Keeping Our Perspective

November 9, 2015

Weekly economic numbers ebb and flow, but has anything really changed? The “blockbuster report” on Friday was the jobs increase (271,000 in October) and average hourly income (up 2.5% from a year earlier). The immediate Wall Street reaction – the Fed will raise the Fed Funds rate in December. Our reaction has been that this is not critical and should not limit the equity markets. However, the stock market was up 6-7% in October despite lackluster earnings, making the balance of the year somewhat less exciting.

The positive force in our economy is the improvement in jobs, with the unemployment rate dropping to a recent low of 5.0%. The U-6 rate, which measures underemployment more broadly, fell to 9.8%, a seven-year low. Yet thus far, with the exception of housing and autos, the consumer has been slow to increase overall spending.

Conclusion? Don’t be excited by weekly reports. The U.S. economy is growing slowly on the order of 1-2%. Do you feel confident about your asset allocation, your sector weightings and the individual holdings? The ebb and flow of weekly and monthly numbers should not overly influence your overall investment strategy. The solution as always is to focus on what you hold in a portfolio.

“Progress is man’s ability to complicate simplicity.”  –  Thor Heyerdahl

Weekly Review

November 2, 2015

US equity markets finished a volatile trading week to finish slightly higher marking the 5th consecutive week the DJIA and S&P 500 has done so. For the week, the S&P 500 closed at 2079 for a gain of 0.22% while the DJIA closed at 17664 for a gain of 0.14%. International markets were negative for the week with the MSCI EAFE down -0.30% while the MSCI EM was off -2.38%. Treasury yields were higher across the board as the FOMC stood pat on rates for now. The Fed officials indicated they would still consider a possible rate increase at its December meeting.

Third-quarter earnings continued this week and were relatively strong. Some high-profile earnings reports were perhaps overshadowed by M&A talks. Major deals between Walgreens and Rite Aid, Allergan and Pfizer, and Starwood and Hyatt received most of the headline attention. Economic data was rather disappointing as US GDP growth slowed to 1.5% annual rate in the third quarter, US consumer confidence fell to 97.6 in October (from 102.6), and US durable goods orders fell a seasonally adjusted 1.2% in September.

This week, 19.6% of the S&P 500 companies will be reporting earnings. We expect volatility to continue as we are in the middle of earnings season and FOMC noise remains.

“Life is 10% what happens to you and 90% how you react to it.” – Charles Swindoll

The (Unexpected) Market Advance

October 26, 2015

The market continued its 4th Quarter advance, with the S&P500 rising 2.0% while the Nasdaq increased by 3%.  This fourth consecutive week increase has restored positive year-to-date price advances of 0.8% and 6.2% respectively.  In addition, dividends have added 1.7% to the S&P and ~1% to the Nasdaq so far this year.

This fourth quarter rally is facilitated by continued world-wide monetary ease [let’s hope that we don’t experience a devaluation war], low expectations for third quarter earnings reports [with plenty of upside when, and if, a company beats], and positive seasonality.

This cycle’s conundrum is a combination of unusually restrictive fiscal policy [how much GDP growth is lost to our large and growing regulatory bureaucracy?] and the Fed’s “lower for longer” monetary policy [at least we’ve gotten rid of QE].  However, the market is finally coming to realization that the Fed is pushing on a string.  At this point, starting to gradually raise rates may actually help our economy.  As this chart shows, the US consumer has long-lived liabilities [mortgages and auto loans] and short-term assets.


An increase in interest rates would start to provide a return on the ~$10 trillion on deposit [currently earning ~0%], thus increasing disposable income. This non-consensus thinking is further discussed in a recent Bloomberg article.

“Never accept ultimatums, conventional wisdom or absolutes”Christopher Reeve

Stocks Up For a Third Week

October 20, 2015

Last week, stock prices rose for the third consecutive week on generally better than expected earnings reports and increasing doubts about whether the Fed will raise interest rates this year. For the week, the DJIA rose 0.8%, the S&P 500 was up 0.9% and the NASDAQ increased 1.2%. International equity markets also advanced for the week with the MSCI EAFE up 0.29% and MSCI EM advancing 0.71%. Treasury yields have remained subdued during this Fed uncertainty.

Investors have been expecting one of the worst quarters for corporate earnings in years. Analysts’ estimates are for a decline of 5.6%, but looking at companies that have reported so far, earnings are on track for a decline of 4.6%. Unexciting economic data during the week included retail sales -0.1%, industrial production for September -0.2% from August, and the Philadelphia Fed survey was -4.5 … lowering chances for an interest rate hike this year. This week, look for reports on housing starts and existing home sales and numerous earnings announcements.

“Three Rules of Work: Out of clutter find simplicity; From discord find harmony; In the middle of difficulty lies opportunity.” – Albert Einstein

Weekly Roundup … Upside Reversal

October 12, 2015

Markets finished nicely higher last for their best weekly performance in months. For the week, the Dow Jones Industrial Average finished at 17,084 to close up 3.72%. The broader-based S&P 500 closed at 2,015 for a gain of 3.26% for the week. The Nasdaq Composite closed the week at 4,830 as it added 2.61%. International markets were broadly higher as well. The 10-year Treasury closed the week at a yield of 2.099% (up 1.989% the prior week) as bonds gave back a little ground.

Markets got a lift from the release of the Fed’s minutes from their September meeting. The minutes seemed to confirm that the Fed will move very slowly in hiking rates (lower for longer). Crude oil prices jumped 8.98% last week despite U.S. crude inventories rising more than expected. Investors are hoping for increased production cuts that should support oil prices (we’ll see about that … worldwide demand is still sluggish, and more supply will likely come online from Iran and others). Geopolitical concerns in the Middle East could also temporarily prop-up prices, but we see prices ceding ground on supply/demand issues.

On the economic front, the U.S. trade deficit ballooned 16% in August to $48.3 billion from $41.18 billion in July. Imports grew 2.2% … a decent sign for healthy U.S. consumer spending. The Department of Labor reported initial jobless claims for the week ending October 3rd, and claims came in at 263,000 (below expectations of 274,000). No doubt, the labor market continues to be fairly resilient.

Third quarter earnings will be hot and heavy this week … buckle-up! So far, earnings have been relatively strong.

As always, we urge investors not to get caught up in the day-to-day noise of the markets. Instead, focus on long-term goals, and enjoy the beginning of fall.

“Far and away the best prize that life has to offer is the chance to work hard at work worth doing.”  – Theodore Roosevelt


ND&S Weekly Update

October 5, 2015


The markets experienced a seesaw week of trading to finish positive. For the week, the broader based S&P500 finished up 1.10% for the week while the DJIA closed up 1.00%. International markets also fared well as the MSCI EAFE and MSCI EM finished up 0.69% and 1.93% respectively. Interest rates moved quite a bit lower across the board as the 10yr US Treasury closed at a yield of 1.99% which was down from 2.17% the week prior.

Last week saw the conclusion on 2nd quarter earnings announcements. Results were solid for the most part with 61.5% of companies beating expectations, 36% falling short, and 2.5% reporting in-line. Economic data released last week was for the most part negative: U.S. exports of goods fell a seasonally adjusted 3.2% in August, marking a multi-year low … the Department of Labor reported initial jobless claims for the week ending September 16th were 277,000 (10,000 more than the week prior), and lastly on Friday, the Labor Department reported that the US added only 142,000 jobs compared to expectations of 200,000 in September while August’s numbers were revised downward. The employment numbers came as a surprise to many economists. Many economists now believe the Fed could now look towards a 2016 rate hike.

Last Wednesday marked the end of the 3rd quarter; the staff at ND&S is currently putting the finishing touches on our 3rd Quarter Client newsletter. Have a great week!

“Innovation distinguishes between a leader and a follower.” – Steve Jobs

Mixed Bag

September 28, 2015


Markets finished a volatile week ending down as optimism from Federal Reserve Chair Janet Yellon’s comments on Thursday vanished throughout the trading day on Friday. For the week, the S&P 500 finished at 1931 to close down 1.35%. The Dow Jones Industrial Average closed at 16315 for a loss of 0.37% for the week. The Nasdaq Composite closed the week at 4,686 as it ceded 2.91%. International markets were broadly lower as well. The 10-year Treasury closed the week at a yield of 2.17% up from 2.13% the prior week.

Economic data reports released last week were mixed. The National Association of Realtors reported Monday that sales of previously owned homes slumped 4.8% for the month of August, that being said, sales are still up 6.2% from the previous year. On Thursday, the U.S. Department of Commerce reported that new orders for durable goods fell 2.0%, less than an expected decline of 2.3%. Following an increase in July, the poor performance in August can be attributed to weaker demand due to a strong U.S. dollar and China’s economic troubles. On Friday, the commerce department reported the revised estimate for second-quarter GDP showed an expansion of 3.9%, up substantially from its initial reading of 2.3%. Digging deeper into the report, personal consumption grew 3.6% while residential construction grew 9.3% and non-residential construction grew 6.2%. The upward revision is a good sign that the domestic economy remains strong despite some challenges overseas.

As always, we urge investors to not get caught up in the day-to-day noise of the markets. Focus should remain on long-term goals and enjoying the gifts each day brings. Enjoy the week!

“If you dream it, you can do it.” – Walt Disney

Volatility Continues

September 21, 2015

Market volatility continued intra-week, with EIA inventory data boosting oil prices and the S&P500 by Wednesday’s close to a temporary weekly gain of 1.7%.  However, midweek strength was surprisingly wiped out by the Federal Reserve’s lack of action Thursday afternoon, and the S&P500 closed down -0.2% at 1961.  Smaller caps did somewhat better, with the Russell 2000 rising by 0.5% to 1157.79.

9.21.15 Image


The Fed surprised forecasters [see above], but not the Fed futures market by not raising interest rates above the 0% to 0.25% range.  This in spite of previously indicating that September was the most likely lift-off date [don’t forget that rates have been near zero for 6.7 years!].  In the past, the continued presence of the Fed’s “punch bowl” would be welcomed by the markets with at least a short-term relief rally.  Not this time as the S&P500 fell by 1.6% on Friday, resulting in the -0.2% weekly loss.

The markets’ dissatisfaction stems from the Fed’s signaling a lack of confidence in the economy.  In addition, the Fed’s mention of international economic difficulties seems to be a new excuse for postponing the inevitable.  Finally, the markets may finally be starting to recognize that zero interest rates are deleteriously impacting markets [lack of proper price discovery, lack of arrows-in-the quiver to battle the next recession].

Current government intervention … hasn’t really solved anything. They’ve just postponed [the inevitable] – Marc Faber

Interest Rates on Tap

September 14, 2015

Last week, U.S. equity markets had their largest weekly gains in almost six months as expectations for a rate increase faded due to concerns over market volatility and slowing global economic growth. Both the DJIA and the S&P 500 were up more than 2%, while the NASDAQ increased almost 3%. International markets were also positive as the MSCI EAFE was up 2.07% while the MSCI EM increased 1.88% for the week. Interest rates were higher across the board with the 10 Yr. US Treasury closing at a rate of 2.20%.

This week, look for economic reports on retail sales, industrial production, CPI and housing starts but the big news will be from the two day FOMC meeting starting Wednesday. Of the many things discussed, one thing will certainly be whether or not the Fed will raise short-term interest rates. The chances for a rate increase according to Fed fund futures, has dropped in the last month from 45% to 23%. Regardless, it is highly likely that interest rates will increase before the end of the year. The Fed has indicated that rate increases will be very gradual and data dependent.

Enjoy the week!

“Individual commitment to a group effort – that is what makes a team work, a company work, a society work, a civilization work.” – Vince Lombardi

Weekly Roundup … Another Wild and Volatile Week

September 8, 2015

Markets finished another wild and volatile week in the red as the DJIA and S&P 500 gave back the previous week’s gains, plus some. For the week, the Dow Jones Industrial Average finished at 16,102 to close down 3.25%. The broader-based S&P 500 closed at 1,921 for a loss of 3.40% for the week. The Nasdaq Composite closed the week at 4,684 as it ceded 2.99%. International markets were broadly lower as well. The 10-year Treasury closed the week at a yield of 2.12% (down from 2.18% the prior week) on a flight-to-safety among bond buyers.

Earnings and economic data released last week were generally positive: the U.S. unemployment rate fell to 5.1% … the lowest level in over seven years, the U.S. trade deficit fell to a five month low in July as exports outpaced imports, U.S. non-farm productivity rose 3.3% in the second quarter … the strongest pace since the fourth quarter of 2013, U.S. jobless claims for the week ending 8/29 increased 12,000 to 282,000 … slightly above expectations of 275,000 (although August numbers are typically revised higher), and the ISM index fell from 52.7 in July to 51.1 in August. International economic releases were mixed, but certainly news out of China and Canada were disappointing. Business activity in the Eurozone increased in August as the Markit Composite PMI grew to 54.3, its highest level since May 2011. China reported disappointing manufacturing data as its August PMI fell to 49.7, a three year low. Lastly, Canada reported a second straight month of negative GDP growth … officially signaling a recession (Canada is the U.S.’s biggest trading partner accounting for 19% of U.S. exports).

Global stock markets remain on edge. Uncertainty regarding an imminent Fed rate hike along with concerning data out of China and Canada will likely keep volatility high. The good news is that valuations around the world have come down quite a bit (the U.S. now trades at slightly less than its historical price-to-earning multiple). Last week’s retest of the August 25th bottom failed, and we suspect that markets will try to sell-off again before beginning their push higher into the end of the year.

As always, we urge investors not to get caught up in the day-to-day noise of the markets. Instead, focus on long-term goals, and enjoy the last two weeks of summer.

“A little perspective, like a little humor, goes a long way.” – Allen Klein.