ND&S Weekly 9.18.23 – Fall Is Upon Us
September 18, 2023
The major stock market indexes finished mixed last week, as investors struggled with inflation data and rising oil prices.
The S&P 500 fell 0.12%, the Dow Jones Industrial Average eked out a gain of 0.14%, while the tech-heavy Nasdaq slid 0.37%. International equities fared better with developed markets (MSCI EAFE) up 1.6% and emerging markets (MSCI EM) gaining 1.27%.
The consumer price index (CPI) rose a hefty 0.6% in August, and was up 3.7% from a year ago. The acceleration was caused by higher energy prices. Core CPI, which excludes energy and food, rose 0.3% versus 0.2% forecasted. U.S. benchmark West Texas Intermediate oil prices rose above $90 per barrel for the first time since November 2022.
The bond market bounced around a bit with U.S. Treasury yields modestly increasing over most maturities. The 10-year Treasury closed at a yield of 4.29%, up slightly over last week’s 4.26%.
In other economic news, China reported that its economy picked up steam last month, easing concerns about the world’s second-largest economy. U.S. retail sales and wholesale price inflation were higher than expected. All of this bodes well for a soft economic landing and signs of a resilient consumer. There could be trouble on the horizon; however, as the United Auto workers officially launched their strike against the Big 3 automaker plants.
All eyes and ears will be on next week’s Federal Reserve meeting when central bankers will share their latest thinking on interest rate policy. Important housing data and the leading economic indicators for August will also be reported.
“And all at once, summer collapsed into fall.” – Oscar Wilde
Weekly Commentary (9/5/23) – Markets Reverse Course and Move Lower
September 11, 2023
Markets were lower across the board last week as investors reacted to interest rates moving higher across the yield curve.
For the week, the DJIA slid 0.70% while the S&P 500 fell 1.26%. The tech-heavy Nasdaq dropped 1.92%. International markets followed suit. For the week, the MSCI EAFE Index (developed countries) finished lower by 1.38% while emerging market equities (MSCI EM) declined 1.17%. Small company stocks, represented by the Russell 2000, had a tough week, and retreated 3.58%. Fixed income, represented by the Bloomberg Aggregate, lost 0.30% for the week as yields moved higher. As a result, the 10 YR US Treasury closed at a yield of 4.26% (up ~ 8 bps from the previous week’s closing yield of ~4.18%). Gold prices closed at $1,918.40/oz – down 1.10%. Oil prices continued higher and closed at $87.51 per barrel, up 2.3% on the week.
Last week was relatively quiet for economic data releases. However, interest rates found more reasons to move higher: continued reaction to the employment reports, the higher-than-expected ISM services reading at 54.5 – the highest in six months and above any forecasts in the Bloomberg survey of economists, and higher oil prices are just some of them. Oil continues to move higher as news that Saudi Arabia and Russia will maintain their oil production cuts through year end. Weekly jobless claims came in at the lowest since February. Higher interest rates in the US are lifting the USD and this hinders emerging markets and US multinationals with heavy ex-USD earnings. A tough environment is a mild assessment.
This week’s economic releases bring some key inflation data, including CPI, PPI, and retail sales. The Consumer sentiment data comes at the end of the week and that is an area of great interest, as well. There is increasing speculation about the US Consumer running out of stamina and real concerns of spending slowing down. The Fed meets the following week and although a hike announcement from this next meeting is highly unlikely, their posture and comments will have great attention as investors and pundits try to predict how much farther the Fed may go to reach its target inflation rate of ~2%.
Investors seem impatient. They are tired of rates going higher and many, if not most, had thought inflation would behave better and faster against the whip the Fed is using to corner it. While the proverbial “soft landing” may occur, one should begin to wonder what does that scenario mean, if it were to play out? What would be the reasoning for the Fed to make substantial cuts to its overnight borrowing rates when employment rates are low, GDP is still positive, and inflation is about 2%. Even if the Fed moved to an overnight rate of 4.5% or even 4% (100-150bps lower from here), how does a 4.25% 10-year rate make sense in that world?
What if the Fed has a hard landing to handle – unemployment begins to move higher, GDP goes negative, and inflation has fallen to ~2%? We think we have seen that playbook – cut rates and deal with warming things up. Maybe the Fed would like to play the music it knows instead of having to play a tune it really has never played before?
“Be careful what you wish for, lest it come true!” – Aesop’s Fables
Weekly Commentary (9/5/23) – Markets Move Higher
September 5, 2023
Markets were higher across the board last week as investors reacted to softer economic news (back to ‘bad news is good news’ …).
For the week, the DJIA gained 1.57% while the S&P 500 rose 2.55%. The tech-heavy Nasdaq jumped 3.27%. International markets joined the party. For the week, the MSCI EAFE Index (developed countries) finished higher by 2.53% while emerging market equities (MSCI EM) climbed 1.52%. Small company stocks, represented by the Russell 2000, had a great week and advanced 3.63%. Fixed income, represented by the Bloomberg Aggregate, gained 0.48% for the week as yields moved lower. As a result, the 10 YR US Treasury closed at a yield of 4.18% (down ~ 6 bps from the previous week’s closing yield of ~4.24%). Gold prices closed at $1,939.80/oz – up 1.95%. Oil prices jumped higher to close at $85.55 per barrel, up 6.3% on the week.
Last week saw several important economic releases. Consumer confidence fell to 106.1 in August as consumers were frustrated by rising prices – particularly gasoline and groceries. August’s reading of 106.1 was well below the consensus of 116.0. Inflation expectations are still higher than pre-pandemic and makes the Fed’s job of bringing down inflation more difficult. The July JOLTS report showed job openings falling 3.7% to 8.8 million and below the consensus estimate of 9.5 million. July’s number was the lowest level since March 2021. Job openings have now fallen six of the past seven months. Layoffs were little changed while the quit rate dipped to 2.3% … these data suggest waning worker confidence in their job prospects. Friday saw the release of the PCE Price Index that showed a 0.2% pickup in inflation for July (the same as June) and in-line with expectations. On a y/y basis, PCE and Core PCE growth jumped 3.3% and 4.2% – matching consensus. Consumer spending rose more than expected and suggests the Fed’s tightening cycle is not over. The Fed will likely pass on raising rates at its September meeting, but the likelihood of a rate increase in November has increased.
The week ahead holds a few events that will provide investors with a snapshot of how the economy and sentiment are holding up in early September. Releases include: August Services PMI, ISM Non-Manufacturing Index, and the latest iteration of the Fed’s Beige Book. Finally, the Consumer Credit report is due out on Friday – this should provide a nice snapshot of the health of the consumer (the lifeblood of our economy).
September has not been overly kind to investors over the years with the median market return of -0.1%. But we all know that 2023 so far has been anything but normal. We urge investors to stick close to long-term asset allocation targets.
“Opportunity is missed by most people because it is dressed in overalls and looks like work.” – Thomas Edison
NDS Weekly Market Update – “Proceed Carefully”
August 28, 2023
Jerome Powell told investors that the central bank would “proceed carefully” with further rate increases in prepared comments at last week’s Kansas City Fed Annual Symposium, a gathering of central bankers from around the world. Markets responded favorably to those comments to close out last week in positive territory.
For the week, the DJIA shaved off 0.42% while the S&P 500 ticked higher by 0.84%. The tech-heavy Nasdaq increased 2.27% last week. International markets were mixed with the MSCI EAFE Index (developed countries) declining 0.18% and emerging market equities (MSCI EM) gaining 0.74%. Small company stocks, represented by the Russell 2000, fell 0.29% last week. Fixed income, represented by the Bloomberg Aggregate, gained 0.28% for the week as the long end of the yield curve moved lower. The 10 YR US Treasury was virtually unchanged for the week closing at a yield of 4.25%. Gold prices closed at $1,916/oz. – up 1.33%. Oil prices moved lower for the second consecutive week to close at $79.05 per barrel, down 1.0% on the week.
In economic news released last week, the August Mfg. and Services PMIs showed continued softness in the overall US economy. Durable goods orders also came in soft falling 5.2% m/m, missing analysts’ estimates. Ironically, the equity markets responded favorably on those data releases as it might take pressure off the Fed to continue pushing rates higher in its battle against inflation. The week ahead will include reports on consumer confidence, PCE (the fed’s preferred measure of inflation), and multiple reports on the US labor market.
Equity markets have shed roughly 4% in the month of August, as interest rates have continued to push higher across the yield curve. As allocators of capital, we are constantly weighing the risks in the overall market. Short-term rates continue to offer attractive yields which allows us to remain patient in our endless search of favorable long-term opportunities.
“He that can have patience can have what he will.” – Benjamin Franklin
ND&S Market Update: Markets Close Lower for Third Straight Week
August 21, 2023
Stocks were under pressure last week, as investors struggled with higher interest rates and renewed worries over China’s economy.
For the week, the DJIA was down 2.1%, its worst week since March. The S&P 500 also dropped 2.1%, and the tech-heavy Nasdaq slid 2.6%, both down for the third consecutive week. Foreign markets were heavily hit by China’s economic troubles. Developed (MSCI-EAFE) and developing markets (MSCI-EM) each fell 3.2%.
The Federal Open Market Committee’s meeting minutes from July, showed officials expressed concerns that more rate hikes may still be needed. The yield on the 10-year U.S. Treasury rose 10 basis points (bps) to 4.26%, its highest level since 2007.
China’s deepening economic troubles and concerns about debt levels in their real estate sector are weighing heavily on global financial markets. Some positive news about the continued resilience of our economy was the U.S. retail sales report exceeding economists’ expectations. Retail sales rose 0.7% in July relative to June, topping consensus of 0.4%. The price of U.S. crude oil fell 2% to $80.39, ending seven weeks of consecutive gains.
Economic data released this week will include consumer sentiment, real estate reports, and weekly unemployment claims. Top central bankers from around the world will gather for the Kansas City Fed’s annual symposium in Jackson Hole, WY this week. As usual, all eyes will be on Federal Reserve Chairman Jerome Powell, who’s expected to speak Friday morning.
There will be a few additional corporate reports (most notably Nvidia) this week but, otherwise, trading volume should remain low. We suggest that investors look favorably on cash yields, and maintain a well-diversified portfolio.
“Summer’s lease hath all too short a date.” – William Shakespeare
Weekly Commentary (8/14/23) – Markets Meander Lower in Second Straight Week of Declines
August 15, 2023
Markets continued to creep lower even as investors welcomed data supporting a continuation of the slowing inflation trend, though yields continue to inch higher.
For the week, the DJIA was the only major equity index to rise, gaining 0.69% while the S&P 500 continued lower, sliding 0.27%. The tech-heavy Nasdaq declined 1.87% and international markets also finished down. For the week, the MSCI EAFE was lower by 0.56% while emerging market equities (MSCI EM) dropped 1.92%. Small company stocks, represented by the Russell 2000, also dropped, shedding 1.62%. Fixed income, represented by the Bloomberg Aggregate, declined 0.64% for the week as yields moved higher. As a result, the 10 YR US Treasury closed at a yield of 4.16% (up ~ 11 bps from the previous week’s closing yield of ~4.056%). Gold prices closed at 1,912.90/oz – down 1.38% as the U.S. dollar rose 0.19% on the week. Oil prices rose to close at $83.19 $82.82 per barrel, up 0.45% on the week.
Last week’s CPI release supported the trend of slowing inflation as the data came in just about right on the expectations with CPI running 3.2% YoY and Core CPI at 4.7% YoY, but the Producer Price Index (PPI) had a surprise on the high side with July PPI rising 0.3% versus 0.2% expectation. As rates are ticking higher across the maturity spectrum, it seems that more investors are believing the Fed’s mantra of “higher for longer”. Among the conundrums in the current environment is imagining what the Fed’s impetus is to make significant rate cuts if the US economy does not have a recession, and then, what does the rest of the yield curve look like in that environment? Do we stay inverted or does the belly and the end of the curve need to be higher? That question must be part of the equation that is causing another rate shift higher, and this presents a challenge to stock valuations.
The week ahead includes retail sales numbers and housing data, as well. This data is important because it provides signals on the underpinnings of economic activity and consumer attitudes. The Fed and the economy are at an interesting juncture. Unemployment/labor numbers are amazingly strong, consumers are still spending, and as a result inflation is becoming harder to suppress. If the Fed backs off too much, it could lose what seems like a good grip in its fight. Also, at this point, it is hard to foresee rate cuts of such significance that the middle of the curve makes sense. Therefore, we are being cautious as the equity markets have moved higher very quickly and we could be facing an interest rate environment that most bullish investors did not anticipate.
We still have lots of Summer and nice weather to come – no matter what the markets do!
“Be happy in the moment, that’s enough. Each moment is all we need, not more.” — Mother Teresa
Weekly Commentary (8/7/23) – Markets Pull Back to Start August on a Sour Note
August 7, 2023
Markets pulled back last week as interest rates rose and Fitch downgraded the U.S.’s credit rating due to the nation’s rising deficits, high debt levels, and an “erosion of governance.”
For the week, the DJIA lost 1.1% while the S&P 500 gave back 2.3%. The tech-heavy Nasdaq declined 2.8% as earnings from a few high-flying tech stocks disappointed. International markets also finished in the red. For the week, the All Country World Index ex-USA finished lower by 2.4% while emerging market equities (MSCI EM) pulled back 2.4%. Small company stocks, represented by the Russell 2000, finished lower by 1.2%. Fixed income, represented by the Bloomberg Aggregate, declined 0.6% for the week as yields moved higher. As a result, the 10 YR US Treasury closed at a yield of 4.05% (up ~ 09 bps from the previous week’s closing yield of ~3.96%). Gold prices closed at $1939.60/oz – down 1.06% as the U.S. dollar rose 0.38% on the week. Oil prices rose to close at $82.82 per barrel, up 2.78% on the week.
Last week saw a number of economic releases and earnings reports. Economic news released last week echoed the soft-landing narrative for the U.S. economy while also pointing to sticky wage inflation. June job openings came in at 9.58M versus 9.65M expected. July non-farm payrolls were 187K versus 200K expected. So a mixed message – while openings and payroll gains came in less than expected, wage growth surprised to the upside. The unemployment rate held steady at 3.5% while the labor force participation rate remained steady at 62.6 … no surprises there. The strength of the U.S. labor market will help to soften the blow from any potential recession (which will likely not arrive in 2023). Earnings releases last week were mostly as expected. S&P 500 companies are on pace to report a decline of 5.2% in earnings during the 2nd quarter – the worst quarterly performance since 2020. Although earnings have declined, on average, more than 70% of companies reporting have beaten expectations. While earnings have been declining, revenues are expected to grow 0.6% year-over-year, according to FactSet.
The week ahead holds a few important events that investors will be watching closely – July CPI comes out on Thursday while PPI gets released on Friday along with the University of Michigan Consumer Sentiment Index. The inflation reports will be watched closely as they may give a clue to future Fed action.
Enjoy the last few weeks of summer!
“Dreams will get you nowhere, a good kick in the pants will take you a long way.” – Baltasar Gracian
ND&S Weekly Commentary 7.31.23 – Soft Landing In Sight
July 31, 2023
Economic data released last week painted a positive picture of the US economy as many economists and the equity markets have continued to price in a “soft landing” for the economy.
For the week, the DJIA gained 0.66% while the S&P 500 added 1.03%. The tech-heavy Nasdaq finished 2.03% higher as results came in better than expected from both Alphabet and Meta. For the week, the MSCI EAFE Index closed up by 0.93% while emerging market equities (MSCI EM) increased 2.86%. Small company stocks, represented by the Russell 2000, advanced 1.09%. Fixed income, represented by the Bloomberg/Barclays Aggregate, finished lower by 0.40% in a volatile week for bonds. As a result, the 10 YR US Treasury closed at a yield of 3.96% (up 12bps from the previous week’s closing yield of ~3.84%). Gold prices closed at $1,954/oz – down 0.32%. Oil prices moved higher to close at $80.09 per barrel, up 4.55% on the week.
At the FOMC’s July meeting, the fed hiked rates by another 25bps, as widely expected. Statement language from Federal Reserve Chairman Jerome Powell was dovish, but he kept the door open for further rate hikes if data warranted. Last week’s economic data painted a fairly rosy picture for the economy. The first estimate for 2Q23 GDP showed the economy grew at a much better-than-expected 2.4% annualized rate. PCE (the Fed’s preferred measure of inflation) monthly reading of 0.2%, confirmed further progress on disinflation. Weekly unemployment claims have continued to come in low showing little softness on the labor front.
Going forward, the Fed will be continuing to take pulse on inflation, but their next meeting is not until September, so we have a lot of data between now and then. The week ahead will have another jam-packed calendar of corporate earnings announcements with results expected from Apple, Microsoft, Amazon, among others. Enjoy The Week!
“This is the precept by which I have lived: Prepare for the worst; expect the best; and take what comes.” – Hannah Arendt
ND&S Weekly Market Update (7/24/23) – Happy Summer!
July 24, 2023
Last week stocks extended their winning streak, with the major indexes boosted by rebounding banks, energy and healthcare companies.
For the week the S&P 500 rose 0.7%, while the Dow Jones Industrial Average added 2.1% and the Nasdaq slipped 0.6%. The Nasdaq is 34% higher so far in 2023 and the S&P 500 is within 6% of its all-time high recovering much of 2022’s painful decline. Overseas markets fell with developing markets (MSCI-EAFE) down 0.6% while emerging markets (MSCI-EM) slipped 1.3%.
Corporate earnings, though ratcheted downward, have steadily met or exceeded analysts’ expectations so far. The S&P 500 is now trading at 19.5 times forward earnings, which exceeds its five-year average of 18.9 times, according to FactSet.
US monthly retail sales climbed 0.2% in June, much lower than the 0.5% expected. On a year-over-year trend, retail sales rose 1.6%, the weakest gain since July 2020. Housing starts slid by 8% in June and building permits fell 3.7%, more signs that the economy is slowing due higher rates as U.S. homebuilders sharply slowed down on starting new single family construction . The bond market wavered as short-term yields ticked lower, with the yield on the US 10-year holding steady at 3.8%. We expect a quarter point interest rate increase at the Federal Reserve’s meeting this week.
The markets are certainly fully valued, and narratives appear to matter more than fundamentals. Nevertheless, investors still favor stocks as a result of above expected earnings, cooling inflation and a resilient economy. There are certainly fundamental risks such as concentrated high valuations and dis-inflationary pressures on corporate revenues.
The major event this week will be the Federal Reserve’s reactions and comments on Wednesday at the conclusion of their July meeting. We hope that they will be satisfied with the cooling of inflation to express a more dovish attitude towards tightening. Volatility will undoubtedly rise from non-economic issues; however, long term investors should remain undaunted and vigilant.
“Smell the sea and feel the sky. Let your soul and spirit fly.” – Van Morrison
ND&S Weekly Commentary (9.25.23) – One More Rate Increase Expected
September 25, 2023
The Fed meeting last week unraveled pretty much as expected. The Federal Reserve kept the federal funds rate unchanged, however, it gave plenty of ammo for the press and investors to continue speculating on what policy will look like at future meetings. In the Fed’s statement, the committee noted strong economic growth across the country. Their biggest concern (and the market’s, which reacted negatively post meeting), at this point, is whether the strong economic growth will bring with it more inflation pressures.
For the week, the S&P 500, the DJIA and NASDAQ were all negative at -2.91%, -1.89% and -3.61%, respectively. Small Cap stocks, as measured by the Russell 2000, also closed lower by 3.81%. International equities were also negative last week with developed markets declining 2.03% and emerging markets down 2.08%. Fixed income, represented by the Bloomberg/Barclays Aggregate, finished lower by 0.50% for the week as yields moved meaningfully higher in response to FOMC commentary. As a result, the 10 YR US Treasury closed at a yield of 4.44% (up 11bps from the previous week’s closing yield of ~4.33%). Gold prices closed at $1,927/oz. – up a modest 0.9%. Oil (WTI) remains elevated closing last week at $89.63 per barrel which is likely a headwind to growth at these levels.
As we enter the last trading week of the 3rd Quarter, equity markets remain well in positive territory year-to-date even with a difficult September. The equity markets seem stuck in this, bad economic news is good news & good economic news is bad news environment. We believe the economy is slowing despite what will likely be a 4%+ reading for 3rd Quarter GDP. As result, we continue to remain patient and a bit defensive within allocations while waiting for better opportunities to present themselves.
“It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price.” – Warren Buffett