ND&S Weekly Commentary (8.12.19) – Confucius Say …

August 12, 2019

The ongoing US-China trade war escalated last week and wreaked havoc in the financial markets. China retaliated to President Trump’s 10% tariff threat on over $300 billion of imports by devaluing its currency to its lowest level in eleven years. As a result, there was a major flight to safety that drove down bond yields globally and caused renewed volatility in the equity markets. The prices of historical safety nets of government bonds and gold were bid higher. The yield on the 10-year Treasury slid to 1.6%, its lowest level since October 2016. The price of gold surged past $1,500 an ounce for the first time since 2013.

The volatility of the stock market was clearly evident on Wednesday as the Dow Jones Industrials went from down 589 to end nearly flat in the sharpest turnaround in seven months. For the week, the DJIA and the S&P 500 finished down 0.61% and 0.40%, respectively, while the NASDAQ declined 0.51%. Trade tariff threats weighed heavily on international markets as developed equities (EAFE) slipped 1.14% and emerging market stocks (EEM) were off by 2.22%.

Fixed income markets were quite volatile due largely to the currency devaluation of China, slowing global growth and, yes, fear. The yield on the 10-year US Treasury dropped from 1.86% last week to 1.74%.

It is difficult to explain the indirect causes and effects of negative interest rates. The global supply of negative-yielding bonds has grown to over $15 trillion. Bond prices are expected to remain high as a result of increasing demand for income yields, slowing economic activity and monetary easing by global central banks.

Several research analysts and economists claim that central banks around the world are reducing rates to weaken their currencies which would make their exports less expensive and support economic growth. Investors are expecting further rate cuts by the Federal Reserve in order to prevent the US dollar from strengthening and keeping our exports competitive.

The price of Brent crude fell 4.6% to $56.75 a barrel. Rising inventories of oil have kept prices down about 25% in the past 12 months which is great for consumers but difficult for energy companies.

This week’s reports: Monday—China vehicle sales—Tuesday, US and Germany’s inflation rates— Wednesday, China retail sales, Germany and Europe GDP, Thursday—US retail sales and Friday—US housing starts and building permits.

“He who thinks too much about every step he takes will always stay on one leg.”
-Chinese Proverb

Weekly Commentary (08/05 /19) –Fed Cuts Rates and Trade Tensions

August 5, 2019

Markets were decidedly lower last week as President Trump announced he would impose a 10% tariff on $300 billion on additional Chinese imports beginning September 1. President Trump’s decision on Thursday (against the advice of his chief advisers) completely overshadowed action by the Fed the day before. On Wednesday, the Fed lowered rates by 0.25%, as widely expected.

For the week, the DJIA fell 2.59% while the S&P 500 dropped 3.07%. The volatile Nasdaq declined 3.90%. Developed international markets also sold off. For the week, the MSCI EAFE index gave up 2.64% while emerging market equities (MSCI EM) sunk 4.29%. Small company stocks, represented by the Russell 2000, finished lower by 2.85% for the week. Fixed income, represented by the Bloomberg/Barclays Aggregate, finished the week higher as investors reacted to actions by the Fed and President Trump. As a result, the 10 YR US Treasury closed at a yield of 1.845% (down ~22 bps from the previous week’s closing yield of 2.07%). Not surprisingly, Gold prices closed at $1,445.60/oz – up 1.85% on the week. Oil prices dropped $0.54 last week as signs of slowing global growth lowered future demand expectations.

We expect China to retaliate against President Trump’s recent actions. As a result, markets will most likely be volatile for the next week or so. Buckle-up and stay close to your long-term target asset allocations with a slight defensive bias.

As everyone knows by now, two mass shootings took place in the United States over the weekend. We are greatly saddened by these events, and we extend our sincere condolences to the families who lost love ones. This madness must end.

“We don’t develop courage by being happy every day. We develop it by surviving difficult times and challenging adversity.”Barbara De Angelis

ND&S Weekly Commentary (7/29/19) – All Eyes on the Fed

July 29, 2019

Strong earnings pushed stocks higher last week as investor eyes turned to this week’s Fed meeting, where it is anticipated they will reduce the federal funds rate by 0.25%. On the week, the DJIA inched higher by 0.14% while the broader based S&P 500 closed up 1.66%. Small companies had a strong week with the Russell 2000 jumping 2.02%. However, international stocks closed lower on the week with the MSCI EAFE and MSCI EM down 0.20% and 0.75%, respectively. Treasury yields remained steady on the week with the 10 yr. US Treasury closing at 2.08%, up slightly from 2.05% the week prior. Gold closed the week at $1420 oz. while oil remained in the mid-$50s per barrel.

The big economic news last week was the release of 2Q19 real GDP, which came in at a better-than-expected 2.1%. This result follows a 3.1% advance in the 1st quarter of the year. The growth was supported by strong consumer spending (+4.2%) which offset a small decline (0.6%) in business investment. Other economic releases last week included durable goods, which rebounded 2.0% in June, beating estimates and new home sales that came in at a 646k annual rate which missed expectations. .

Earnings season is upon us and has thus far been positive versus expectations. With approximately 43% of S&P 500 companies having reported, blended earnings are currently -2.3% year-over-year, while revenues are expected to grow 3.9%, according to FactSet Research. This week, roughly half of the S&P 500 companies will report earnings. Apple, Mastercard, Procter & Gamble, Pfizer are just some of the companies scheduled to report.

US-China trade talks are expected to resume this week in Shanghai. US has signaled that it would like to get back to the same level of dialogue reached in May. Most eyes will be on the fed as they wrap up their July meeting on Wednesday.

“The will to win, the desire to succeed, the urge to reach your full potential … these are the keys that will unlock the door to personal excellence.”Confucius

ND&S Weekly Commentary (7/22/19) – Earnings Season Kicks into Gear

July 22, 2019

Equity prices weakened last week as investors digested mixed earnings news and shifting expectations on Federal Reserve rate moves. For the week, the S&P 500 and DJIA were off 1.2% and 0.6%, respectively, while the NASDAQ declined 1.2%. International markets were mixed with developed markets down 0.1% and emerging markets up 0.8%. Communication services, energy and real estate were the weakest sectors last week.

In fixed income, the rate on 10 year U.S. Treasury fell to 2.05% from 2.12% last week. It’s widely believed that the Fed will reduce rates by 1/4% at its July meeting and that the chances for 1 or 2 more rate cuts before the end of the year are high. Globally other central banks are also in an easing mode.

Earnings reports accelerated last week with companies showing mixed results but many exceeding beaten down expectations. Microsoft reported earnings that beat expectations and the stock rose slightly on Friday. According to FactSet, earnings for companies in the S&P 500 will be down 1.9% from a year earlier. Actual results may be somewhat better given companies tendency to reduce expectations in advance.

In the week ahead, look for economic reports on existing home sales, durable goods orders and a first estimate for 2nd quarter GDP. Growth for the 2nd quarter is estimated at 1.8% vs 3.1% for the 1st quarter. Growth has moderated as a result of slowing global growth and trade uncertainty but still appears solid due to low inflation, solid job numbers and the prospect for lower rates. Chances of a recession in the near term appear to be low.

“Less is only more where more is no good” – Frank Lloyd Wright

ND&S Weekly Commentary (7.15.19) – Stock Market Milestones

July 15, 2019

US stocks achieved record highs last week buoyed by investors’ expectations that the Fed will lower interest rates at the end of the month. The Dow Jones Industrial Average (DJIA) was up 1.54%, while the S&P 500 climbed 0.82% and the NASDAQ rose 1.01%. International equities continue to be weighed down by trade tariffs and delayed negotiations. Developed international stocks (EAFE) slipped 0.54% and the emerging market equity index (EEM) declined 0.75%.

Fed chairman Jerome Powell hinted at a possible reduction in the Federal Funds Rate during the FMOC meeting on July 30-31. Powell said that below baseline inflation target of 2% could stifle economic growth and the central bank will “act as appropriate” to maintain the US expansion.

The Trump administration abandoned a proposal for rebates from governmental drug plans and a federal judge blocked the proposed rule requiring drug makers to list drug prices on television. Healthcare stocks rallied and then settled back down declining 1.64%.

Citigroup (C), JP Morgan (JPM), Goldman Sachs (GS) and Wells Fargo (WFC) report second quarter earnings on Monday and Tuesday. The low interest rate environment and weak trading volume have tempered earnings expectations. Bank revenues, earnings and guidance are key drivers of the stock market. However, they are cheap with the bank index trading at about 10.2 times estimates for the next 12 months compared to an average multiple of 12.4 for the last 10 years.

Oil prices continue to rally with the WTI now above $60 gaining 5% for the week. Tropical storm Barry shut down 53% of the oil production in the Gulf of Mexico. US inventories were already on the downswing over the last four weeks as a result of the instability in the Middle East.

Investors fear that Congress will fail to raise the US borrowing limit, which could be required in September, a month earlier than expected. Also, stronger than expected consumer prices were reported for June. As a result, the 10 year US Treasury yield rose to 2.12% up from last week’s 2.04%.

In addition to the kickoff of earnings season, this week the economic calendar is very active with reports on housing starts, manufacturing, industrial production, retail sales and consumer sentiment.

“Remember to celebrate milestones as you prepare for the road ahead.”Nelson Mandela

ND&S Weekly Commentary (7/8/19) – Equities Notch New Highs

July 8, 2019

Markets pushed higher during the holiday-shortened trading week, notching closing highs before giving some back on Friday to end the week. A better-than-expected nonfarm payroll report on Friday increased the uncertainty around potential Fed action at July’s meeting. Markets had been pricing in a potential 50bps cut in 2019. The dovish expectations which have given support to equity markets in previous weeks.

For the week, the DJIA gained 1.27% while the S&P 500 tacked-on 1.69%. The volatile NASDAQ jumped 1.96%. Developed international markets were also higher as the MSCI EAFE index increased 0.52% for the week while emerging markets increased 0.69%. International equities should benefit more if we have some certainty around trade resolutions with China. Small company stocks, represented by the Russell 2000, were up 0.59% last week. Treasury yields jumped higher on the week as the 10 year US Treasury closed at a yield of 2.04%, up 4bps from last week.

On Monday, the ISM reported its measures for the manufacturing sector, which came in at 51.7% beating estimates. However their reading for the services sector missed estimates and was reported as 55.1%. Any reading above 50.0% implies the sectors are expanding, but both readings are quite a bit below their 12 month highs affirming a slowdown of activity. On Friday, the US Labor Department reported that the unemployment rate ticked up to 3.7%, but remains near its lowest level seen in decades. Average hourly earnings are up a healthy 3.1% y/y. The economy added 224,000 jobs in June which easily surpassed analysts’ estimates of 165,000. The week ahead includes reports on inflation and congressional testimony from Federal Reserve Chairman Jerome Powell. His testimony will shape markets expectations for upcoming monetary policy.

Congratulations to the USA Women’s National Team for their victory on Sunday over Netherlands for the 2019 Women’s World Cup.

“Failure happens all the time. It happens every day in practice. What makes you better is how you react to it.”Mia Hamm

Weekly Commentary (7/1/19) – Trade Uncertainty Continues / Don’t Fight the Fed

July 1, 2019

Markets were mixed to slightly down last week as trade uncertainty with China raised concerns about the potential for a broad-based global slowdown. At the same time, the U.S. Federal Reserve and other central banks around the world gave investors reason for hope as they intimated that a round of interest rate cuts is right around the corner. The old expression – Don’t Fight the Fed – is alive and well.

For the week, the DJIA fell 0.45% while the S&P 500 dropped 0.27%. The volatile Nasdaq declined 0.30%. Developed international markets fared better. For the week, the MSCI EAFE index gained 0.67% while emerging market equities (MSCI EM) advanced 0.43%. Small company stocks, represented by the Russell 2000, improved nicely and finished ahead by 1.16% for the week. Fixed income, represented by the Bloomberg/Barclays Aggregate, finished the week higher as investors reacted to comments by the Fed that interest rates would likely remain low for the foreseeable future. As a result, the 10 YR US Treasury closed at a yield of 2.00% (down ~07 bps from the previous week’s closing yield of 2.07%). Gold prices closed at $1,409.70/oz – up 0.89% on the week. Oil prices advanced as tensions with Iran pushed oil to close at $58.47 – up 1.81% on the week.

Negotiations with China over the weekend resulted in an agreement to continue talks with no immediate jump in tariffs. We expect markets to cheer the news, but a final resolution to trade with China will be necessary for markets to continue their advance through the summer. In the meantime, the Fed will continue to provide investors with a reason to stay in the game.

Most importantly, we wish our clients and friends a happy Fourth of July as we all celebrate the many blessings bestowed on our great country.

Enjoy the week ahead!

“They who can give up essential liberty to obtain a little temporary safety deserve neither liberty nor safety.”Benjamin Franklin, Memoirs of the life & writings of Benjamin Franklin.

ND&S Weekly Commentary 6/24/19 – Easing Ahead

June 24, 2019

Last week at the June FOMC meeting the Federal Reserve decided to maintain the target range for Fed funds at the 2.25%-2.50% rate. However, they did abandon the word patience in the minutes and replace it with “will act as appropriate to sustain the expansion” implying easing ahead. Most economists now are predicting a rate cut at the July meeting with a possible second cut later in the year. As a result, global equity markets continued their advance with the S&P 500, DJIA and NASDAQ up 2.22%, 2.41% and 3.0%, respectively. International developed markets and emerging markets advanced 2.22% and 3.84%. For the week, the best performing sectors were energy, technology and healthcare. Energy stocks got a boost last week as Iran continues to rattle the Mid-East by shooting down a U.S. drone over the Strait of Hormuz. Look for volatility to continue for the near-term and maintain your diversified asset allocations.

In fixed income, bond prices also got a boost from easing comments from the Fed and the ECB. The 10 year U.S. Treasury finished the week at a yield of 2.07%, which was down from 2.09% and at one point traded below 2.0%. This week look for economic reports on consumer confidence, new home sales and durable goods orders.

“There is no risk-free path for monetary policy.”Jerome Powell

NDS Weekly Commentary (6.17.19) – Equities Grind Higher

June 17, 2019

Last week the markets were rather tame in quiet trading. All eyes will be on the Federal Reserve’s comments following Wednesday’s meeting. The recent tepid economic data is seen as a positive step for the Fed to signal a dovish stance and possibly lower the Federal Funds rate. Recent tensions in the Middle East, together with ongoing tariff battles, have weighed heavily on investors’ minds.

The S&P 500 gained 0.53% and the tech-heavy NASDAQ rose 0.73%. International equities were mixed with the MSCI EAFE Index down 0.26% and emerging markets up 0.90%. Holding up the markets were a lower than expected inflation outlook, increasing merger and acquisition (M&A) activity, and a surge of initial public offerings. Additionally, the recent strength of the US stock market can be attributed to investors rotating into utilities, consumer staples, and real estate. These sectors are all trading above their 50 day moving average, according to FactSet data.

The yield on the 10-year Treasury note remained at 2.09%. Market pundits and economists are at a loss as to why inflation remains low when the economy is growing with historic low unemployment. It will be very interesting to hear the Feds economic analysis and posture.

Investors are worried about the prolonged trade tensions between the U.S. and China and their effect on the global economy. China, the world’s second leading economy, showed further signs of weakness. The National Bureau of statistics reported that China’s industrial production slowed in May to its lowest level in 17 years.

Prices of oil have declined 12% in the last four weeks, another indicator of slower global economic growth. The uncertainty of global financial markets and slower growth together with rising tensions in the Middle East have rallied gold prices.

We strongly feel that a well-diversified portfolio with quality holdings in equities and fixed income will provide solid returns. Hopefully, trade tensions will ease and the Fed will assuage investors’ concerns.

“It does not matter how slowly you go as long as you do not stop.”Confucius

ND&S Weekly Market Commentary (6/10/19) – Stocks Roar Back

June 10, 2019

Markets surged more than 4% last week despite many current challenges and uncertainties. Storylines last week included antitrust probes of some of the largest companies that comprise the market, global service and manufacturing PMIs which show a slowing economy and the ongoing challenges with China on the trade front. It appears that a resolution with Mexico has been reached so at least one issue is now on the back burner. However, disappointing employment figures for May fanned expectations of loosening monetary policy.

For the week, the DJIA gained 4.77% while the S&P 500 tacked-on 4.46% notching their best week of 2019. The volatile NASDAQ jumped 3.91%. Developed international markets were also higher as the MSCI EAFE index increased 3.24% for the week. Emerging markets increased 1.04% on the week but should benefit more if we have some trade resolutions with China. Small company stocks, represented by the Russell 2000, jumped 3.36% last week. Fixed income, represented by the Bloomberg/Barclays Aggregate, also finished the week higher as speeches from Fed Officials were quite dovish last week. As a result, the 10 YR US Treasury closed at a yield of 2.09% (down 5 bps from the previous week’s closing yield of 2.14%). Gold prices increased to $1341/oz. and oil prices contracted to close at $53.94/b.

6.10.19

One thing that has perplexed professional investors and forecasters is the sharp decline in yields. Hopefully the bond market isn’t foretelling economic weakness in the back half of the year … This WSJ chart illustrates just how wrong economists were in their January survey. Based on the results, not one economist predicted the 10yr US treasury would fall below 2.5%. The consensus was that rates would be flat to slightly higher at year-end but so far this year they have been anything but that. The big drop in rates has certainly helped core bond funds and high-duration assets as the Bloomberg/Barclays Aggregate is up 5.17% year-to-date.

There are certainly some small signs of slowdown in the economy. Last week, it was reported that the manufacturing PMIs came in at 52.1%, missing estimates … any reading above 50 is considered an expansion. On Friday, it was reported that 75k jobs were added in May, which missed expectations for a 185k gain. Eyes will be on this week’s economic reports on inflation, retail sales, and consumer sentiment.

We continue to recommend that investors stay close to their intended asset allocation targets and remain patient. Let’s make it another good week!

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