Weekly Commentary (5/03/21) – Markets Flat to Down Despite Strong Earnings   

May 3, 2021

Markets were flat to slightly down last week despite strong earnings reports from Microsoft, Apple, Amazon, Alphabet (Google) and others.

For the week, the DJIA declined 0.50% while the S&P 500 was basically flat at +0.02%.  The tech-heavy Nasdaq dropped 0.39%.  International markets also moved slightly lower. For the week, the All Country World Index ex-USA declined 0.53% while emerging market equities (MSCI EM) finished lower by 0.40%.   Small company stocks, represented by the Russell 2000, finished in the red by 0.24%.  Fixed income, represented by the Bloomberg/Barclays Aggregate, finished the week lower as the index lost 0.18%.  As a result, the 10 YR US Treasury closed at a yield of 1.63% (up ~6.6 bps from the previous week’s closing yield of ~1.57%).  Gold prices closed at $1,767.30/oz – down 0.56% on the week.  Oil prices jumped 2.3% on the week to close at $63.58 per barrel.

Earnings releases will continue in full swing this week, and we expect companies to report mostly better-than-expected earnings as covid cases recede around the world (with the exception of India and a few other countries).  Massive amounts of economic stimulus along with accommodative central banks should support strong economic growth.  According to S&P Capital IQ, Q1 S&P 500 earnings per share should rise 15.4% year-over-year.

Tepid market reaction to outstanding earnings reports from several bell weather companies tells investors that perhaps the markets have already discounted a lot of good news.  Don’t be surprised if the markets take a bit of a breather here.  We continue to suggest that investors stay close to their long-term target asset allocations with a slight defensive bias.  Stay safe and enjoy the improving weather.

“Attitude is a little thing that makes a big difference” – Winston Churchill

ND&S Weekly Commentary 4.26.21 – A Volatile Week for Stocks

April 26, 2021

Equity markets ended a volatile week with a Friday rally on strong economic news. For the week, however, major markets all finished slightly lower with the S&P 500, DJIA, and the NASDAQ down respectively -0.1%, -0.4%, and -0.25%. On Thursday, the Labor Department reported that weekly jobless claims were the lowest since the pandemic began at 547,000. That good news was overshadowed by news reports that President Biden is expected to propose a capital gains tax rate of 39.6% on taxpayers earning more than $1 million a year which hit markets hard. On Friday, however, markets rallied strongly as reports on the IHS Markit Flash U.S. Services index jumped to 63.1 in April, the fastest expansion since 2009. Also, the IHS Markit Manufacturing index showed a steep rise in output and at the same time the Commerce Department reported that new single-family home sales in March rose more than 20% compared with February. For the week, the strongest sectors were real estate and healthcare while the weakest was energy. International equities were mixed with the MSCI EAFE index down -0.38% and emerging markets (MSCI EM) rising 0.35%. Fixed income markets were relatively quiet last week with the yield on the 10 year U.S. Treasury declining slightly to 1.58% from 1.59% the prior week.

This week will be busy with a third of the S&P 500 companies reporting earnings, a Federal Reserve meeting, and Presidential address to Congress on Wednesday. Among companies reporting this week will be Apple, Microsoft, Alphabet, and Amazon. So far, earnings news has been positive, with 86% of companies reporting earnings better than Wall Street’s expectations. Corporate profits for the quarter are expected to be up about 33.9%. The markets trading near all-time highs and big expectations for earnings will likely keep the upside reactions relatively muted. There will also be economic reports released on consumer confidence, first quarter real GDP and pending home sales. Economic news should continue be positive as the economy rebounds but rebalance as necessary if asset allocations are out-of-line.

“It is better to know some of the questions than all of the answers.” – James Thurber

ND&S Weekly Commentary 4.19.21 – Higher and Higher

April 19, 2021

The US stock market hit all-time highs last week as blue-chip companies reported solid earnings and fresh economic data showed strong improvement in consumer spending and the labor market. Investors’ expectations for a return to normalcy and economic growth are being fueled by cyclical companies and banks reporting healthier revenues, earnings and guidance.

For the week, the Dow Jones Industrials Average (DJIA) rose 1.18%, the S&P 500 gained 1.39% both advancing for four straight weeks. The tech-heavy Nasdaq gained for the third consecutive week, up 1.10%. Foreign stocks also appreciated with developed (MSCI EAFE) and emerging (MSCI EM) markets gaining 1.67% and 1.41%, respectively. The price of oil ($/bbl) soared 6.5% to $63.13 and gold finished the week down 1.91% to $1,774/oz. The yield on the 10 year U.S. Treasury saw its largest one week decline since June, falling from 1.67% the previous week to 1.59%. The Federal Reserve has convinced investors that it will not increase rates and will accommodate slightly higher inflation. That said, inflationary fears remain a major headwind to the highly valued equity and credit markets.

As stimulus checks arrive, consumers have begun to splurge and retail sales soared 9.8% last month compared to February. There is hope that the pandemic has created a lot of pent up demand and it could be fueled further by banks relaxing their credit standards and increasing lending at these historically low interest rates. Unemployment has steadily improved with weekly jobless claims coming in at 567,000, much better than consensus estimates and a new low since the pandemic began.

As mentioned, creeping inflation is being tolerated for now. Consumer prices rose 0.6% in March. Headlining the uptick in sales were motor vehicles and building materials soaring 27% and 32%, respectively, from their pre-pandemic peak according to FactSet. In addition to the splurge in consumer spending, the global supply disruptions to production caused by the pandemic is pressuring input costs and highly skilled labor is in short supply.

The transition from recovery to expansion, created by the re-opening of the economy due to accelerated vaccine momentum, substantial fiscal stimulus and an accommodative monetary policy, have served the financial markets well. The first quarter earnings of the S&P 500 are expected to grow at a whopping 25%. We must keep a watchful eye on valuations (are bit stretched…) and interest rates which drive the markets over time. Please remain diversified and stay in-line with your long term goals.

“Your love, liftin’ me higher
Than I’ve been lifted before
So keep it up, quench my desire
And I’ll be at your side forevermore”

Song by Carl Smith and Raynard Miner as performed by Jackie Wilson and by the Knickerbocker All Stars.

ND&S Weekly Commentary 4.12.21 – S&P 500 and DJIA Reach New Highs

April 12, 2021

The S&P 500 and DJIA closed at record levels last week supported by the improving economic recovery and an increasingly successful rollout of the coronavirus vaccines.

Economic data released last week confirmed the improving economic picture. The Institute for Supply Management (ISM) reported their March manufacturing and services index last week with both reports coming in better-than-expected. The services index surged 8.4 percentage points in March to mark an all-time high of 63.7%. The manufacturing index was equally as strong posting 64.7%. Durable goods orders fell 0.8% in February to $505.7 billion missing estimates for a 0.5% decrease. The Producer Price Index (PPI) showed final demand for goods and services increased 1.0% in March. The PPI measures price changes from the producer’s perspective which offers a different vantage-point on inflation pressures.

For the week, the S&P 500 and DJIA were up 2.76% and 1.99%, respectively. The Nasdaq rebounded on the strength of the technology sector to close higher by 3.13%. Small company stocks, represented by the Russell 2000, cooled off to close 0.46% lower. International markets were mixed last week with the developed markets (MSCI EAFE) increasing 2.01% and emerging markets (MSCI EM) lower by 0.34%. The rise in treasury yields moderated last week as the 10yr U.S. Treasury yield had a slight decline of 2bps to close at 1.67%. Gold prices closed at $1,741/oz. – up 0.97% on the week. Oil prices closed at $59.32/bbl – down 3.47% last week.

First-quarter earnings season begins this week with a number of major banks scheduled to report results Wednesday before the bell. With earnings season, we will return to market fundamentals and also gain deeper insight into how individual companies are navigating the reopening. Equity markets posted a strong first quarter and are at least partially discounting strong economic conditions ahead. We continue to suggest investors stay close to long-term asset allocation targets.

Congratulations to Lee Elder and Hideki Matsuyama. Elder, was the first African-American to play the Masters Tournament in 1975. He was joined by Jack Nicklaus and Gary Player as honorary starters for the 85th edition of the Masters Tournament. Hideki Matsuyama, made history on Sunday as the first male golfer from Japan to win one of golf’s major championships.

“I always said that if they have a course like this in heaven, I want to be the head pro.” – Gary Player

Weekly Commentary (04/05/21) – Markets Advance on Massive Infrastructure Plan

April 5, 2021

Equity markets closed near all-time highs last week as investors cheered President Biden’s $2 trillion (yes, trillion) infrastructure plan along with another round of stimulus money.

For the week, the DJIA advanced 0.24% while the S&P 500 gained 1.14%. The tech-heavy Nasdaq jumped 2.60%. International markets were strong as the MSCI EAFE index (developed markets) closed higher by 0.53% while emerging market equities (MSCI EM) jumped higher by 2.40%. Small company stocks, represented by the Russell 2000, finished ahead by 1.46% for the week. Fixed income, represented by the Bloomberg/Barclays Aggregate, finished the week lower as the yield curve continued to steepen. As a result, the 10 YR US Treasury closed at a yield of 1.69% (up ~6 bps from the previous week’s closing yield of ~1.63%). Gold prices closed at $1,726.50/oz – down 0.33% on the week. Oil prices closed at $61.45/bbl (up 0.79% on the week).

Economic news released last week was mixed, but the big news came on Friday when the Labor Department reported that 916,000 jobs were added in March – far surpassing estimates for a gain of 647,000 jobs. The strong jobs report will likely boost equity markets in the short-term. Economic releases in the week ahead include Durable Goods, JOLTS job openings and Producer Price Index (PPI).

Economic and market fundamentals remain quite reasonable, and the news on the vaccine front continues to be encouraging. Markets will likely turn their attention to the details of the massive infrastructure plan and how the Biden administration plans to pay for the plan. Of course, the burden will fall to taxpayers, and the first proposed major tax increase announced by the Biden team pushes corporate taxes up 33% – from 21% to 28%.

We suggest investors stay close to their long-term target asset allocations (stay underweight fixed income and be market weighted to slightly higher-than market weight in equities). Let’s make it a good week!

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

ND&S Weekly Commentary (3.29.21) – Volatility Continues – Mixed Bag

March 29, 2021

Stocks ended a volatile week with a late day rally that pushed the S&P 500 and the DJIA to new highs while all other equity markets finished the week lower. Stocks swung during the week as investors weighed signals that the U.S. economy is primed for recovery versus concerns over higher interest rates and higher inflation. The S&P 500 and the DJIA were up 1.7% and 1.4% respectively on Friday and for the week the S&P 500 and DJIA finished up 1.6% and 1.4%. The NASDAQ declined -0.6% last week as tech stocks continued to struggle with higher interest rates. Small U.S. stocks, represented by the Russell 2000, declined -2.88%. The best performing sectors last week were real estate and consumer staples and the worst performing was communications services. International markets were weak as European countries struggle with the vaccine roll out, a stronger U.S. dollar and global supply chain issues caused by the blockage of the Suez Canal. The MSCI EAFE index and the MSCI Emerging Markets index declined -0.5% and -2.1%, respectively. Fixed income markets rose last week as the yield on the 10 year U.S. Treasury declined from 1.74% to 1.67%.

Economic data reported last week came in mostly below analyst estimates. On Monday, the National Association of Realtors reported existing home sales declined 6.6% in February. The results missed expectations but are up a whopping 9.1% from the same time last year. The Commerce Department reported manufactured durable goods fell 1.1% in February, missing expectations of a 0.5% advance. The “second” reading of real Gross Domestic Product (GDP) was increased to 4.3% in the fourth quarter of 2020, outpacing estimates of 4.3%. Jobless claims for the week ended March 20 were 684,000, beating estimates of 735,000. This week in economic news look for reports on consumer confidence, the ISM Mfg. index and the March jobs report.

As the stimulus funds get distributed and the vaccine roll out accelerates, the U.S. economy should continue to improve.

“Here comes the sun, and I say it’s all right.”The Beatles

ND&S Weekly Commentary (3.22.21) – Happy Spring

March 22, 2021

Last week investors pulled back on conflicting economic data, an uptick in interest rates and concerns over relatively high financial asset valuations. For the week, the DJIA slid 0.45%, S&P 500 lost 0.74% and the tech-heavy Nasdaq declined 0.77%. International stocks were mixed with developed (MSCI EAFE) up 0.61% while emerging (MSCI EM), which flew the prior week, lost some steam down 0.80%. Gold closed at $1,741/oz., up 1.27% for the week. Oil (WTI) finished at $61.42/bbl., dropping 6.39%.

The second round of stimulus payments of $1,400 went out to roughly 90 million adults last week. All in, the relief checks for the year total over $800 billion. Investors are worried that such a jolt of liquidity will spur inflation and a huge federal debt overhang. There will undoubtedly be upward pressure on interest rates.

The Federal Reserve reiterated its dovish comments at last week’s FOMC meeting. The Fed reaffirmed their projection that there should be no short-term rate hikes before 2024 and agreed to be more tolerant of slightly higher inflation. On Friday, the Fed also decided not to extend the rule that allowed banks to relax capital levels afforded during the pandemic. The 10yr U.S. Treasury yield surged to 1.74% up from 1.64% the previous week and from 0.93% where it was at year-end.

Economic data released last week fell short of expectations. February retail sales declined sharply by 3% from January missing estimates for a modest 0.5% decline. Jobless claims unexpectedly rose 45,000 to 770,000 in the week of 3/13 and are higher than they were during the 2007-2009 recession. Industrial production declined 2.2% in February, manufacturing output slid 3.1% and overall capacity utilization declined to 73.8%. Housing starts are down 9.3% from the same time last year as a result of inflated building costs and recent adverse weather conditions. Economic reports will be plentiful this week: existing and new home sales, durable goods orders, GDP, personal consumption expenditures and income will be reported.
On the pandemic front, Covid-19 vaccine manufacturing companies are ramping up production as they become more efficient and are teaming up with other manufacturers. According to Eversource ISI, the increased output should fully vaccinate 76 million people in the U.S. in March, another 75 million in April and 89 million in May.

We expect market volatility as a result of higher consumer spending and challenged supply chains causing inflationary pressures. Though it’s always a good time for spring cleaning, please stay focused on your long-term goals and targets.

“From you have I been absent in the Spring
When proud-pied April, dressed in all his trim
Hath put a spirit of youth in everything”

– William Shakespeare

ND&S Weekly Commentary (3.15.21) – Equities Cheer Stimulus

March 15, 2021

Equity markets returned to record levels last week supported by fiscal stimulus and tempered inflation fears.

For the week, the DJIA advanced 4.17%, the S&P 500 gained 2.69% and the tech-heavy Nasdaq closed higher by 3.12%. International markets were also positive as the MSCI EAFE index (developed markets) closed higher by 3.00% while emerging market equities (MSCI EM) increased 0.70%. Small U.S. stocks, represented by the Russell 2000, soared by 7.36% for the week. Fixed income, represented by the Bloomberg/Barclays Aggregate (AGG), finished the week lower as the yield curve continued to steepen. Year-to-date, the AGG is down 3.35%. The 10 YR US Treasury closed at a yield of 1.64% (up ~8 bps from the previous week’s closing yield of ~1.56%). Gold prices closed at $1,705/oz. – up 1.27% on the week. Oil (WTI) finished at $65.56/bbl., down 0.73%.

Congress passed another massive relief package along party lines last week bringing the total to $2.8 trillion in stimulus since December 2020. Markets are expecting accelerating U.S. growth in 2021 but one of the feared outcomes is higher inflation. The U.S. Bureau of Labor Statistics reported last week that the Consumer Price Index (CPI) increased 0.4% in February matching expectations. This follows a 0.3% advance in January. On Friday, they reported that the Producer Price Index (PPI) increased 0.5% also matching expectations. So far, the economic data has not signaled runaway inflation but the bond market has begun to discount higher inflation with the recent spike in rates. This week, look for reports on retail sales, housing starts, and consumer sentiment. Additionally, the Federal Open Market Committee (FOMC) will have their March meeting and will host a press conference Wednesday at 2pm. They will need to strike a balance between offering an optimistic assessment of the economy while also reassuring that the recovery doesn’t overheat the economy causing a rapid rise in inflation.

Equity markets have started 2021 strong as the world economy has continued to heal from the Covid-19 pandemic. A rotation has begun to take hold from tech-heavy equities that have benefited from a shutdown to more cyclical sectors that would benefit from a reopening. We have been broadening out equity exposure within the U.S. and also outside the U.S. (both developed and emerging markets). We will continue to hold below-average duration exposure within fixed income as the potential for higher rates will weigh on bond prices.

March Madness tips off this week … a nice diversion from the day-to-day noise of the markets and Covid-19. Good luck on all your bracket picks and let’s all root for some upsets!

“The secret of happiness is something to do.” – John Burroughs

Weekly Commentary (03/08/21) – Markets Finished Mixed on a Volatile Week

March 8, 2021

Markets were mixed last week as rising interest rates muted investors’ enthusiasm for high growth stocks.

For the week, the DJIA advanced 1.85% while the S&P 500 gained 0.84%. The tech-heavy Nasdaq gave back 2.05%. International markets were also mixed with the MSCI EAFE index (developed markets) closed lower by 0.47% while emerging market equities (MSCI EM) inched higher by 0.06%. Small company stocks, represented by the Russell 2000, finished lower by 0.38%. Fixed income, represented by the Bloomberg/Barclays Aggregate, finished the week lower as the yield curve continued to steepen. As a result, the 10 YR US Treasury closed at a yield of 1.53% (up ~9 bps from the previous week’s closing yield of ~1.44%). Gold prices closed at $1,698/oz – down 1.74% on the week. Oil prices rose 7.46% and closed at $66.09/bbl.

Economic news released last week confirmed an improving economy and jobs market. On Monday, the Institute of Supply Management (ISM) reported that the manufacturing purchasing managers’ index (PMI) for February increased 2.1 % to 60.8%, exceeding expectations for a 58.6% reading. Manufacturing has been in expansion mode for nine straight months. On Wednesday, the ISM reported that the Services PMI for February fell 3.4% to 55.3%, missing an expected reading of 58.7%. On Thursday, the U.S. Commerce Department reported that new orders for durable and non-durable manufactured goods for January advanced 2.6%, outpacing expectations for a gain of 2.1%. Adding to January’s favorable report was an upward revision to December’s reading from 1.1% to 1.6%. Also on Thursday, the Department of Labor reported weekly initial jobless claims (for the week ending February 27) of 745,000, below consensus of 750,000 claims. On Friday, the Labor Department reported that 379,000 jobs were added in February, much higher than expectations for a gain of 210,000 jobs. Unemployment declined slightly to 6.2% (consensus was for a 6.3% rate). The labor force participation rate remained unchanged at 61.4%.

Economic and market fundamentals remain reasonable, and the news on the vaccine front has been encouraging. We think interest rates will take a breather from their jump higher, and that should help to settle the weakness in growth stocks, particularly technology. We suggest investors stay close to their long-term target asset allocations (stay underweight fixed income and be market weighted to slightly higher-than market weight in equities). Let’s make it a good week!

“Sometimes things aren’t clear right away. That’s where you need to be patient and persevere and see where things lead.” – Mary Pierce

ND&S Weekly Commentary 3.1.21 – Higher Rates Rattle Equity Markets

March 1, 2021

Equity markets retreated last week as bond yields rose. The yield on the 10 year U.S. Treasury note settled at 1.45% on Friday from a weekly high of 1.51%. This represents an increase of 11bps from the previous week. For the month of February, the 10 year yield rose 0.37 percentage points, the largest one month increase in yield since November 2016. Investors’ concerns seemed to center around possible higher inflation and higher U.S. debt levels. As a result, equity prices for the week declined across the board with the DJIA, S&P 500 and NASDAQ down 1.7%, 2.4% and 4.9%, respectively. International equities also declined with the MSCI EAFE dropping 2.8% and the MSCI Emerging Markets index down 6.3%. The best performing sector last week was energy as oil prices continued to stay above $60 a barrel. The worst performing sector, as might be expected with rates rising, was utilities. Gold also declined last week to $1,743/oz. as a stronger dollar and higher yields weighted on gold prices.

Economic data released last week was mostly better than expected. The U.S. economic growth rate was revised higher for the 4th quarter to 4.1%. Durable goods orders increased 3.4% in January which easily beat estimates. Personal income surged 10%, while spending rose 2.4% as additional stimulus was received in January. This week’s economic news will include ISM services and manufacturing indexes. The highlight for the week will be the February jobs report which is expected to show continued improvement in jobs. Expectations are for an additional 150,000 jobs, an improvement over last months’ number of only 49,000 jobs. Moving forward economic numbers should start to strengthen as the vaccine rollout accelerates and additional stimulus is approved.

“I believe that every human mind feels pleasure in doing good to another.” – Thomas Jefferson