ND&S Weekly Commentary 2.22.21 – Bond Prices Thaw

February 22, 2021

Equities finished mostly lower during the shortened President’s Day week as investors focused on the post pandemic recovery and the pending stimulus plan. Though there were mixed economic signals reported, the Federal Reserve advocated that the proposed $1.9 trillion stimulus package be passed which they feel is desperately needed and would not overheat the economy.

For the week, the Dow Jones Industrials rose (DJIA) 0.16%, the broader-based S&P 500 dipped 0.68% and the tech-heavy Nasdaq slid 1.54%. International equities were modestly higher with developed (MSCI EAFE) and emerging markets (MSCI EM) up 0.28% and 0.09%, respectively. Smaller companies also weakened with the Russell 2000 declining 0.98%. However, since the small cap rally began last September, the Russell 2000 is up 55% while the S&P 500 returned 21%. Inflation expectations have been affecting the bond market, steepening the yield curve and eroding bond prices. The yield on the 10 year U.S. Treasury jumped to 1.34% from 1.20% the previous week. The iShares 20+ Treasury Bond ETF (TLT) is down 9% year to date. As a result of the big freeze in Texas, U.S. crude oil rose above $60 per barrel for the first time in over a year before closing at $59.

Thus far, 84% of the S&P 500 companies have reported 4th Quarter results with 71% beating revenue estimates and 79% beating on earnings. Analysts are now expecting a 21% increase in S&P 500 company earnings in 2021.

On the economic front, the weekly jobs report disappointed with 861,000 Americans having filed for unemployment, trending higher than the previous weeks. Existing home sales continued to increase in January rising 0.6% from December to a seasonally adjusted rate of 6.69 million annualized units according to the National Association of Realtors. January retail sales surged 5.8% YOY way above expectations thanks to additional fiscal stimulus and e-commerce. The purchasing manager’s index for services and manufacturing from IHS Markit rose to 58.8 in February from 58.7 last month, the strongest reading in nearly six years. As for the pandemic, inoculations are proceeding rapidly and a study shows that Pfizer’s vaccine is 85% effective with just one dose and it can be kept at warmer temperatures than originally thought.

Taking into account our improving economy, huge stimulus and a more than accommodating Fed, we remain cautiously optimistic. The markets have reached all-time highs, the speculative areas of the market are becoming more volatile and margin debt has soared over 40% since last year. We strongly recommend a well-diversified and balanced portfolio made up of high quality holdings.

This week’s economic reports include the January leading indicator index, consumer confidence, durable goods orders and personal income and spending.

“Worry is the interest paid by those who borrow trouble.”George Washington

ND&S Weekly Commentary 2.16.21 – Equity Markets Grind to New Highs

February 16, 2021

Equity markets continued to grind higher last week. For the week, the DJIA increased 1.11% while the broader-based S&P 500 was up 1.28%. Small-cap U.S. equities (Russell 2000) continued their recent run to close higher by 2.54%. International markets also enjoyed a strong week as developed markets (MSCI EAFE) and emerging markets (MSCI EM) jumped 2.09% and 2.41%, respectively. The yield curve continued to steepen last week as the 10yr U.S. Treasury closed at a yield of 1.20, up slightly from 1.19 the week prior. Yields for longer maturity bonds had a slightly higher increase. Gold held steady on the week, closing at $1,816/oz. Oil (WTI) closed the week at $59.73/ barrel.

Macroeconomic updates were limited last week. On Wednesday, the Consumer Price Index (CPI) increased 0.3% in January, matching expectations. Over the 12 months, core CPI has risen a modest 1.4%. Weekly jobless claims have remained elevated, with last week’s number at 793,000. Federal Reserve chairman Jerome Powell gave a presentation to the Economic Club of New York last week. Powell indicated that the Fed has no plans to raise rates anytime soon, citing their focus on recovery in the labor market and inflation currently below their 2% target. Additionally, Dr. Tony Fauci spoke on the Today Show last week and shared his belief that there would be enough vaccines available by the middle of the summer for anyone who wants to get one.

Earnings season continued to progress largely characterized by better-than-expected results. With roughly 75% having reported so far, according to data from FactSet Research, blended earnings-per-share and revenues for the S&P 500 have increased 2.8% compared with the same quarter last year. Q4 earnings are exceeding expectations by 18%. There will be more announcements this week with CVS Health and Walmart among those scheduled.

Economic news and corporate earnings results have been encouraging. This week, there will be reports on retail sales, industrial production, housing and manufacturing. We believe a slight defensive stance is warranted in equity markets as they have moved meaningfully higher over the last several months. We will continue to add to opportunities down the U.S. market cap structure and to international markets as valuations are more reasonable and those areas are more exposed to an economic reopening.

“Truth will ultimately prevail where there are pains to bring it to light.”– George Washington

ND&S Weekly Commentary 2.8.21 – Markets Advance Smarty

February 8, 2021

Markets advanced smartly last week as investors keyed in on better-than-expected earnings and economic news as well as hopes for a massive $1.9T stimulus package from Washington.

For the week, the DJIA advanced 3.89% while the S&P 500 gained 4.65%. The tech-heavy Nasdaq jumped 6.01%. International markets were also strong. For the week, the MSCI EAFE index (developed markets) closed higher by 2.76%% while emerging market equities (MSCI EM) jumped 4.96% (January – March is a seasonably strong period for emerging market equities). Small company stocks, represented by the Russell 2000, finished ahead by 7.70% 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 1.19% (up ~8 bps from the previous week’s closing yield of ~1.11%). Gold prices closed at $1,810.90/oz – down 1.97% on the week. Oil prices jumped 8.91%.

Economic news released last week confirmed an improving jobs market and decent manufacturing and services output. On Monday, the Institute of Supply Management (ISM) reported that the purchasing managers’ index fell to 58.7% versus an expectation of 60.0%; however, the index pointed to the 8th straight month of expansion. On Wednesday the ISM reported that the Services PMI for January hit 58.7%, better than the expected 56.8% reading. On Thursday, the U.S. Commerce Department reported that new orders for durable and non-durable manufactured goods advanced 1.1%, outpacing expectations for a gain of 0.7%. Also on Thursday, the Department of Labor reported weekly initial jobless claims (for the week ending January 30) of 779,000, below consensus of 830,000 claims. On Friday, the Labor Department reported that 49,000 jobs were added in January, a slight miss against expectations for a gain of 50,000 jobs. Unemployment dropped to 6.3% (consensus was for a 6.7% rate); however, the labor force participation rate fell to 61.4% as 406,000 workers left the labor force.

Economic and market fundamentals remain reasonable, and the news on the vaccine front has been encouraging. We suggest investors stay close to their long-term target asset allocations with a slight defensive bias. The slight defensive bias is warranted in that U.S. markets have moved higher over the past few months without any meaningful setback.

“I just love working hard. I love being part of a team; I love working toward a common goal.” – Tom Brady

ND&S Weekly Commentary 2.1.21 – Volatility Spikes

February 1, 2021

Stock market volatility spiked last week as retail traders piled into stocks like GameStop and AMC in a battle with hedge fund short sellers. For the week, the S&P 500, DJIA and Nasdaq fell -3.3%, -3.3% and -3.5%, respectively. Small U.S. companies represented by the Russell 2000, declined 4.4%. Investors were concerned about volatility, new variants of the Coronavirus and the slow rollout of Covid-19 vaccinations in many states. The softness in the market lately is certainly not earnings related. So far, 50% of S&P 500 companies have reported 4th quarter earnings with 84% beating earnings estimates and 70% beating revenue estimates. This represents a year over year decline of 3.2%.

International equity markets also declined last week with the MSCI EAFE and emerging (MSCI EM) off -3.5% and -4.4%, respectively. International equity markets look attractive as valuations appear to be lower than U.S. markets. Given their more cyclical nature, international equities may have a stronger earnings recovery in the 2nd half of 2021.

Fixed income markets last week were quiet as the FOMC reiterated intentions to keep rates low for an extended period of time. Fed Chairman Jerome Powell also noted in comments that there have been upward blips of inflation, but communicated that the Fed will remain patient in its policy decisions. The yield on the 10 year U.S. Treasury Note remained unchanged at 1.11%.

The economy grew at a 4% pace in the fourth quarter 2020 according to the Bureau of Economic Analysis. The results missed expectations for a 4.2% increase. This week look for economic reports on manufacturing and services – both are expected to have expanded. On Friday, the monthly jobs report should show an increase in a turnaround from December’s decline in payrolls. However, forecasts range widely reflecting broad uncertainty among economists.

We are continuing to monitor asset allocations and rebalancing as necessary.

“Advice is like snow – the softer it falls, the longer it dwells upon, and the deeper it sinks into the mind.” – Samuel Taylor Coleridge

ND&S Weekly Commentary 1.25.21 – Inauguration Week

January 25, 2021

Stocks gained during the holiday-shortened week in observance of Martin Luther King Jr. Day. Investors and traders were optimistic about President Biden’s inauguration and his proposed $1.9 trillion stimulus package along with a solid start to the corporate earnings season. As the week went on, the market lost momentum amid Republican stimulus push back and increased concerns about the pandemic.

For the week, the Dow Jones Industrial Average (DJIA) rose 0.6%, the S&P 500 was up 1.9% and the tech-heavy Nasdaq surged 4.2%. International equities also advanced; developed markets (MSCI EAFE) returned 0.7% and emerging market (MSCI EM) stocks jumped 2.6%. U.S. stocks closed just shy of their all-time highs with communication services leading the way. The S&P 500 is now trading at nearly 23 times this year’s earnings, far exceeding the 25yr historical average of 16.5 times, which clearly indicates investors’ optimism. The pandemic concerns and its global economic impact pushed safe-haven assets slightly higher. The yield on the 10-year US Treasury declined fractionally to 1.10%. Gold prices closed the week up 1.5% and the price of WTI crude oil closed at $52.27 per barrel down 0.3%.

The weekly jobless claims declined but remained high at 900,000, while existing home sales and housing starts continued to gain and are at their highest levels since 2016. With record low mortgage rates and the lowest supply levels going back to 1982, new home construction will undoubtedly surge. Residential housing construction has always been a major catalyst to lift us out of recessionary periods. U.S. manufacturing showed improvement as the IHS Markit data came in better-than-expected. Corporate earnings drive the stock market and last week 86% of the S&P 500 companies reported fourth-quarter results exceeding analysts’ estimates according to FactSet Research.

The “shot in the arm” for the global economy will be the successful roll out of the vaccines. President Biden plans for 100 million shots in 100 days. In the U.S. daily cases of COVID-19 have declined over 10 consecutive days thanks to the vaccine rollout and pandemic restrictions. The CDC says that 41.4 million doses of vaccine have been distributed and 20.5 million administered. Johnson and Johnson is seeking emergency use authorization from the FDA for its vaccine candidate which is being tested for just one dose and can be stored at regular refrigerator temperatures unlike Pfizer’s vaccine. The virus is still infecting people at alarming rates around the world and has mutated into even more contagious variants.

The U.S. Bureau of Economics will report its initial GDP estimate on Thursday. The Federal Reserve is expected to announce a continued accommodative stance when it concludes its two day meeting on Wednesday. There will be a slew of economic reports with the S&P/Case-Shiller 20-City Composite Home Price Index and Consumer Confidence Index on Tuesday, durable goods orders on Wednesday, Leading Economic Index for the U.S. on Thursday and personal income and consumer spending, and consumer sentiment on Friday.

Investors’ jitters abound and with relatively high stock price valuations we recommend being cautious in the near term. A well-diversified portfolio with quality holdings will prove to carry on through these uncertain times.

“I have decided to stick with love. Hate is too great a burden to bear.” – Martin Luther King Jr.

ND&S Weekly Commentary 1.19.21 – Markets Pull Back Last Week

January 19, 2021

Markets pulled back last week despite U.S. President-Elect Joe Biden proposing a larger-than-expected relief package. The $1.9 trillion Covid-19 relief package was designed to garner bipartisan support but will likely require some adjustments as passage is far from assured which tempering enthusiasm.

The DJIA, S&P 500, and Nasdaq indices all closed lower on the week by 0.91%, 1.46%, and 1.54%, respectively. The lone bright spot for US equity markets was the Russell 2000, bucking the trend to close 1.51% higher. International equities finished the week mixed with developed international (MSCI EAFE) giving back 1.36% and emerging markets (MSCI EM) ticking higher by 0.36%. Interest rates settled lower last week providing a reprieve for bond investors. The 10 year U.S. Treasury closed at a yield of 1.11%, which is down from 1.13% the week prior. Gold finished lower last week to close at $1839/oz.

Economic news released last week came in mostly below consensus. The Consumer Price Index (CPI) increased 0.4% in December, matching expectations. Over the last 12 months, inflation has increased 1.4%, which is not yet a concern but worth keeping close eyes on given the current monetary and fiscal policies. Jobless claims last week were 965k, a big increase from the previous week but slightly better than estimates. The producer price index (PPI) measuring final demand increased 0.3% in December, missing estimates of 0.4%. Also disappointing economists and equity markets was the retail sales report released Friday. The report showed retail and food-services sales declining 0.7% in December, marking the second consecutive monthly decline driven by the uptick in confirmed Covid-19 cases and restrictions.

President-Elect Joe Biden will be sworn into office this week, hopefully bringing some calmness to Washington. However, the tough work will begin for his administration as focus will need to be on the vaccination rollout and continued fight against Covid-19.

“Life’s most persistent and urgent question is, ‘What are you doing for others?” – Martin Luther King Jr.

ND&S Weekly Commentary 1.11.21- Markets Kick Off New Year in the Green

January 11, 2021

Markets advanced last week as investors looked past political turmoil and focused on expectations of more stimulus out of Washington D.C.. Democratic victories in Georgia raised the likelihood of increased government spending to support a pandemic-weakened economy.

For the week, the DJIA advanced 1.61% while the S&P 500 gained 1.83%. The tech-heavy Nasdaq jumped 2.43%. Developed international markets also moved higher. For the week, the MSCI EAFE index gained 3.16% while emerging market equities (MSCI EM) finished higher by 4.83%. Small company stocks, represented by the Russell 2000, finished ahead by 5.91% for the week. Fixed income, represented by the Bloomberg/Barclays Aggregate, finished the week lower as the index lost 0.94%. As a result, the 10 YR US Treasury closed at a yield of 1.13% (up ~20 bps from the previous week’s closing yield of ~0.93%). Gold prices closed at $1,834.10/oz – down 3.1% on the week. Oil prices jumped $3.72 (or 7.7%) last week as Saudi Arabia decided to cut oil production even as inventories were falling.

Economic news released last week was mixed. On Tuesday, the Institute of Supply Management (ISM) reported that December’s Purchasing Managers’ Index (PMI) advanced to 60.7% versus expectations for a level of 56.7%. On Wednesday, the U.S. Commerce Department reported that new orders for manufactured goods advanced 1.0% in November – beating an expected increase of 0.7%. On Thursday, the ISM reported that the Non-Manufacturing Index (NMI) advanced to 57.2%, outpacing expectations for a 54.5% reading. On Friday, the Department of Labor reported that the U.S. economy lost 140,000 jobs in December, a big miss against expectations for an increase of 50,000 jobs. Despite the decline in jobs, unemployment remained at 6.7% (better than estimates of 6.8%). The employment report was a stark reminder that the COVID-19 pandemic continues to impact economies and workers around the world.

Markets and accompanying valuations have advanced quite a bit over the past twelve months and we see signs that volatility will likely increase. We suggest investors stay close to their long-term target asset allocations with a slight defensive bias. Stay Safe!

“Your attitude, not your aptitude, will determine your altitude.” – Zig Ziglar

ND&S Weekly Commentary (1/4/21) – Markets End Year on High Note

January 4, 2021

U.S. equities closed the last week of 2020 at or close to record all-time highs. For the week, the S&P 500, DJIA and NASDAQ were up 1.45%, 1.35% and 0.66%, respectively. International markets also finished on a high note with the MSCI EAFE adding 1.44% and emerging markets (MSCI EM) jumping 3.16%. The lone detractor were U.S. small cap equities (Russell 2000), which saw some profit taking to finish lower by 1.41%.

It was a slow week for news and economic reports with pending home sales declining 2.6% m/m. That will change in the first week of the year as there is a run-off election set for Tuesday in Georgia that will determine the direction of power in Congress. Market consensus is for Republicans to pick up at least one seat in the Senate giving them a majority. Markets do best under split control in Washington as it will usually foster an environment of bipartisanship. Markets would likely react negatively to a Democratic sweep … like any decline, it will ultimately be temporary. This week, look for reports on mfg. and non-mfg. PMIs with the big economic release being the U.S. Jobs Report for December. Expectations are modest with only 68,000 jobs being added and the unemployment rate increasing slightly to 6.8%. This would be a significant cooling from the 245,000 jobs added in November.

Interest rates were little changed last week as the 10 year U.S. Treasury note finished at 0.93%, down slightly from 0.94% the prior week. What a difference a year makes … many 2020 year-end estimates at the beginning of the year were for the 10yr U.S. Treasury to finish above 3.00%. Nobody saw the 360° turn in monetary policy that was required by the outbreak of Covid-19. The Federal Reserve reaffirmed its commitment to maintaining low rates for the foreseeable future.

Looking ahead to the New Year, the passage of a $900 billion stimulus package and the rollout of Covid-19 vaccines should help support consumer sentiment and bolster the economic recovery. Corporate earnings should also start to look better as the year unfolds.

Best wishes for a happy, healthy and peaceful New Year!

“You can change. And you can be an agent of change.” – Laura Dern

ND&S Weekly 12.28.20 – “Auld Lang Syne”

December 28, 2020

Last week investors and traders had a day and half off for Christmas. Congress finally approved a $900 billion stimulus package, a long awaited gift to those in desperate need. However, Trump threatened to veto it unless the $600 payment to needy individuals was increased to $2,000 (the bill was signed last night).

As a result, US stocks closed the Christmas week mixed and with relatively low trading volume. The Dow Jones Industrial Average (DJIA) fell 0.34%, the S&P 500 lost 0.49% and the tech heavy Nasdaq rose 0.32%. Despite the US dollar sliding 0.1% to 90.30, foreign markets weakened as Developed (EAFE) and Emerging (EEM) equities slid 1.08% and 1.51%, respectively. The Russell 2000 index, made up of U.S. small cap companies, closed the week near its all-time high, gaining 1.33%. Since its low on March 18th, the index has surged 102%. The yield on the benchmark 10 year US Treasury note fell 1 basis point to 0.94%. Crude oil (WTI) rose 0.4% to $48.30 per barrel and gold bounced 0.5% to $1875 per ounce.

There was very encouraging news about the successful roll-out of Pfizer’s and Moderna’s Covid-19 vaccines being distributed to US front-line workers and long-term care residents. Concerns grew, however, over increasing infection rates and the spreading of a new Covid-19 strain in the United Kingdom which could be 70% more contagious.

On the economic front, existing home sales fell 2.5% in November (m/m), largely in-line with expectations. New home sales fell 11% in November missing estimates. Housing supply remains tight with inventory at 2.3months given current rate of sales, marking an all-time low. Initial unemployment claims came in at 803,000, the report beat estimates but remains stubbornly high. The New Year holiday-shortened week will have investors and economists looking at a few important economic reports. On Tuesday, the S&P Case-Shiller home price index for October, the Chicago area manufacturing activity and pending home sales on Wednesday and weekly jobless claims on Thursday will be reported.

The Federal Reserve’s interventions have made all the difference and housing and stock prices have surged since last March. The result has created a much polarized “wealth effect.” The bottom 20% of households account for only 9% of consumer spending while the top 20% generates 39%. The Biden administration will push their programs for higher taxation of the wealthy and more fiscal support for states and municipalities and the republicans will fight back. The senate race in Georgia becomes more and more meaningful to our economic recovery, and the strength of the financial markets.

We wish you and your families a happy and healthy New Year!

“Hope smiles from the threshold of the year to come,’ whispering ‘It will be happier.” —Alfred Lord Tennyson

ND&S Weekly Commentary (12/21/20) – Markets and Coronavirus Cases Move Higher

December 21, 2020

Markets advanced last week in anticipation of the FDA’s approval of the Moderna vaccine and the expectation that Congress will pass another stimulus package. Also, the Fed held its final meeting of 2020 and reiterated its dovish and highly accommodative stance. Adding to investors’ confidence was the Fed’s announcement on Friday that banks will be able to buy back shares following a successful stress test. Offsetting this good news was a surge in coronavirus cases and news out of the U.K. of a new more virulent (yet less deadly) strain of coronavirus.

For the week, the DJIA advanced 0.46% while the S&P 500 gained 1.29%. The tech-heavy Nasdaq jumped 3.07%. Developed international markets also moved higher. For the week, the MSCI EAFE index gained 2.01% while emerging market equities (MSCI EM) finished higher by 0.90%. Small company stocks, represented by the Russell 2000, finished ahead by 3.09% for the week. Fixed income, represented by the Bloomberg/Barclays Aggregate, finished the week slightly lower as the index closed lower by 0.08%. As a result, the 10 YR US Treasury closed at a yield of 0.95% (up ~5 bps from the previous week’s closing yield of ~0.90%). Gold prices closed at $1,885.70/oz – up 2.5% on the week. Oil prices jumped $2.53 (or 5.4%) last week as investors bet that an economic recovery will lead to increased demand for oil.

Economic news released last week was mixed. On Tuesday, the Fed announced that industrial production for November advanced 0.4%, ahead of expectations for a 0.3% advance. On Wednesday, the U.S. Commerce Department reported that November retail sales fell 1.1%, lower than expectations for a 0.3% decrease. Also on Wednesday, U.S. Markit PMIs were mixed, but still strong and in expansion. Manufacturing declined by 0.2 to 56.5, exceeding expectations for a 55.8 reading. On Thursday, the U.S. Census Bureau reported that housing starts jumped 1.2% month-over-month in November to a seasonally adjusted annual rate of 1.547 million (ahead of consensus for 1.54 million). Also on Thursday, the Department of Labor reported that weekly initial jobless claims increased to 885,000, missing an expected 808,000 claims. Economic news in the holiday-shortened week ahead will focus on GDP, home sales and employment data.

We suggest investors stay close to their long-term target asset allocations with a slight defensive bias. Stay Safe and Happy Holidays!

“It is the set of the sails, not the direction of the wind that determines which way we will go.” – Jim Rohn