ND&S Weekly Commentary 1.18.22 – Stocks Decline Again

January 18, 2022

Stock markets suffered their second straight week of losses as inflation fears, higher interest rates and a disappointing start to earnings season worried investors.

For the week, Standard & Poor’s 500, the DJIA and the tech-heavy Nasdaq declined 0.3%, 0.9%, and 0.3%, respectively. Smaller companies represented by the Russell 2000 closed lower by 0.8%. International equities were the lone bright spot with the MSCI EAFE index up 0.2% and the MSCI EM increasing 2.6%.

On Friday, the quarterly profits of JP Morgan Chase and Citigroup fell by double-digits, which was worse-than-expected. The U.S. dollar gained ground while gold lost $4.60 to $1,816.80 per ounce. Oil prices (WTI) climbed to $83.82 from $78.90 the previous week and are up 55% from a year ago. Despite a spike in inflation, the U.S. 10-yr yield was relatively unchanged for the week at 1.78%. However, it has moved much higher since the Federal Reserve reiterated their hawkish stance earlier in the year.

There was a slew of economic data that disappointed, causing concerns that the economic recovery could be vulnerable. For December, consumer inflation matched headline figures of a staggering 7% year-over-year jump, the highest since 1982. There was an unexpected 1.9% decline in retail sales that missed expectations.

Using the consensus 2022 operating earnings estimate of $220, the stock market is now selling at 21.2 times earnings which is not overly expensive. We are, however, concerned about the concentration of the stock market. The five largest holdings of the S&P 500 have a 22.4% weighting and the top five stocks in the Nasdaq represents 40.2%. With the estimated earnings growth of the S&P 500 slowing to 9%, rising interest rates and inflation, not to mention our political and geopolitical issues and Covid, higher volatility is expected. We recommend a cautious approach to maintaining a well-diversified portfolio.

There will be one-third of the S&P 500 companies reporting this week. The hope is that companies will exceed expectations of 20% growth year-over-year. Economic reports will include the Fed’s Empire State manufacturing survey on Tuesday and the Philadelphia Fed manufacturing survey on Thursday. Existing home sales will also be reported on Thursday. Let’s make it a better week in remembrance of Martin Luther King Jr.

“Darkness cannot drive out darkness; only light can do that. Hate cannot drive out hate, only love can do that.” –Martin Luther King Jr.

ND&S Weekly Commentary 1.10.22 – Markets Start 2022 on Sour Note

January 10, 2022

Global equities declined in the first trading week of 2022 as the US Federal Reserve hinted at a more hawkish stance to combat inflation pressures.

For the week, the DJIA slipped 0.25% while the S&P 500 gave back 1.83%. The tech-heavy Nasdaq finished lower by 4.52%. International markets also finished in the red as developed market equities (MSCI EAFE) were down 0.29% while emerging markets (MSCI EM) retreated 0.47%. Small company stocks, represented by the Russell 2000, were also weak as they closed lower by 2.91%. Fixed income, represented by the Bloomberg/Barclays Aggregate, had a brutal week declining 1.53% as yields spiked higher in response to the Fed policy changes and comments. As a result, the 10 YR US Treasury closed at a yield of 1.76%, up substantially from the previous week’s closing yield of ~1.52%. Gold prices closed at $1,793/oz. to finish down 1.46%. Oil prices jumped 4.91% to close at $78.90/bbl.

The Federal Reserve released their December meeting minutes last week. At the meeting, they discussed plans to cut the amount of bonds they are holding on its balance sheet. While they did not determine when they would start rolling off the nearly $8.3 trillion in bonds it is holding, statements out of the meeting indicated the process could start in 2022, which is much earlier than expected. Additionally, officials see up to three quarter-percentage-point rate increases in 2022. Worsening the situation on Thursday was St. Louis Federal Reserve President James Bullard (a voting member of the Federal Reserve Open Market Committee) said he sees an initial rate increase happening as soon as March to “quell the hottest inflation in nearly four decades”.

In other economic news, non-farm payrolls increased 199,000 in December versus a consensus estimate of 450,000. The unemployment rate fell to 3.9% beating estimates of 4.1%. Workers quit their jobs in record numbers (4.5million) in November while total employment openings pulled back. According to the JOLTS report released last week, job openings decreased to 10.6 million.

With strong returns in risk-assets since the March 2020 Covid-19 lows, we are not at all surprised with increased volatility. January is always a good time to review asset allocation policy targets and re-balance as necessary. We continue to stick close to policy targets with a slight-defensive bias.

“Kindness and consideration of somebody besides yourself keeps you feeling young.” – Betty White

ND&S Weekly Commentary 1.3.22 – Markets Move Quietly Higher

January 3, 2022

Equity markets finished mostly higher during the last week of 2021. Trading volumes, as expected, were fairly light due to many investors and traders being on vacation.

For the week, the DJIA advanced 1.08% while the S&P 500 gained 0.87%. The tech-heavy Nasdaq nudged a bit lower as it finished -0.05%. The MSCI EAFE Index closed ahead by 0.96% while emerging market equities (MSCI EM) added 1.15%. Small company stocks, represented by the Russell 2000, finished in the green by 0.21%. Fixed income, represented by the Bloomberg/Barclays Aggregate, finished higher by 0.16% for the week. As a result, the 10 YR US Treasury closed at a yield of 1.52% (up 2bps from the previous week’s closing yield of ~1.50%). Gold prices closed at $1,827.50/oz. – up 0.91%. Oil prices moved higher to close at $75.21 per barrel.

Economic news released last week was pretty quiet. Initial jobless claims for the week ended December 25th declined to 198,000 compared to consensus of 206,000. Chicago PMI rose to 63.1 – more than expected.

The week ahead will feature reports on Manufacturing/Services PMIs, Unemployment and November final Durable Goods Orders.

The economy remains reasonably strong, and we remain sanguine on equites. Concerns over surging Covid cases may temper investors’ enthusiasm for equities in the short-term, but patient investors should be rewarded with mid-to-high single digit returns in 2022. As such, we continue to suggest that investors stay close to their long-term target asset allocations with a slight defensive bias.

Stay safe and best wishes for a happy, healthy & peaceful New Year!

“I like dreams of the future better than the history of the past.” – Thomas Jefferson

ND&S Weekly Commentary 12.27.21 – Volatility Continues Amid Headwinds

December 27, 2021

After dropping sharply on Monday, global equities reversed course to finish the holiday-shortened week in the green. For the week, the Dow Jones Industrial Average (DJIA) increased 0.15%, the S&P 500 added 1.25% and the tech-heavy Nasdaq rose 3.13%. International markets were mixed with developed markets (EAFE) increasing 0.64% and emerging (MSCI-EM) equities sliding 0.30%. The Russell 2000 index, made up of U.S. small cap companies, jumped 4.15%. Treasury yields moved higher across the board, with the yield on the benchmark 10 year US Treasury note closing the week at 1.50%. As a result, the Bloomberg/Barclay’s Aggregate closed down 0.22%. Crude oil (WTI) rose 4.1% to $73.79 per barrel and gold was flat closing at $1,805/oz.

The economic calendar has been limited due to the holiday week. Consumer confidence remains high with a reading of 115.8 in December, up from 111.9 in November. According to the Mastercard Spending Pulse which tracks purchases across all formats, holiday spending jumped 8.5% this year compared to 2020. In the week ahead, there will be a report on housing from S&P/Case-Shiller.

Volatility should remain elevated due to year-end tax selling and uncertainty around the Omnicron variant. No doubt, there will continue to be event cancellations and postponements due to Covid-19 concerns. However, governments have avoided any significant lock-downs that have proven to be economically punishing and mostly ineffective in controlling the spread.

Without question, it has been an eventful and prosperous year for the markets. We continue to recommend staying diversified and re-balance where necessary.

We wish you and your families a Happy and Healthy New Year!

ND&S Weekly Commentary 12.20.21 – The Fed and Omicron Rattle Markets

December 20, 2021

Global equities declined last week as the Omicron variant concerns remained in the forefront. Adding to the fray, the U.S. Federal Reserve announced last week that its run of ultra-easy monetary policy will be ending soon in response to rising inflation.

For the week, the DJIA lost 1.67% while the S&P 500 gave back 1.91%. The tech-heavy Nasdaq finished the week lower by 2.94%. International markets also finished in the red as developed market equities (MSCI EAFE) were down 0.46% while emerging markets (MSCI EM) retreated 1.75%. Small company stocks, represented by the Russell 2000, were also weak as they closed lower by 1.68%. Fixed income, represented by the Bloomberg/Barclays Aggregate, grinded out a gain of 0.35% for the week as yields were quite volatile in response to the Fed policy changes. As a result, the 10 YR US Treasury closed at a yield of 1.41% (down 7 bps from the previous week’s closing yield of ~1.48%). Gold prices closed at $1,808/oz. – up 1.17% on the week. Oil prices slid 1.13% last week to close at $70.86/bbl.

The FOMC wrapped up their December policy meeting last Wednesday announcing that they will accelerate the reduction of its monthly bond purchases. At the current pace, the monthly purchases should conclude in March 2022. Additionally, Fed officials indicated that we could see as many as 3 rate hikes in 2022. The shift in policy was somewhat expected in response to persistent inflation that the Fed now sees at 5.3% for 2021.
In economic releases last week, the Producer Price Index (PPI) for November came in higher than expectations rising to a record 9.6% y/y. The Flash PMI from Markit Economics ticked lower to 57.8 missing consensus of 58.3. Both the manufacturing and services sectors remain in expansion territory. Retail sales for November increased 0.3% m/m missing consensus estimates of a 0.8% increase.

This will be a holiday-shortened week for the markets as volatility should remain elevated. Over the weekend, Senator Joe Manchin announced that he wouldn’t support the Build-Back-Better legislation as currently presented. This should have little impact on the markets overall as most of the focus will remain on the Omicron variant. Equity investors have been rewarded with strong returns in 2021 with very few setbacks in the S&P 500, DJIA and Nasdaq. Markets are long overdue for a breather after the big run-up. As such, we continue to suggest that investors remain diligent and stay close to long-term asset allocation targets.

Stay safe and enjoy the holiday season!

“The Grinch hated Christmas! The whole Christmas season!
Now, please don’t ask why. No one quite knows the reason.
It could be his head wasn’t screwed on just right.
It could be, perhaps, that his shoes were too tight.
But I think that the most likely reason of all
May have been that his heart was two sizes too small.”

How The Grinch Stole Christmas – Dr. Seuss

Weekly Commentary (12/13/21) – Markets March Higher, Again     

December 13, 2021

Equity markets finished broadly higher last week as investors continued their love affair with stocks.  Investors seem to be thinking that inflation, though quite high, may have peaked.  Also motivating investors is the news that the symptoms of the omicron variant seem to be fairly mild.

For the week, the DJIA jumped 4.05% while the S&P 500 gained 3.85%.  The tech-heavy Nasdaq finished 3.62% higher. For the week, the MSCI EAFE Index closed ahead by 2.44% while emerging market equities (MSCI EM) added 1.15%.  Small company stocks, represented by the Russell 2000, finished in the green by 2.45%. Fixed income, represented by the Bloomberg/Barclays Aggregate, was weak as it finished lower by 0.72% for the week as yields moved higher on renewed signs of stronger inflation.  As a result, the 10 YR US Treasury closed at a yield of 1.48% (up 13bps from the previous week’s closing yield of ~1.35%).  Gold prices closed at $1,782.90/oz. – barely up 0.05%.  Oil prices moved higher on easing concerns for the omicron variant and renewed U.S.-Iran tensions.

Economic news released last week confirmed that inflation pressures persist.  The November Consumer Price Index came in at +6.8% – although it was as expected, the CPI number marked the highest reading in close to 40 years.  Perhaps we have seen the peak in inflation, but there is no doubt that consumers and businesses are feeling the pinch.

The week ahead will feature reports on the Producer Price Index, Retail Sales and Manufacturing and Service PMIs.  Potentially market-moving news could follow the Fed’s monetary policy meeting that wraps up on Wednesday.

Markets may take a breather this week after last week’s big run-up.  As such, 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 holiday season!

“If you can dream it, you can do it.”  – Walt Disney

NDS Weekly Commentary 12.6.21

December 6, 2021

It was a tumultuous week for the markets as a result of concerns over the Omicron Covid-19 variant and more hawkish commentary from the Federal Reserve.

For the week, the DJIA and S&P 500 lost 0.8% and 1.2%, respectively, and the NASDAQ fell 2.6%. U.S. small company shares also slid 3.8% as measured by the Russell 2000. Foreign stocks were mixed with developed markets (MSCI EAFE) falling 0.9% while emerging markets (MSCI EM) rose 0.2%. Within the S&P 500, the communication services sector slid 2.8% and the consumer discretionary sector declined 2.3%. Similar to stocks, crude oil ended the week 2.6% lower at $66.38/bbl.

Concerns over the Omicron variant spreading and affecting economic growth resulted in the yields on government bonds to fall sharply. The yield on the 10yr U.S. Treasury note slipped to 1.35% from 1.48% the week prior. The Federal Reserve chairman, Jerome Powell, testified before Congress and indicated that there is a concern about persistent inflation and Covid-19 spreading that will place more pressure on supply chains. He suggested that the Fed may speed-up plans to taper their bond-buying stimulus program.

On the economic front, November non-farm payrolls rose by just 210,000 versus estimates of an expected gain of 545,000. However, the U.S. labor participation rate increased and the unemployment rate declined from 4.6% to 4.2%.

To be sure, investors respond more to reactive fiscal and monetary policies than the fear of the Covid-19 pandemic itself. On Friday, the U.S. stock market volatility, as measured by the CBOE Volatility Index (VIX), rose to its highest intra-day level in over 10 months. As we regrettably acknowledge that Covid will be around for quite a while and political reactions abound, we expect market volatility to continue.

This week ahead, economic data to be reported include inflation, productivity and consumer sentiment.

“More money has been lost trying to anticipate and protect from corrections than actually in them.” -Peter Lynch

ND&S Weekly Commentary 11.29.21 – Markets Retreat on Variant Discovery

November 29, 2021

Markets pulled back during the holiday-shortened week as concerns of a fast-spreading strain of the coronavirus triggered the worst trading session of the year on Friday.

For the week, the DJIA lost 1.95% while the S&P 500 gave back 2.18%. The tech-heavy Nasdaq finished the week lower by 3.52%. International markets also finished in the red as developed market equities (MSCI EAFE) were down 3.71% while emerging markets (MSCI EM) retreated 3.61%. Small company stocks, represented by the Russell 2000, were weak as they closed lower by 4.13%. Fixed income, represented by the Bloomberg/Barclays Aggregate, eked out a gain of 0.13% for the week as yields were quite volatile. As a result, the 10 YR US Treasury closed at a yield of 1.48% (down 6 bps from the previous week’s closing yield of ~1.54%). Gold prices closed at $1,801/oz. – down 3.56% on the week. Oil prices tumbled over 10% last week as traders fretted that lock-downs could reduce demand for transportation fuels.

It was a relatively slow week for macroeconomic data. U.S. consumer spending increased more than expected in October as activity jumped 1.3% month-over-month. Retailers expect holiday sales to be the best in years although there are some concerns of clogged supply chains and port delays. The number of workers filing for unemployment benefits fell to 52-year low of just 199,000, from 270,000 the week prior. The labor markets remain tight with personal income rising 0.5% in October. Lastly, President Joe Biden reappointed Jerome Powell to a second term as Chairman of the Federal Reserve. Notably, the 10yr Treasury note backed up to 1.65% in the wake of the announcement, partially on the belief that Powell will be less dovish in the wake of more-persistent-than-expected inflation.

We expect markets to be choppy as we wait on more news from the scientific community as it relates to Omicron variant. As with the other variants that have recently popped up, we think the pain will be short lived. As always, we plan to look through the day-to-day noise and focus on longer-term objectives. Investors should stay close to their long-term asset allocation targets and re-balance as necessary.

“Thanksgiving is a time of togetherness and gratitude.” – Nigel Hamilton

Weekly Commentary (11/22/21) – Markets Finished Mixed for the Week

November 22, 2021

Markets finished mixed last week as investors cheered continued strong earnings from corporate America only to be discouraged by resurgent cases in COVID-19. Austria became the first country in Europe to re-impose a full lock-down.

For the week, the DJIA lost 1.29% while the S&P 500 gained 0.36%. The tech-heavy Nasdaq finished the week 1.27% higher. For the week, the MSCI EAFE Index finished lower by 0.78% while emerging market equities (MSCI EM) struggled and closed lower by 1.25%. Small company stocks, represented by the Russell 2000, finished in the red by 2.83%. Fixed income, represented by the Bloomberg/Barclays Aggregate, was relatively flat as it finished up 0.09% for the week as yields moved slightly lower as some economic data released last week suggest that inflationary pressures may begin to ease next year. As a result, the 10 YR U.S. Treasury closed at a yield of 1.54% (down 4 bps from the previous week’s closing yield of ~1.58%). Gold prices closed at $1,851.20/oz – down by 0.89% on the week. Oil prices were materially lower for the week as crude closed at $76.10 per barrel, lower by 5.81%. Oil is up 56.84% year-to-date … certainly denting consumers’ pocketbooks and businesses’ margins.

Economic news released last week was fairly encouraging. The NY Empire State Manufacturing Index for November came in much better than expected as it rose to 30.9 from 19.8 the previous month. October retail sales for retail and food services showed year-over-year growth of 16.3%, well ahead of an expected reading of 13.9%. The Philly Fed Manufacturing Index for November came in at 39, much better than the consensus of a slight increase to 24. Offsetting the excellent retail sales and manufacturing numbers was a weak October Housing Starts. Housing Starts in October fell to 1.52 million against the expected rate of 1.576 million – this reflects the third time in the past four months that housing starts fell.

This holiday-shortened week will feature reports on October existing and new home sales, Consumer Sentiment, October Durable Goods and weekly jobless claims. We also expect President Biden to nominate Federal Reserve Chairman Powell to another term.

November and December have usually rewarded investors. As such, we continue to suggest that investors stay close to their long-term target asset allocations with a slight defensive bias.

Best wishes for a Happy Thanksgiving!

“Be thankful for what you have; you’ll end up having more. If you concentrate on what you don’t have, you will never, ever have enough.”Oprah Winfrey

ND&S Weekly Commentary 11.15.21 – Persistently Transitory Inflation

November 15, 2021

The major US Stock indexes all fell less than 1% last week, ending a five week positive run as inflation fears weighed on financial markets. For the week, the S&P 500 slipped 0.27%, the DJIA declined 0.56% and the Nasdaq slid 0.68%. The best performing sector was materials, up 2.6%, as inflation fears mounted. The recently passed infrastructure bill bodes well for materials and commodities. International equities were mixed with developed markets (MSCI EAFE) falling 0.34% while emerging (MSCI EM), which relies more on commodity exports, rose 1.71%.

Bond prices fell with the 10-year U.S. Treasury yield at 1.58% up from 1.45% the previous week. As inflation fears mount, the concern is that the Federal Reserve will begin raising interest rates sooner than they have indicated.

Inflation concerns were responsible for a 3% surge in the price of gold which ended the week at $1,864 per ounce, the highest level in more than five months. Energy prices have nearly doubled from last year.

On the economic front, the government reported on Wednesday that the Consumer Price Index (CPI) climbed 6.2% from a year ago, the highest level since 1990. The “core” CPI, which excludes food and energy, increased 0.6% in October, exceeding a consensus of 0.4%. Core prices are up 4.6% versus a year ago and energy prices soared 4.8% in October. The Produce Price Index (PPI) reading was 8.6%, the highest since 2010.

With the holiday season approaching, all eyes this week will be on retail sales and earnings from major retailers. On Tuesday, U.S. retail sales will be released and Walmart reports its earnings. Target and TJX follow on Wednesday and Ross Stores, Macy’s, Kohl’s, and B.J.’s on Thursday.

With the third quarter earnings season behind us, we expect more volatility in the financial markets. We recommend re-balancing portfolios in keeping with long-term objectives. Please do not stretch for higher income yields as pressure mounts for rising interest rates.

“Inflation is the one form of taxation that can be imposed without legislation” – Milton Friedman