Weekly Commentary (6/4/18) – U.S. Markets Grind Mostly Higher on Volatile Week

June 4, 2018

Stocks ended the holiday-shortened week mostly higher after a barrage of geopolitical tensions ultimately played second fiddle to continuing strong economic news. Political concerns in Italy and Spain kicked off the week as fears of a contagion effect in the Eurozone led investors to take a risk-off approach. Stocks rallied on Wednesday as European concerns abated. Thursday brought more volatility as the U.S. announced it would put in place steel and aluminum tariffs on the EU, Canada and Mexico. The week finished strong on a much better-than-expected jobs report on Friday.

For the week, the DJIA lost 0.38% while the S&P 500 finished higher by 0.54%. Developed international markets finished in the red as the MSCI EAFE index closed down 0.97% for the week. Emerging markets finished lower by 0.51%. Small-cap stocks, represented by the Russell 2000, jumped 1.32% on the week as small-cap stocks are more immune to trade wars. Fixed income, represented by the Bloomberg/Barclays Aggregate, finished the week up slightly. As a result, the 10 YR US Treasury closed at a yield of 2.90% (down 2.9 bps from the previous week’s closing yield of 2.93%). Gold prices pushed lower by $5.30 to close at $1,294.80/oz. Oil prices dropped 1.8% last week with oil closing at $65.81/bbl (down $1.23 for the week); prices dropped as Russia and Saudi Arabia contemplated a potential production increase (to offset Iran’s lower output due to recent sanctions).

Last week saw a number of positive economic releases – mostly better-than-expected results from the personal consumption expenditures (PCE) report, initial jobless claims for the week of May 24, ISM purchasing managers’ index (PMI), and US nonfarm payrolls for May. PCE, a measure of personal spending, jumped 0.6% month over month and nicely ahead of the 0.4% expectation. Friday’s nonfarm payroll report saw that the economy added 223,000 jobs during the month of May (ahead of an expected increase of 188,000) while unemployment ticked down to 3.8% – the lowest level since April 2000. Lastly, PMI, a measure of the economic environment for the manufacturing sector, rose 1.4% in May to 58.7% (ahead of expectations of 58.2%). Bottom line – US economic growth remains robust.

The week ahead has a few important economic releases – Durable Goods Orders, Job Openings & Trade Balance and Markit/ISM Services PMI. We expect results to be mostly in-line with expectations.

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 weather is getting better … make an effort to get outside and smell the roses!

“Just living is not enough … one must have sunshine, freedom, and a little flower.” – Hans Christian Anderson

 

NDS Weekly Commentary 5.29.18 – More Volatility

May 29, 2018

U.S. stocks advanced last week in spite of falling oil prices and worries about a North Korea summit. For the week, the S&P 500, the DJIA and NASDAQ rose 0.33%, 0.18% and 1.09% respectively. International markets were weak over concerns about possible slowing growth in the Eurozone as the manufacturing PMI in Europe has fallen from a peak in December of 60.6 to 55.5 in May. In addition, concerns have risen over a possible withdrawal of Italy from the Eurozone because of recent election results. Last week, the MSCI EAFE fell 1.51% and MSCI EM were off a slight .01%. Oil prices in the U.S. dropped 4.9% for the week as Saudi Arabia and Russia indicated that they might be willing to relax production caps; as a result the energy sector was the worst performer for the week declining 4.5%. The best performing sectors were utilities and real estate.

Fixed income rallied as investors sought shelter from geopolitical tensions and FOMC minutes released last week indicated that the Fed would remain on a gradual pace of interest rate increases. The rate on the 10 year U.S. Treasury note fell from 3.06% to 2.93%.

This week look for economic reports on manufacturing PMI, pending home sales and the monthly jobs report for May which is estimated to improve to 188,000 from 164,000 in April.

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 Commentary (5/21/18) – Inflation on the Rise

May 21, 2018

Equities finished lower for the week following concerns over the rise in the 10 – year treasury yield moving above 3%, global trade wars, continued geopolitical risks, and fears that corporate earnings growth may have peaked. For the week, the DJIA closed lower by 0.36% while the broader-based S&P 500 closed down 0.47%. Developed international markets also slipped by 0.45% and emerging markets were off 2.25%, which have been hurt by a stronger US dollar. All of this, despite S&P 500 earnings growing over 23% and revenues are surpassing 8% in the 1st quarter. The best performing sectors last week were energy up 1.80% and materials 1.77%.

So far this year, the U S small cap stocks have outperformed with the Russell 2000 index (RUT) returning 6.4% compared to just 2.2% for the S&P 500 …RUT rose 1.3% last week. U S small companies benefit from a rising dollar which has risen almost 4% over the past month. A stronger dollar, however, has hurt international markets and foreign sales especially for large US multinational companies.

US Crude (WTI) prices rose to $71.24 a barrel and have climbed 18% since January. The Organization of the Petroleum Export Countries, Venezuela, and the non-OPEC Middle East countries have slashed production and global oil supplies are now at a three year low.

We have been concerned about rising inflation and interest rates dampening consumer spending, economic growth and corporate profits. Although the 10 – year Treasury note has surpassed the 3% level, its highest level since 2011, the market has been comforted by the recent increase in corporate earnings and revenue growth. Most investors and economists are expecting three additional Fed interest rate hikes this year. The question is will the economy and markets withstand higher rates? Investors would also like to see improved trade relations with China.

Economic reports were mixed with U S housing starts declining more than expected last month, while industrial output rose for the third consecutive month. This week will shed light on the housing sector with existing and new home being reported. The Fed will once again be in the spotlight as the minutes from its May meeting will be released Wednesday and Jerome Powell, the new Federal Reserve Chairman, is scheduled to speak on Friday.

“Any man who wants to be President is either an egomaniac or crazy.” – Dwight D. Eisenhower

 

Weekly Commentary (5/14/18) – Markets Push Higher on Good News

May 15, 2018

Stocks pushed nicely higher last week as economic news and corporate earnings continued to impress. Surprisingly, President Trump’s announcement that the United States would withdraw from the Iran Nuclear Accord did not deter investors from pushing stocks higher. Stock prices, oil prices and gold prices all moved higher for the week

For the week, the DJIA gained 2.5% while the S&P 500 finished higher by 2.5% as well. Developed international markets also pushed ahead as the MSCI EAFE index closed up 1.6% for the week. Emerging markets added-on 2.5% for the week as the U.S. dollar was off by just $0.01. Last week’s move higher in the Dow Jones Industrial Average moved the overall DJIA into positive territory for the year-to-date period (up 1.26%). Fixed income, represented by the Bloomberg/Barclays Aggregate, finished the week relatively flat. As a result, the 10 YR US Treasury closed at a yield of 2.97% (up 2 bp from the previous week’s closing yield of 2.95%). Gold prices pushed higher by $6.30 to close at $1,319.30/oz. Oil prices advanced 1.4% last week as oil closed at $70.70/bbl (up $0.98 for the week as prices rose due to the U.S.’s withdrawal from the Iran Nuclear Accord and the prospect for new sanctions on oil exports).

Last week saw a number of positive economic releases – better-than-expected results from the Producer Price Index and the Consumer Price Index (easing fears of inflation), slightly weaker-than-expected jobs report on Friday (helping to tame inflations fears, again) and an 18-year low in unemployment (3.9%). Despite the often chaotic headline news, economic fundamentals remain fairly strong.

The week ahead has a number of economic releases – Retail Sales, NY/Philly Fed business outlook, Housing starts, Industrial production and Jobless claims. First-quarter earnings reports will continue this week, and we expect earnings to be mostly better-than-expected. Strong fundamentals should continue to outweigh the negative headlines that seem to never end.

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.

“Real happiness is cheap enough, yet how dearly we pay for its counterfeit.” – Hosa Ballou

 

ND&S Weekly Commentary (5/7/18) – Unemployment Drops Below 4%

May 7, 2018

Markets declined last week despite a strong rebound on Friday after the April payroll release. For the week, the S&P 500 closed down 0.21% while the DJIA closed lower by 0.19%. Smaller US companies were the only bright spot for the week as the Russell 2000 closed higher by 0.62%. International equities also finished the week in the negative as the MSCI EAFE closed down 0.42% and MSCI EM was off 1.69%. Bonds were flat for the week with the 10yr US Treasury closing at a yield of 2.95%.

April U.S. non-farm payrolls rose a smaller-than-expected 164,000, but did have positive revisions to the March and February estimates. Additionally, the unemployment rate fell to 3.9% marking the lowest reading since December 2000. Despite what appears to be a tight labor market, average hourly earnings advanced by only 0.1%, suggesting inflation should continue to remain in check … hence the rally on Friday. At last weeks meeting, the FOMC left rates unchanged but acknowledged that inflation is getting closer to its 2% target. Current assumptions are that the Fed will likely raise rates at its June meeting with additional hikes later this year.

Earnings reports continued last week, including a strong report from Apple (AAPL). Earnings per share (EPS) beats have been a common occurrence this earnings season with more than ¾ of S&P 500 companies beating their analysts’ EPS expectations. With more than 80% of S&P500 companies having reported, the earnings growth rate is forecasted to be over 24% year-over-year, the highest since 2010.

The week ahead will have another round of company reports. In addition, there are economic releases on inflation and consumer sentiment. Let’s make it a good week!

“With the new day comes new strength and new thoughts.”Eleanor Roosevelt

Earnings Reports Look Good

April 30, 2018

Stocks mostly lost ground last week; seemingly pressured by interest rates as the 10Yr U.S. Treasury crossed the “psychological” 3.0% barrier early in the week for the first time since January 2014. For the week, the DJIA and NASDAQ lost 0.62% and 0.36% respectively while the S&P 500 was essentially flat. Internationally, equities also declined as the MSCI EAFE was down 0.21% and MSCI EM was off 1.01%. Last week, value stocks outperformed growth stocks as technology and financials lagged the index, but the worst performing sectors were industrials and materials. After briefly hitting 3.0%, the 10 year U.S. Treasury finished the week at 2.96%.

In economic news, 1st quarter U.S. GDP growth was reported at 2.3% beating estimates of 2.0%. The data showed that while consumer spending had been weak, business investment and exports picked up the slack. Manufactured durable goods orders increased 2.6% in March easily beating expectations and are now up 8.7% year-over-year. This week look for reports on pending home sales, vehicle sales and the monthly jobs report.

The tax plan voted into law for 2018 has certainly added to the corporate bottom-lines. More than half the S&P 500 companies have now posted 1st quarter earnings, and earnings are forecasted to grow 23% year-over-year. In addition, revenues are up 8.8% surpassing estimates of a 7.6% rise. The 20%+ profit growth is this cycle’s peak rate, which might explain the market’s insipid response … probably as good as it gets as analysts are projecting earnings to grow 10% in 2019. Almost 200 S&P 500 companies are expected to report in the week ahead.

“Failure will never overtake me if my determination to succeed is strong enough.”Og Mandino

NDS Weekly Commentary (4/23/18) – Earnings Season Kicks-Off

April 23, 2018

Equities pushed higher last week, boosted by commodity strength and stronger-than-expected earnings. With a little under 20% of S&P 500 companies reporting so far, Q1 earnings have for the most part come in ahead of estimates. Quarterly earnings were expected to grow roughly 18% year-over-year. 172 S&P 500 constituents are scheduled to report this week which includes GOOGL, FB, MSFT, and AMZN. We continue to expect earnings to be strong relative to expectations.

For the week, the DJIA closed higher by 0.46% while the broader-based S&P 500 moved up 0.54%. Smaller US Companies also performed well with the Russell 2000 finishing higher by 0.94%. International equities were mixed with developed (MSCI EAFE) up 0.53% and emerging markets (MSCI EM) down 0.13%. Bonds struggled for the week with the Barclays US Aggregate down 0.62% or the week. Yields rocketed higher with the 10yr US Treasury closing at a yield of 2.94%, up from 2.82% the week prior. Oil(WTI) moved higher for the week as it closed at 68.37/bbl.

Economic data was generally positive for the week – Retail sales rose 0.6% m/m, exceeding expectations; Housing starts increased 1.9% month over month in March, which was well ahead of estimates; Industrial production rose 0.5% m/m; Jobless claims for the week came in at 232,000, which continues to underscore a strong labor market. Volatility should remain elevated this week due to a number of economic releases, in addition to an onslaught of company earnings releases. Let’s make it a good week!

“Try to be like the turtle- at ease in your own shell.”Bill Copeland

 

Weekly Commentary (4/16/18) – Markets Push Higher on Easing Trade Fears

April 16, 2018

Stocks pushed nicely higher last week as fears of a trade war with China receded. President Xi made conciliatory comments alluding to a possible agreement between the United States and China. First quarter earnings kicked-off last week as most major banks reported better-than-expected earnings.

For the week, the DJIA gained 1.8% while the S&P 500 finished higher by 2.0%. Developed international markets also pushed ahead as the MSCI EAFE index closed up 1.5% for the week. Emerging markets added-on 0.7% for the week. Despite the ‘correction’ experienced in early February, the DJIA is down only 0.87% for the year-to-date period while the S&P 500 is off just 0.10% for the same period. Fixed income, represented by the Bloomberg/Barclays Aggregate, finished the week relatively flat. As a result, the 10 YR US Treasury closed at a yield of 2.82% (up 5 bp from the previous week’s closing yield of 2.77%). Gold prices pushed higher by $12.90 to close at $1,344.80/oz. Oil prices advanced 8.6% last week as oil closed at $67.39/bbl (up $5.33 for the week over conflicts on the Arabian Peninsula and in Syria).

The week ahead has a number of economic releases – Retail Sales, NY/Philly Fed manufacturing surveys, Housing starts, Industrial production and Jobless claims. First-quarter earnings reports will continue as we expect earnings to be relatively positive versus expectations … quarterly earnings are expected to grow roughly 18% year-over-year. Strong fundamentals should continue to outweigh the negative headlines that seem to never end.

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.

“Politics is such a torment that I advise everyone I love not to mix with it.” – Thomas Jefferson

 

Weekly Market Commentary (4.9.17) – Trade Spat

April 9, 2018

Stocks remained volatile last week as rhetoric between US and Chinese officials increased over trade and tariffs. After China retaliated with $50 billion of tariffs on American imports (mostly in the agricultural space), President Trump instructed his trade officials to consider $100 billion of additional tariffs. In positive trade news, it appears the US, Canada, and Mexico are close to agreeing on a revamp of NAFTA with hopes of a preliminary deal expected as soon as this week. Although nothing is certain, the increasing threats have increased market volatility in the short-term.

For the week, the DJIA declined 0.67% while the broader-based S&P 500 declined 1.35%. The Russell 2000 declined 1.04% as smaller US companies should be a little more immune to trade spats due to more domestic focus. International equities were mixed for the week with the MSCI EAFE up 0.50% and MSCI EM off 0.73%. Rates drifted slightly higher last week with the 10yr Treasury closing at a yield of 2.77%, up from 2.74% the week prior. Gold rallied on Friday to finish the week flat while oil declined to $62.06 a barrel.

We expect the global economic expansion to continue and are likely in the midst of a late-cycle correction for the market. Despite the recent trade spat, the underlying economy seems healthy as evidence from last week’s strong jobs report and ISM and Markit’s manufacturing PMI readings which showed the sector is continuing to expand. We don’t anticipate the recent trade spat to break into a global trade war. However, volatility will likely continue as earnings season will kick off this week with 7 S&P 500 companies reporting. We suggest investors stick close to policy targets and rebalancing where necessary.

“For every complex problem there is an answer that is clear, simple, and wrong.”H.L. Mencken

 

NDS Weekly Commentary (4.2.18) – Volatility Continues

April 2, 2018

Markets rallied last week, but not enough to produce positive returns for the 1st quarter. Markets had a volatile week, rallying big on Monday only to sell off during the middle of the week, before bouncing back on Thursday. For the week, the S&P 500 and the DJIA were up 2.05% and 2.42%, respectively. The Russell 2000, representative of smaller US companies, rose 1.56%. International equities were mixed with developed international increasing 1.08% and emerging market stocks declining slightly by 0.01%. Fixed income had positive returns for the week as the rate on the 10 year U.S. Treasury dropped from 2.82% to 2.74% … this despite economic growth being revised last week to 2.9% in the 4Q18, up from a 2.5% reported last month. Year-to-date, the U.S. fixed income aggregate index finished the 1st quarter down 1.46% as yields have moved higher across the board … the yield on the 10yr Treasury started the year at 2.40%.

Last weeks rally was not enough to overcome the correction earlier in the quarter. Volatility remains elevated with the VIX hovering around 22.5 on Thursday. Over the past 3 months, the S&P 500 experienced 6 trading days of +/- 2% moves as opposed to 2017, where we had no such moves. The S&P 500 was down 0.8% for the 1st quarter (first negative quarter since 2015) as investors dealt with trade tensions, higher interest rates and firming inflation. Developed international equities were also down 1.4% for the quarter. The one bright spot was emerging markets with a 1.5% return. We do expect increased volatility to continue in 2018, and the best way to manage the bumps is with a well-diversified portfolio.

“Success is never final, failure is never fatal. It’s courage that counts.”John Wooden