&P 500 was off 0.51%. International equities also closed the week in the red with developed international and emerging markets off 0.85% and 0.25%, respectively. Treasury yields closed slightly lower on the week, as the 10yr US Treasury yield closed at 3.05%. Gold continued to hover around $1200/oz. while oil prices jumped as investors questioned the impact of possible sanctions against Iran.

The FOMC two-day policy meeting concluded Wednesday with the committee voting unanimously to raise the benchmark rate by 25bps. This marks the third rate hike in 2018 with another likely increase in December. The Federal Reserve Chairman Jerome Powell reaffirmed the Fed’s outlook for gradual hikes while describing the US economy as strong. Noteworthy in the Fed’s comments was the removal of the word “accommodative” when referring to future actions … increasing the odds of a rate hike in December.

In the week ahead, look for economic releases on manufacturing, trade, car sales, and employment. It appears that progress is being made on a revised NAFTA agreement with Mexico and Canada. Most news coverage will continue to be focused on the nomination of Judge Kavanaugh to the Supreme Court; however, this will continue to have very little effect on the market as investors continue focusing on positive company earnings and strong economic fundamentals. As always, we suggest ignoring the day-to-day noise of the markets and get out and enjoy the beautiful colors that Fall brings.

“Autumn’s the mellow time.” – William Allingham

 

ND&S Weekly Commentary (9/24/18) – Resilient

September 24, 2018

This market is resilient! U.S. stocks pushed to record highs last week despite ongoing trade tensions with China. President Trump announced a 10% tariff on $200 billion of Chinese goods while China retaliated with a 5% to 10% tariff on $60 billion of U.S. goods (will they all just grow up?). Investors focused, yet again, on the strength of the U.S. economy. Evidence of our robust economy can be found in second quarter earnings. With earnings reports now complete, second quarter earnings increased over 24.4% year-over-year with 81.4% of companies reporting positive earnings surprises. Revenues for the second quarter were up 9.4%.

For the week, the DJIA gained 2.25% while the S&P 500 finished higher by 0.86%. The volatile Nasdaq lost 0.28% after some profit-taking in technology stocks. Developed international markets finished in the black as the MSCI EAFE index moved up 2.91% for the week. Emerging markets recovered a much-needed 2.28% last week even as the U.S. dollar gained 0.3%. Small company stocks, represented by the Russell 2000, gave back some gains as it dropped 0.53% for the week. Fixed income, represented by the Bloomberg/Barclays Aggregate, finished the week slightly lower by 0.26%. As a result, the 10 YR US Treasury closed at a yield of 3.07% (up 8 bps from the previous week’s closing yield of 2.99%). Gold prices dropped by $10 to close at $1,196.20/oz. Oil prices advanced $0.46 last week as oil closed at $70.78/bbl … certainly not a hindrance to further economic growth

The most newsworthy economic event this week is the meeting of the Fed on Tuesday and Wednesday. It is widely anticipated that the Fed will raise interest rates 25bps to 2.25%. Commentary from the Fed will be closely watched for any hints about a possible December rate hike.

Markets are typically volatile heading into mid-term elections, and we expect this year to be no different. 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.

“One of the funny things about the stock market is that every time one person buys, another sells, and both think they are astute.” – William Feather

Rate Hike Likely at Next Fed Meeting

September 17, 2018

Global equity markets were positive across the board last week. In the U.S., the S&P 500, DJIA and NASDAQ were up 1.2%, .9% and 1.4%, respectively. International markets also advanced with the MSCI EAFE up 1.8% and even emerging markets, which have been under pressure, rose 0.6%. Growth stocks continued to outperform value stocks. The leading sectors for the week were telecom and energy, while the worst performing sector was financials. Fixed income markets declined as yields increased across the whole length of the yield curve. The rate on the 10-year U.S. Treasury note rose from 2.94% to 2.99% during the week.

In economic news last week, the pace of inflation slowed slightly from the prior month as August headline CPI was up 2.7% y/y versus 2.9% y/y in July. Core inflation remained the same at 2.2% y/y. The Fed’s preferred measure of inflation, PCE, rose 2.3%. With a tight labor market and a strong U.S. economy, this should be enough to support another 0.25% short-term rate increase by the FOMC at their meeting next week.

In the week ahead, there will be reports on housing and the release of the Flash PMI Composite. Additionally, high-level talks are expected to resume this week between the US and China ahead of an additional round of tariffs on $200 billion of Chinese imports.

“Your positive action combined with positive thinking results in success.” – Shiv Khera

ND&S Weekly 9.10.18 – Tariff Envy

September 10, 2018

The equity markets last week were weighed down by trade tensions and Washington shenanigans during the Labor Day shortened week.

US economic reports were impressive with the ISM manufacturing index increasing to a 14yr high. The big story for the week was a robust jobs report that showed nonfarm payrolls and wages increased more-than-expected while the unemployment rate remained at 3.9%, close to an 18yr low. Total Wages, which factors in average hourly wages as well as total hours worked, are up a robust 5.1% in the past year.

Despite the good economic news, investors were concerned about comments from the White House economic advisor, Larry Kudlow, who said that President Trump would be making a decision regarding another round of tariffs. This one threatens to impose $267bn of new tariffs on Chinese goods. As a result, the S&P 500 declined 1% and the tech-heavy NASDAQ was down 2.5% for the week. Foreign markets continued their slide with developed international declining 2.8% and emerging markets over 3%.

After a fabulous 2017, emerging markets entered bear-market territory. The recovery from the financial crisis has been slow, as the MSCI Emerging Markets ETF (EEM) has not yet eclipsed its closing high of $55.73 it set all the way back on 10/31/07 (not including dividends). Emerging market investments have been stuck in a tug of war between solid fundamentals/corporate earnings growth and sentiment that has recently turned negative. Emerging market equities have been undermined by the combination of rising trade tensions, a strengthening US dollar and rising US Treasury yields which has exposed structural weakness in several EM economies and punished their currencies.

The Price of WTI crude oil declined nearly 4% last week to close at 67.76/bbl. Domestic oil production continued to hit record levels while concerns arose over global demand due to escalating trade issues between China and the US.

Treasury yields moved higher last week as last week’s job report seemed to indicate a higher likelihood of two additional rate hikes from the Fed in 2018. The 10yr Treasury closed at a yield of 2.94%, up from 2.86% the week before.

There will be a flood of inflation reports this week: the Producer Price Index (PPI), Consumer Price Index (CPI) and the Import Price Index. The consumer pulse will also be tested with economic releases on retail sales and consumer confidence.

With the political jostling, trade tensions, potential for slower economic growth, we strongly recommend a balance between a risk-on and risk-off outlook. Maintaining quality diversified assets and fine-tuning portfolios based on market conditions, and more importantly, client’s needs, will produce happy returns.

“Dare to be honest and fear no labor.” – Robert Burns

 

ND&S Weekly Commentary 9.4.18 – Trade Tensions Ease

September 4, 2018

US equity markets moved higher last week as trade tensions eased with an agreement announced between US and Mexico. Talks between US and Canada remain ongoing and will continue this week as officials look to conclude a revised NAFTA agreement before year-end. On the other hand, trade relations remain frosty between US and China as President Trump was in support of another round of tariffs on an additional $200 billion in Chinese imports set to take effect this week.

Equity investors were rewarded for the week, the DJIA closed higher by 0.79% while the broader-based S&P 500 closed up 0.98%. Technology stocks were again the leading contributor for performance as the tech-heavy NASDAQ closed the week up 2.07%. International stocks also finished the week in the green with the MSCI EAFE and MSCI EM indexes up 0.28% and 0.60%, respectively. Treasury yields finished the week slightly higher with the 10yr US Treasury closing at a yield of 2.86%.

Economic data for the week was generally positive. On Wednesday, real GDP was revised higher to 4.2% in the 2nd quarter of 2018 with consumer spending serving as a catalyst for the positive adjustment. The core personal consumption expenditures (PCE) index, which measures personal spending and accounts for over 2/3 of US economic activity, increased to 2.0% year-over-year. On Friday, consumer confidence came in at 133.4, marking its highest reading since October 2000. The holiday-shortened week ahead will have economic releases on manufacturing and employment.

Second quarter earnings are nearly complete and have been very positive versus expectations. Earnings per share for the S&P 500 increased 25% when compared to a year ago. Revenues were also strong for the index, as revenues expanded 10.1%. Earnings growth has likely peaked in this expansion, but we continue to see reasonable earning growth in the quarters ahead.

“In life, as in football, you won’t go far unless you know where the goalposts are.” – Arnold H. Glasgow

 

Weekly Commentary (8/27/18) – A Bull Run and an American Hero

August 27, 2018

Stocks ended last week higher as the U.S. stock market, on Wednesday, became the longest-ever bull market on record (9 years, 5 months and 13 days). Despite a tumult of negative political news out of Washington, the strength of the U.S. economy has simply been too strong to ignore. Second quarter earnings reports are nearly complete, and earnings for the quarter point to continued strong execution by U.S. companies. Adding to the economic backdrop (and offsetting political headwinds) was Fed Chairman Powell’s speech in Jackson Hole on Friday where he sounded a more dovish tone and hinted at a more gradual pace of rate hikes (perhaps one more hike this year rather than two).

For the week, the DJIA gained 0.51% while the S&P 500 finished higher by 0.88%. The volatile Nasdaq jumped 1.67%. Developed international markets finished in the black as the MSCI EAFE index moved up 1.56% for the week. Emerging markets recovered a much-needed 2.71% last week as the U.S. dollar weakened nearly 1% and talks of trade deals lifted the badly bruised asset class. Small company stocks, represented by the Russell 2000, pushed higher by 1.94%. Fixed income, represented by the Bloomberg/Barclays Aggregate, finished the week slightly higher by 0.26%. As a result, the 10 YR US Treasury closed at a yield of 2.82% (down 5 bps from the previous week’s closing yield of 2.87%). Gold prices surged higher by $29.80 to close at $1,206.30/oz. Oil prices advanced $3.51 last week as oil closed at $68.72/bbl.

Lastly, an American Hero passed away last week. Senator John Sidney McCain III died on Saturday at age 81. Senator McCain was a distinguished naval officer who was shot down over Vietnam and held as a prisoner of war suffering through immense torture. He later served honorably in the U.S. senate for 31 years. We salute Senator McCain. May he rest in peace.

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. The bull market may be aging, but we see more gains ahead.

“In prison, I fell in love with my country. I had loved her before then, but like most young people, my affection was little more than a simple appreciation for the comforts and privileges most Americans enjoyed and took for granted. It wasn’t until I had lost America for a time that I realized how much I loved her.” – John McCain

 

ND&S Weekly Recap: Earnings Reports Continue to be Good

August 20, 2018

U.S. equity markets struggled early last week as concerns over contagion from Turkey’s currency crisis worried investors. However, a positive report on retail sales and news that negotiators from the U.S. and China would meet to try to end the trade standoff, helped to end the week on a strong note. Retail sales for July rose 0.5% suggesting that consumers remain healthy and should provide support for continued economic growth. For the week, the DJIA and the S&P 500 increased 1.5% and 0.6% respectively, while the NASDAQ declined 0.2% held back by weakness in technology stocks. The broader market pushed higher by strength in consumer staples, which rose 3.2% for the week. Value stocks outperformed growth stocks, as perhaps investors sought shelter from market volatility. The struggle continued for international stocks last week with the EAFE and emerging markets down 1.1% and 3.7%, respectively.

Fixed income markets were relatively stable as the rate on the 10-year U.S. Treasury note held steady at 2.87%. This week, investors will be watching the numbers for existing and new home sales for July. In June, existing home sales fell for the fifth time in six months and new home sales fell to their worst reading in eight months. Rate increases by the Fed may be starting to have an effect on an important part of the economy.

With 96% of S&P 500 companies reporting 2nd quarter earnings, 79% have beat on earnings and 61% have beat on revenue. Margins continue to be a major driver of earnings growth this quarter and are set to expand to 11.7%, their highest level on record.

“Music does a lot of things for a lot of people. It’s transporting, for sure. It can take you right back, it’s uplifting, it’s encouraging, it’s strengthening.”Aretha Franklin