ND&S Weekly Commentary 9.20.21 – Markets Pulled Back Again – Seasonal Weakness

September 20, 2021

Markets pulled back last week as investors navigate what is a seasonally weak period for the markets.

For the week, the S&P 500 declined 0.54% while the DJIA was down fractionally (0.05%). The tech-heavy Nasdaq was off 0.46%. The lone bright spot was small-cap US companies as the Russell 2000 increased 0.45%. International markets struggled last week with developed markets (MSCI EAFE) down 1.38% and emerging markets (MSCI EM) off 2.19%. Bonds were flat on the week as the yield curve was virtually unchanged. The 10yr U.S. Treasury increased 2bps to close at a yield of 1.37%. Gold closed at $1,756/oz. – down 2.25% on the week. Oil (WTI) closed at $71.96/bbl., marking an increase of 3.23%.

Investors continue to debate the transient nature of inflation. The U.S. Labor Statistics reported the Consumer Price Index (CPI) increased 0.3% in August following a 0.5% advance in July. Over the last 12 months, the CPI has increased 5.3%. In other economic releases, industrial production increased 0.4% in August missing estimates of a 0.5% increase. Retail and food-service sales advanced 0.7% in August, well ahead of a forecasted decline of 0.7%. This week, the FOMC will hold their September meeting where they will debate the unwinding of the extraordinary support they have given the economy since the pandemic struck 18 months ago. No action is expected at the conclusion of this meeting, but most economists assume they will begin tapering their $120 billion of monthly bond purchases later this fall.

Markets seem to be in the midst of a little consolidation phase while looking for the next catalyst. Major averages have been relatively quiet but there have been quite a bit of cross currents racing below the surface. The cyclical sectors, namely Materials, Industrials, and Energy started off 2021 strong but are flat to down since April. Info. Technology, Communication Services, Health Care and Real Estate are all up double digits during the same time period. Markets should remain a bit choppy until earnings reports begin in early October.

We continue to suggest that investors position portfolios with a slight defensive bias close to their long-term target asset allocations. Markets could be a bit volatile over the next few weeks … hang in there!

“Our attitude toward life determines life’s attitude towards us.” – John N. Mitchell

Weekly Commentary (9/13/21) – Markets Take a Breather

September 13, 2021

Markets pulled back during last week’s holiday-shortened sessions with all four days posting moderate declines. Despite the pullback, markets are still close to all-time highs.

For the week, the DJIA lost 2.15% while the S&P 500 gave back 1.69%. The tech-heavy Nasdaq finished the week lower by 1.61%. International markets also finished in the red. For the week, the All Country World Index ex-USA was a bit better than domestic performance, but still finished lower by 0.50% while emerging market equities (MSCI EM) were also down 0.50%. Small company stocks, represented by the Russell 2000, were weak as they closed lower by 2.81%. Fixed income, represented by the Bloomberg/Barclays Aggregate, was flat as it eked out a gain of 0.02% for the week as yields moved slightly higher. As a result, the 10 YR US Treasury closed at a yield of 1.35% (up 2 bps from the previous week’s closing yield of ~1.33%). Gold prices closed at $1,789.60/oz. – down 2.26% on the week. Oil prices jumped 0.62% last week to close at $69.72 per barrel.

It was a relatively slow week for macroeconomic data. On Thursday, the Department of Labor reported that initial jobless claims for the week ending September 4 were a pandemic-low 310,000 – a decrease of 35,000 from the previous week and better than the 335,000 consensus. These numbers seem to indicate that there has not been a rise in layoffs due to the Delta variant. On Friday, the U.S. Bureau of Labor Statistics (BLS) reported that the seasonally adjusted Producer Price Index (PPI) for final demand jumped 0.7% in August – higher than expectations for a 0.6% increase. August’s year-over-year increase in the PPI was 8.3% – the highest on record. Core PPI advanced only 0.3%, below consensus of 0.6%. Supply constraints are quite clear in August’s price increases as demand remains relatively strong.

September is the only calendar month with a negative return for the Dow Jones Industrial Average over the last 100 years (the median return for the S&P 500 in September for the last 25 years is slightly positive). A few big historical events have certainly weighed on September average returns – the Great Depression, the 1974 bear market, the 2001-2002 bear market and the 2008 global financial crisis. Of course, past returns do not predict future returns. Volatility should pick up over the next few weeks as Washington struggles with stimulus packages and tax reform. We continue to suggest that investors stay close to their long-term target asset allocations with a slight defensive bias. Enjoy the last weeks of summer!

“In the sacrifice of first responders and the mutual aid of strangers, in the solidarity of grief and grace, the actions of an enemy revealed the spirit of the people. And we were proud of our wounded nation.”President George W. Bush

ND&S Weekly Commentary 8.30.21 – Summer Flew By

August 30, 2021

Markets reached all-time highs again last week as dovish comments by the Federal Reserve gave investors’ confidence to shrug-off the Afghanistan withdrawal crisis and the threat of two hurricanes. The Food & Drug Administration (FDA) approval of the Pfizer-BioNTech vaccine gave confidence toward an on-going recovery.

For the week, the DJIA increased 0.98%, the S&P 500 rose 1.54%, and the tech-heavy Nasdaq climbed 2.82%. U.S. small cap stocks, as measured by the Russell 2000, soared 5.06% and have returned 47.1% over the last 12 months. International stocks also had a strong week with developed markets (MSCI EAFE) and emerging markets (MSCI EM) adding 1.86% and 4.29%, respectively. Oil prices jumped 10.6% last week as hurricane Ida forced the shut-down of 96% of oil production capacity in the Gulf of Mexico.

So far this year the S&P 500 has returned 20% and has not had a 5% pull-back since last November. There has been a lot of sector rotation within the markets of late. Energy had a roaring start to the year but has given some back recently and is down 9.4% for the quarter as oil prices have declined. The best sectors recently has been the more defensive areas, utilities and healthcare, which are up 7.8% and 6.6%, respectively, while the S&P 500 has risen 4.9% this quarter.

On Friday, the Federal Reserve Chairman Jerome Powell stated that tapering of asset purchases could begin before the end of the year. Mr. Powell also reiterated that he remains confident that the inflation surge being felt this year is temporary. Yields drifted higher last week with the 10yr U.S. Treasury closing at a yield of 1.31% (5bps higher from the previous week).

Economic news last week revealed some possible slow-down in consumer spending and economic growth. Personal spending for July rose only 0.3% which missed consensus. The preliminary GDP report for 2nd quarter 2021 came in at 6.6% versus and estimate of 6.7%. The initial weekly jobless claims rose slightly to 353k. This week’s economic reports includes housing starts, consumer confidence, hourly earnings, and trade balance.

Historically, September has been the worst month of the year for the S&P 500, which has declined an average of 0.56% since 1945. With the devastation of hurricane Ida, the crisis in Afghanistan and the uncertainty of a delta variant surge, we would not be surprised by a market pull-back. We recommend a slightly cautious bias and for investors to remain in-line with long-term investment goals and asset allocation.

“What counts for most people in investing is not how much they know, but rather how realistically they define what they don’t know.” – Warren Buffett

ND&S Weekly Commentary 8.23.21 – Markets Recede from Records

August 23, 2021

Stocks gave some back last week following reports that US retail sales declined and the US Fed is considering tapering its asset purchases this year.

For the week, the DJIA declined 1.01% while the S&P 500 moved lower by 0.55%. The tech-heavy Nasdaq lost 0.70%. International markets were under pressure last week as developed markets (MSCI EAFE) finished lower by 2.94% % while emerging market equities (MSCI EM) gave back 4.61%. Small company stocks, represented by the Russell 2000, dropped 2.47% for the week. Fixed income, represented by the Bloomberg/Barclays Aggregate, advanced 0.16% for the week as the yield curve moved lower. As a result, the 10 YR US Treasury closed at a yield of 1.26% (down 3 bps from the previous week’s closing yield of ~1.29%). Gold prices closed at $1,779/oz. Oil prices dropped to $62.32/bbl from $68.93/bbl the previous week.

The release of the Federal Reserve July meeting minutes indicated that the Fed might begin tapering asset purchases before year-end. The Fed will host its annual Jackson Hole symposium (virtually) this week and Federal Reserve Chair Jerome Powell is scheduled to deliver his remarks on Friday. Market participants will be awaiting any insights as many central bankers aim to move away from easy policy. In other economic news last week, retail sales in July came in lower than expected and fell 1.1%. Despite the decline, the $617.7 billion in sales still represents a 15.8% increase from a year ago.

After a strong 8 months to start the year, we see markets grinding along over the next few weeks to months looking for a catalyst. Markets have so far been resilient to talks of “Fed tapering” and rollbacks of government stimulus as they have mostly looked to strong 2nd quarter earnings. We continue to suggest that investors stay close to their long-term target asset allocations with a slight defensive bias.

“Set your goals high, and don’t stop till you get there.”Bo Jackson

ND&S Weekly Commentary 8.16.21 – Markets finished Mixed on the Week

August 16, 2021

Despite the surging delta variant, corporate earnings continue to be quite strong and resilient. Waning concerns about runaway inflation also buoyed investors’ confidence. Additionally, stocks got a bump from the Senate’s passing of a $1 trillion infrastructure bill (hopefully the House will vote on that separate bill soon).

For the week, the DJIA gained 0.87% while the S&P 500 moved ahead by 0.71%. The tech-heavy Nasdaq lost 0.09%. International markets finished in the green. For the week, the All Country World Index ex-USA finished higher by 0.71% while emerging market equities (MSCI EM) gave back 0.90%. Small company stocks, represented by the Russell 2000, dropped 1.10% for the week. Fixed income, represented by the Bloomberg/Barclays Aggregate, advanced 0.11% for the week as yields moved lower. As a result, the 10 YR US Treasury closed at a yield of 1.29% (down 2 bps from the previous week’s closing yield of ~1.31%). Gold prices closed at $1,775.20/oz – up 0.86% on the week. Oil prices continued their march higher to close at $68.44 per barrel, up 0.23% on the week.

Markets have been quite resilient despite myriad concerns. We see markets grinding along (higher and lower) over the new few months during this seasonally weak period. We continue to suggest that investors stay close to their long-term target asset allocations with a slight defensive bias. Enjoy the summer!

“Happiness is not a goal; it is a by-product.” – Eleanor Roosevelt

ND&S Weekly Commentary 8.2.21 – A Midsummer Night’s Dream

August 2, 2021

Concerns over the strength and duration of global economic growth sent the major U.S. equity markets lower last week. The spreading Covid-19 Delta variant, mixed economic news, supply chain disruptions and peaking corporate earnings are weighing heavily on investors’ minds.

For the week, the S&P 500 and the DJIA were down 0.4% and the tech-heavy Nasdaq lost 1.1%. Small US stocks, as measured by the Russell 2000, outperformed and gained 0.8%. International developed stocks (MSCI EAFE) rose 0.6% while emerging markets (MSCI EM) continue to be affected by China’s regulatory crackdown on Tech companies and dropped 2.5%. Chinese companies represent over 30% of the emerging market equity benchmark. Gold prices closed at $1,826/oz. – up 0.6% on the week and oil prices increased 2.8% to $73.81 per barrel.

So far 87% of companies in the S&P500 have exceeded estimates by 18% buoyed by strong consumer demand and improving margins. It will be another busy week as 142 companies, comprising the S&P 500, are scheduled to report. The materials (2.8%) and energy (1.6 %) sectors were the best performing sectors last week.

On the economic front, the advanced estimate for Q2 GDP soared 6.5% but missed consensus of 8.4%. Consumer spending, which is about 70% of demand, has been very strong, growing at 11.8%. The Federal Reserve met last week and made no changes to its policy rates or open market asset purchases. Fed Chairman Jerome Powell acknowledged that the “economy has made progress” but the Fed will continue buying $120 billion in bonds every month for at least a little longer. As a result, the 10 year U.S. Treasury declined to 1.23%, down 6bps from the previous week.

This week will include another round of 2Q earnings announcements and economic releases on construction spending, hourly wage growth, and consumer spending.

“Our doubts are traitors, And make us lose the good we oft might win, By fearing to attempt.” –William Shakespeare

ND&S Weekly Commentary 7.26.21 – Markets Recover to New Highs

July 26, 2021

Markets were on edge last Monday as concerns about the highly contagious Covid-19 Delta variant concerned investors world-wide. However, the declines were short-lived and markets quickly recovered to hit all-time highs by Friday as solid corporate earnings were reported.

The DJIA finished above 35000 for the first time for a weekly gain of 1.12%. The S&P 500 and Nasdaq finished in the green with gains of 1.97% and 2.84%, respectively. Small company stocks, represented by the Russell 2000, rebounded 2.15% last week. Developed international (MSCI EAFE) managed a modest gain of 0.21%. After threatening many of China’s top technology companies in recent weeks and months, Chinese regulators took aim at the fast growing education sector last week. As a result, emerging markets (MSCI EM) were under pressure and fell 2.08%. Fixed income prices, represented by the Bloomberg/Barclays Aggregate, advanced 0.19% as yields moved fractionally lower. As a result, the 10 YR US Treasury closed 1 basis point lower at a yield of 1.30%. Gold prices closed at $1,800/oz. – down 0.72% on the week and oil prices increased 0.71% to $72.02 per barrel.

The housing market continues to chug along as housing starts increased 6.3% in June well ahead of consensus. Housing starts are up 29.1% from a year ago. The IHS Markit Group reported their U.S. composite PMI output index for manufacturing and services. The manufacturing PMI registered a series high reading of 63.1% exceeding consensus of 62.0%. The services PMI came in at a respectable 59.8% but missed estimates of 64.5%. In the week ahead, there will be a reports of 2nd Quarter GDP and personal income.

Earnings season continued last week and results have been coming in ahead of analyst estimates. So far, 86% of companies have reported an earnings-per-share (EPS) beat while revenues were slightly below expectations. Earnings for the S&P 500 are up 117.2% from a year ago while revenues increased 19.6%. The markets will be put to the test this week as large US growth companies report: UPS, Apple, Google, Microsoft, Facebook, and Amazon among others.

We expect company results to be quite strong this week. Markets will be looking for catalysts to continue their momentum. With major indices surpassing all-time highs, Wall Street analysts are only expecting modest gains for the remainder of the year. We recommend staying close to your long-term target asset allocations with a slight defensive bias. Have a great week!

“The most important thing in the Olympic Games is not winning but taking part; the essential thing in life is not conquering but fighting well.” – Pierre de Coubertin

Weekly Commentary (7/19/21) – U.S. Markets Move Lower on Fed & Delta Variant Worries

July 19, 2021

Markets were mostly lower last week as investors reacted to increasing cases of the Delta variant of Covid along with comments from the Fed regarding rising inflation and potential bond purchase tapering.

For the week, the DJIA declined 0.52% while the S&P 500 lost 0.96%. The tech-heavy Nasdaq could not escape the selling and finished the week down 1.87%. International markets finished in the green. For the week, the All Country World Index ex-USA finished higher by 0.06% while emerging market equities (MSCI EM) rose 1.66%. Small company stocks, represented by the Russell 2000, were pummeled as they dropped 5.12%. Fixed income, represented by the Bloomberg/Barclays Aggregate, advanced 0.24% for the week as yields moved lower. As a result, the 10 YR US Treasury closed at a yield of 1.31% (down ~6 bps from the previous week’s closing yield of ~1.37%). Gold prices closed at $1,814.50/oz – up 0.25% on the week. Oil prices declined 3.69% on the week to close at $71.81 per barrel.

All eyes will be on earnings reports and news about the Delta variant this week. We expect earnings to continue to be strong. On the other hand, investors may pare back on cyclically oriented companies as the Delta variant calls into question the durability of the economic recovery. Consumer are still in great shape with healthy balance sheets and pent up demand.

Markets are entering a seasonally weak period so don’t be surprised by increased volatility. We continue to suggest that investors stay close to their long-term target asset allocations with a slight defensive bias. Enjoy the summer!

“Life consists not in holding good cards but in playing those you hold well.” – Josh Billings

ND&S Weekly Commentary 7.12.21 – Let the Second Quarter Earnings Season Begin

July 12, 2021

During the short week of July 4th, interest rates moved lower, unsettling the financial markets. Investors debated the benefits of lower rates for financial assets versus whether the declining rates spelled a weakening of global economic growth. The spread of the highly transmissible delta variant of the coronavirus is also of grave concern.

For the week, US equities prevailed as the DJIA increased 0.25%, the S&P 500 was up 0.42% (an all-time high) and the tech-heavy NASDAQ rose 0.43%. International equity markets were under a little pressure. Developed markets (EAFE) declined 0.07%, while emerging markets (EM) dropped 2.58% as a result of China’s crackdown on Big Tech monopolistic practices. Small U.S. stocks, represented by the Russell 2000 finished in the red by 1.11%. Gold prices closed at $1,806/oz. and the price of oil finished at $74.63, hitting a six year high after OPEC+ was unable to agree to further production increases.

Surprisingly, the U.S. 10-year Treasury is now at its lowest yield since February, dropping 7bps from the prior week to 1.36%. Lower rates have and will continue to benefit more growth oriented companies. The fear of more than transitory inflation has subsided at least for now.

On the economic front, weekly unemployment claims came in higher than expected. Also, both the Institute for Supply Management (ISM) service sector numbers for June and the Economic Index came in lower than expected. Mortgage application activity in the U.S. was at its lowest level since January of last year, despite rates continuing to trend lower with 30-year average fixed mortgage rates hovering near 3%.

This week all eyes will be on second quarter earnings announcements. Second quarter corporate earnings for the S&P 500 companies are expected to have improved by nearly two thirds over the same period a year ago. On Tuesday, June consumer inflation (CPI) will add insight as to how transitory inflation is. Retail sales for June will be announced on Friday.

“Underlying most arguments against the free market is a lack of belief in freedom itself.”

-Milton Friedman

ND&S Weekly Commentary 7.6.21 – Happy 4th of July!

July 6, 2021

Equity markets climbed their way to all-time highs again last week. While investors anxiously wait on second quarter earnings announcements, economic data continues to confirm an improving economic landscape.

For the week, the DJIA advanced 1.03% while the S&P 500 gained 1.71%. The tech-heavy Nasdaq increased 1.96%. Small company stocks, represented by the Russell 2000, finished lower by 1.18% for the week. International markets also disappointed last week as the MSCI EAFE index (developed markets) closed lower by 1.09% while emerging market equities (MSCI EM) slipped 1.63%. Fixed income, represented by the Bloomberg/Barclays Aggregate, finished the week higher as yields declined. As a result, the 10 YR US Treasury closed at a yield of 1.44% (down ~10 bps from the previous week’s closing yield of ~1.54%). Gold prices closed at $1,786/oz. – up 0.50% on the week. Oil prices closed at $75.16/bbl. nearing a three-year high.

Economic news released last week came in better than expected. The big news came on Friday when the Labor Department reported that 850,000 jobs were added in June – surpassing estimates for a gain of 706,000 jobs. The unemployment rate increased slightly to 5.9% as more people than anticipated entered the workforce. The labor market remains extremely tight as there are more job openings than unemployed people looking for work. The Institute of Supply Management (ISM) reported their PMI for June at 60.6%, marking the 13th straight month of expansion in the manufacturing sector and economy overall. The National Association of Realtors reported that Pending Home Sales in May rebounded 8.0%, much stronger than estimates of a 1.0% decline.

Economic and market fundamentals remain quite reasonable as we closed out the 1st half of 2021. Although we are concerned about the new delta variant spreading around the globe, vaccines have proven to be mostly effective against Covid-19 and its variants. Markets will focus their attention on Q2 earnings, details of the infrastructure plan and the massive partisan reconciliation bill that Congress is debating. Of course, the burden will fall to taxpayers with corporate and capital gains taxes expected to increase from their current levels.

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

“We must be free not because we claim freedom, but because we practice it.” – William Faulker