“Don’t fight the Fed” Part II…?

January 26, 2015

It was an eventful week in the markets with corporate earnings, huge swings in currencies due to central bank activities, and continued pressure on oil (-7% for the week) dominating the headlines.  Although we are in the early innings of earnings season (15% of S&P 500 companies have reported so far), 74% of companies have beat, 11% are in line, and 16% missed expectations.  The most impactful news came from European Central Bank’s (ECB) President Mario Draghi, as he announced a quantitative-easing program (“Q.E. for the E.U.”) with monthly bond purchases of €60m for a total commitment of €1.2t.  As a result, the (€)Euro is now trading at level relative to the ($)Dollar not seen since 2003($1.12/€1).

Equity markets finished with its first positive week of 2015 with the DJIA gaining 0.96%, while the broader-based S&P500 gaining 1.62%.  International markets fared a bit better as the MSCI EAFE finished up 2.64% and MSCI EM finished up 3.50% for the week.  Rates continued to trend lower with the 10yr US Treasury closing at a yield of 1.79% despite expectations of the Fed raising rates at some point in 2015.

As we move forward into 2015, we see the U.S. economy continuing to muddle along, albeit at a modest 3.0% rate.  U.S. multinationals may start to feel negative effects on earnings from a stronger dollar.  On the other side of the pond, valuations in Europe are reasonable, with the weaker Euro and lower oil prices providing a nice tail wind for European equities.  In addition to that, dividend yields on European equities are quite attractive.  We suggest investors continue to maintain a globally diversified portfolio consistent with one’s long term objectives.

Euro Chart

“Wherever you go, no matter what the weather, always bring your own sunshine.”Anthony J. D’Angelo

Wither Interest Rates?

January 20, 2015

Last week equity markets declined as retail sales disappointed and major bank earnings came in below estimates. The S&P 500 was down 1.2% for the week. YTD the best performing sectors are utilities and healthcare and the worst performers are financials and energy. Bonds continued to surprise as the U.S. 10 year Treasury finished the week with its largest 3 week decline in yield since 2011 ending the week at 1.81%. Lower yields have been driven by a flight to safety by investors and concerns about global growth.

Also, last week the CPI was reported to have fallen 0.4% for the month of December largely due to lower gasoline prices. From a year ago the CPI was only up 0.8%. For January the CPI may come in below year earlier levels. Lower inflation may cause the Fed to hold off on its plan to increase interest rates. Many forecasters have predicted that the Fed would raise short term rates in in June but lower CPI readings may cause the Fed to hold off.

01.20.14 ycharts_chart


“A day of worry is more exhausting than a week of work.”
-John Lubbock


… “Must” Come Down

January 12, 2015

The market ended the first full week of the New Year on the downside, with the S&P 500 down 0.7% and the small-cap R2000 down by 1.1%. On the international front, the Dow Jones es-US index is down 1.8% YTD.  The week was volatile, with concerns about the sustainability of Greek Eurozone membership [and its willingness to sustain “austerity”] offset by Bloomberg’s assertion that Germany will help facilitate Greek debt restructuring. Midweek Fed uncertainty emerged as Charles Evans argued for continued ease [what-me-worry?] while William Dudley [supported by the WSJ’s John Hilsenrath] argued that an influx of capital [seeking dollar denominated investments] argues for an earlier rate increase [to avoid a surge in prices and/or another {housing?} bubble creation].

The situation got even more interesting on Friday, when Payroll numbers of 252,000 beat expectations by 7,000, and the unemployment rate fell to 5.7%. But average hourly wages counter-intuitively shrank by 0.2%, resulting in no change in aggregate income in the month of December. This by itself suggests that overall consumption growth will continue to be limited.

1.12.15  WSJ Employment

Of course, the ongoing energy price decline is significantly helping consumer’s disposable income [when will gasoline fall below $2.00/gal in New England?]. The challenge here will be for voters to keep their politicians from picking their pockets by raising the gasoline taxes [which we do not expect].

“… I’m sure that we’re never going to see $100 [again] …”Prince Alwaleed bin Talal

What Goes Up…

January 5, 2015

Not every week is an up week for the markets. Equity markets finished the holiday shortened week lower on fairly light volume. Economic data was a bit weaker-than-expected as the ISM manufacturing index declined to 55.5 from 58.7 (the lowest level in six months). Pending homes sales rose 0.8% in November, but growth remains less-than-robust especially given the decent jobs market and overall GDP growth. Oil prices continued their downward slide as supply remains quite healthy due to sub-par global growth/demand. OPEC seems intent on maintaining current production levels … an attempt to slow down US oil production and to keep political pressure on Russia. The big economic news this week will be Friday’s labor report … a gain of 240,000 jobs is expected for December.

For the week, the Dow Jones Industrial Average finished at 17,833 to close down 1.2%. The broader-based S&P 500 closed at 2,058 for a loss of 1.5% for the week. The Nasdaq Composite closed the week at 4,727 for a drop of 1.7%. International markets fared a bit better as the Dow Jones Global (ex US) Index dropped 0.9% for the week. The 10-year Treasury closed the week at a yield of 2.12% (down from 2.25% the prior week) as bond prices rose due to falling oil prices, troubles in the Eurozone and abnormally low yields overseas.

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 gift of each day. Happy New Year!

“As cool as the other side of the pillow.”  –  Stuart Scott

Happy 2015!

December 29, 2014

Stocks continued their record run during a holiday-shortened trading week. For the year, the DJIA has posted 38 record highs while the S&P500 has notched 52. The positive news out of the week was 3Q GDP, which was revised to 5.0% q/q from 3.9% (despite a strong 3rd Quarter, we see GDP around 2.8% y/y), strong consumer sentiment, and accommodating moves from China’s central bank looking to further ease liquidity. Oil continued its retreat, and was down 4.2% for the week on oversupply concerns.

The S&P500 finished at 2089, up .90% for the week while the DJIA closed above 18000 for the first time (18,054 to be exact). Small Cap US companies fared a little better for the week with the Russell 2000 up 1.64%. In international markets, the MSCI EAFE finished up 0.47% while the MSCI EM was up 0.98% for the week. The 10-year Treasury closed the week at a yield of 2.25% up from 2.17% the week prior.

This will be our last weekly post for 2014. From all of us at ND&S, we want to wish you happy, healthy and prosperous 2015!

“And now we welcome the New Year. Full of things that have never been.” – Rainer Maria Rilke


December 22, 2014

Equity markets rebounded strongly last week with the DJIA and S&P 500 posting gains of  3.08% and 3.44% respectively. For the prior two weeks, stocks were down over 5%, driven largely by energy stocks which are now down 12.8% over the last three months. Starting Wednesday, stocks rallied sharply fueled by Fed comments that monetary policy will remain easy for the foreseeable future. Surprisingly, energy was the best performing sector last week … up 9.7%.

XLE chart

This week look  for economic reports on existing home sales, durable goods, and the third revision to third quarter GDP (which may be revised up from 3.9% to 4.3%).


“It is a fine seasoning for joy to think of those we love.”  –  Moliere

Two Steps Forward, One Step Back

December 15, 2014

The markets ended the week broadly lower, with the S&P falling 3.5% and the Nasdaq lower by 2.7%. Multiple headwinds confronted the markets: the Bank of China tightened liquidity, political uncertainty in Greece [Greek 10-yr @ 7.95%!], and precipitous energy price declines [crude oil is down 46.3% from its $107.73/bbl mid-year high]. The VIX [Volatility Index] is now up to 21.82, its highest level since October [demand for downside protection is increasing].

Equity and energy market volatility has garnered most of the headlines lately, but it is also important to note the strength of the US dollar:

12.15.15 DXY chart

The DXY’s[U.S. Dollar Index… See above] 11% YTD advance is due to a strengthening US economy and the upcoming 2015 Fed rate hikes; that contrasts with weaker overseas economies and more active overseas monetary policies. It is also worth noting that the US dollar is once again positively correlated with the US equity market.

The U.S. Dollar regains a positive correlation with equities:

12.15.14 dollar sp500 correlation

The “easy-money” part of the bull market cycle may have passed, but a stronger dollar is ultimately better for the country and those who save and invest in a dollar-denominated world.

“When defeat comes, accept it as a signal that your plans are not sound; rebuild those plans and set sail once more toward your coveted goal”Napoleon Hill

Lucky Seven…

December 8, 2014

Markets finished higher last week for their seventh weekly gain in a row. Investors pushed stocks higher following a slew of positive economic news – better-than-expected Purchasing Managers Index, positive Institute of Supply Management reports on manufacturing and non-manufacturing data, and a robust non-farm payrolls report that showed 321,000 jobs created in November (wage growth of 0.4% was an added bonus). Lower oil prices should help to keep the US recovery on a slow and steady path forward. Unfortunately, many economies outside the Untied States continue to struggle. Data out of the Eurozone, Japan and China point to anemic growth, at best. For now, it looks like the United States is the only game in town; however, international valuations are getting more attractive (so a diversified portfolio will serve most investors well as the rally in the U.S. gets overplayed …).

For the week, the Dow Jones Industrial Average finished at 17,959 to close up by 0.7%. The broader-based S&P 500 closed at 2,075 for a gain of 0.38% for the week. The Nasdaq Composite closed the week at 4,781 for a slight loss of 0.4%. International markets did not fare as well, and the Dow Jones Global (ex US) Index dropped 0.8% for the week. The 10-year Treasury closed the week at a yield of 2.31% as bond prices fell following the strong U.S. jobs report.

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 holiday season.

“Success is getting what you want. Happiness is wanting what you get.”  –  Dale Carnegie

Oil Plunge Creates Winners and Losers

December 1, 2014

What was supposed to be a “quiet” holiday-shortened week, ended in a flurry with OPEC’s decision to maintain its 30 million barrels per day output despite the 5 month fall in oil prices. Despite the S&P’s energy sector being off -6.4% on Friday alone, the S&P 500 and DJIA managed to finish higher by 0.2% & 0.1% respectively for the week. Consumer Discretionary (2.5%), Technology (2.1%), and Health Care (1.8%) provided ballast for the markets this past week. Globally, the MSCI EAFE was positive 0.48% on speculation of a sovereign QE program from the European Central Bank. Given the volatility and choppy trading sessions, yields on the 10-yr U.S. Treasury moved lower to 2.18%.

Despite the volatility, we see the U.S. markets continuing to plod along as we enter a month that is historically positive for equities. Economic news continues to be encouraging as the second revision to 3Q GDP surprised to the upside (3.9% vs consensus 3.2%) last week. In the week ahead, we will be on the look out for PMI & ISM Mfg., vehicle sales, and employment numbers.

“I dwell in possibility”  –  Emily Dickinson

“Happy Thanksgiving”

November 24, 2014

Last week U.S. equity markets continued their advance. On Friday, China announced a surprise cut in interest rates and European officials suggested that they would expand their bond buying program. This contributed to a stock rally on Friday that resulted in the DJIA and the S&P 500 ending up 1% and 1.2% respectively for the week.

This week economic news is fairly light with reports on new home sales, durable goods orders and the second revision to 3rd quarter GDP due to be reported.

Early forecasts by strategists for 2015 equity returns are modest averaging about 5%. Most strategists are not looking for P/Es to expand as U.S. stocks are already at the upper end of fair value and the Fed could start to raise interest rates at some point next year. Many international markets are now selling at half the valuation of U.S. stocks and could react positively next year to any good news either economically or Geo-politically.


“The only thing we know about the future is that it will be different.”Peter Drucker