ND&S Weekly Commentary 11.30.20 – More Stimulus Please

November 30, 2020

The Thanksgiving holiday-shortened week gave investors and traders a lot to be thankful for. The US and global markets all performed very well for the week and the month of November. The Dow Jones Industrial Average (DJIA) crossed the 30,000 mark for the first time, with its best monthly return since January 1987. Both the DJIA and the S&P 500 realized their best November returns since 1928.

Investors have been challenged by the positive vaccine news and the escalating COVID-19 cases and hospitalizations. The election turmoil has also brought with it uncertainties and anxieties over political control and economic strategies going forward.

For the week, the DJIA returned 2.25%, the S&P 500 was up 2.3% and the tech-heavy Nasdaq, which had been under pressure, rebounded 2.97%. Foreign stocks also felt relief with Developed and Emerging markets gaining 2.24% and 1.79%, respectively. The slew of positive vaccine news and encouraging economic prospects lifted cyclical companies which are the most economically sensitive. In November, materials, financials, and industrials have rallied 13% while energy surged nearly 34%. In the last month there have been the highest inflows into global equity funds since January 2018. The growth versus value investment debate is back in the forefront. There’s been a rotation from growth to value as investors look for stocks with upside when the pandemic ends.

The coronavirus infection and hospitalization rates continue to surge with 266,000 people dying with the virus in the US. More lockdowns and delays on additional stimulus and fiscal spending will undoubtedly put pressure on equity prices. New unemployment claims are worse than any time prior to the pandemic hitting the 1.1 million mark last week. The health of our economy and financial markets depends on a new round of economic stimulus and a successful rollout of the COVID-19 vaccines. Interest rates remained virtually unchanged for the week with the yield of the 10 year US Treasury ending at 0.84%. The price of US crude soared 7% to $45.38 per barrel benefiting from the improved outlook for demand.

We expect markets to be choppy with tax loss harvesting and momentum stock profit taking to hinge on investors and traders reacting to COVID and stimulus news. Please remain diversified and stay in-line with your long term investment goals. There will be more important economic news this week with Federal Reserve comments and reports on pending home sales and the unemployment rate.

Stay safe!

“Appreciation is a wonderful thing. It makes what is excellent in others belong to us as well.” – Voltaire

ND&S Weekly Commentary 11.23.20 – Markets Tempered by Virus Surge

November 23, 2020

U.S. equity markets dipped last week as investors weighed the realities around rising Covid-19 infections. In response, we saw more cities and states implement restrictions in an effort to slow the spread.
For this past week, the S&P 500 declined 0.73% while the DJIA gave back 0.65%. The tech-heavy NASDAQ ticked higher by 0.25%. Small company stocks, represented by the Russell 2000, bucked the trend as the index closed higher by 2.38% for the week. International equity markets also finished higher as the MSCI EAFE and emerging markets (MSCI EM) added on 1.88% and 1.77%, respectively. Bonds had a strong week as the Bloomberg/Barclays Aggregate finished the week up 0.59%. As a result, the 10 YR US Treasury closed at a yield of 0.83% (down 6 bps from the previous week’s closing yield of 0.89%). Gold prices closed at $1876/oz. – down 0.69% on the week. Oil (WTI) moved higher to close at $42.15 – up 5.03% on the week.

Economic news released last week was mixed. Retail sales advanced 0.3% in October, missing estimates of a 0.5% increase. Industrial production increased 1.1% in October, beating estimates of 1.0%. Existing home sales increased 4.3% in October and is now up a whopping 26.6% from the same time last year. Housing continues to be a bright spot for the economy as support from low rates continues. Lastly, weekly jobless claims were 742,000, missing estimates of 711,000. Despite the holiday-shortened week, there will be reports on Markit US manufacturing and services PMIs, personal income, durable goods orders, and consumer confidence. The Bureau of Economic Analysis will also report their update for 3Q2020 GDP on Wednesday.

Although we must navigate the market and economies response to rising case counts near-term, there is light at the end of the tunnel and multiple vaccines should be widely available by Spring/Summer 2021. We expect markets to continue to be choppy like this past week. We have witnessed a rotation in recent weeks with areas that previously lagged benefiting the most on the vaccine news. As always, investor focus should remain on long-term goals.

First and foremost, we hope that all of you and your families are staying healthy and safe during this recent spike in cases. Although this year will feel a little different due to COVID-19, we wish to extend to all a very Happy Thanksgiving!

“An attitude of gratitude brings great things.” – Yogi Hhajan

ND&S Weekly Commentary )Weekly Commentary (11/16/20) – Markets Mostly Higher on Vaccine News

November 16, 2020

Most markets advanced last week on news that Pfizer’s vaccine candidate was greater than 90% effective in preventing covid-19. Despite an ominous rise in covid-19 cases last week, investors chose to focus on the great news out of Pfizer along with optimism for a similar outcome for Moderna’s vaccine candidate. Investors rotated out of high-flying technology names and into economically-sensitive names as evidenced by the last week’s results for the Russell 1000 – the growth index was negative by 1.27% while the value index shot up 5.69%.

For the week, the DJIA advanced 4.19% while the S&P 500 gained 2.16%. The tech-heavy Nasdaq lost 0.55%. Developed international markets moved nicely higher as investors added to beaten-down international stocks. For the week, the MSCI EAFE index gained 3.89% while emerging market equities (MSCI EM) jumped 1.03%. Small company stocks, represented by the Russell 2000, finished ahead by 6.13% for the week. Fixed income, represented by the Bloomberg/Barclays Aggregate, finished the week slightly lower as the index closed lower by 0.14%. As a result, the 10 YR US Treasury closed at a yield of 0.89% (up ~6 bps from the previous week’s closing yield of ~0.83%). Gold prices closed at $1,885.70/oz – down 3.31% on the week. Oil prices jumped $2.99 (or 8.1%) last week as investors bet that an economic recovery will lead to increased demand for oil.

Economic news released last week was mixed. On Thursday the U.S. Bureau of Labor Statistics (BLS) announced that the Consumer Price Index (CPI) was unchanged in October, missing expectations for a 0.1% advance. The CPI advanced 1.2% year-over-year. Also on Thursday the Department of Labor reported that initial jobless claims for the week ending November 7 were 709,000, better than expectations of 740,000. On Friday the BLS reported that the Producer Price Index (PPI) gained 0.3% in October, ahead of expectations for a 0.2% advance. The PPI advanced 0.5% year-over-year. Neither the CPI nor PPI point to unreasonable or out of control inflation, and this gives the Fed more time to remain accommodating. Economic news in the week ahead will focus on retail sales, industrial production, housing starts and existing home sales.

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

“Perseverance is not a long race; it is many short races one after the other.” – Walter Elliot

ND&S Weekly Commentary (11.9.20) – Markets Rebound

November 9, 2020

Equity markets rebounded last week on generally good economic news and election results that indicate neither Democrats nor Republicans received a broad mandate. Divided governments are widely thought to be good for the stock market. Also this morning, U.S. equity markets are up strongly on the announcement by Pfizer and BioNTech that their Covid-19 vaccine candidate is more than 90% effective in latest trials.

The S&P 500, DJIA, and NASDAQ were up 7.4%, 6.9% and 9.1 %, respectively. The best performing sectors for the week were technology, healthcare, and materials. The worst performing sector continued to be energy. International equities also advanced with MSCI EAFE up 8.1% and emerging markets (MSCI EM) higher by 6.6%. Bond prices rose last week with the rate on the 10 year U.S. Treasury dropping from 0.88% to 0.83%.

In economic news last week, Friday’s jobs report showed that hiring picked up last month at a faster pace than expected with an increase of 683,000. As a result, the unemployment rate dropped to 6.9%, beating estimates of 7.7%. The Institute of Supply Management (ISM) reported their purchasing manager’s index (PMI) for manufacturing at 59.3%, much better than estimates of 55.8%. The Non-Manfacturing Index which tracks the services sector fell to 56.6% missing estimates of 57.5%. The Federal Open Market Committee met last week leaving their policy unchanged. Chairman Jerome Powell mentioned the need for “further (economic) support” to help fight the effects from the Covid-19 virus.

As mentioned above, markets are reacting positively this morning on Covid-19 vaccine news with the strongest action on names hit hardest by the pandemic. We continue to recommend that investors maintain a fully diversified portfolio consistent with their long-term objectives and risk tolerance.

“It always seems impossible until it’s done.” – Nelson Mandela

ND&S Weekly Update: The Election – Here We Go!

November 2, 2020

Last week was a wake-up call for investors as Wall Street closed out its worst month since March. The market’s largest tech companies reported solid earnings but muted guidance, the election heated up and the resurgence in coronavirus infections continued in the U.S. and Europe (where lock-down restrictions are being implemented).

For the week, the DJIA closed down 6.47%, the S&P 500 declined 5.62%, and the tech-heavy NASDAQ shrunk 5.50%. Foreign markets also took it on the chin with Developed Markets (MSCI EAFE) dropping 5.51% and emerging markets (MSCI EM) slipping 2.89%. The technology sector slid 6.5% for the week. The price of oil also declined by 10.2% per barrel and gold was off by 1.3%.

There has been upward pressure on interest rates with the yield curve continuing to steepen on the intermediate and long-end. The yield on the 10 Yr. U.S. Treasury ticked higher to 0.88% from 0.86% the week prior.

Despite the U.S. economy growing at a record pace, increasing 7.4% in the third quarter and at a 33% annual rate, the concerns over the elections and potentially overvalued large tech companies took hold. In other economic releases, durable goods orders increased 1.9% in September beating estimates, Core PCE (personal consumption expenditures) advanced 3.5% quarter-over-quarter, and pending home sales contracted 2.2% in September missing estimates.

The earning season so far has been solid with 60% of companies in the S&P500 having reported, with 80% of them beating their estimates. Though earnings are off 12.55% from a year ago, they are much better than predicted and overall guidance is improving. Still all eyes are on revenues and investors are willing to pay up for companies with sustainable sales growth.

There is no question that our economy needs another major stimulus program. Congressional leaders failed to agree on roughly a $2 trillion stimulus package which covered enhanced unemployment benefits, more government backed loans and stimulus for households.

The results of Tuesday’s election will determine the political direction of the U.S. and its effect on our economy and global financial markets. We strongly suggest that investors maintain a well-diversified portfolio with a slight conservative bias favoring dividend income and growth.

“George Washington is the only President who didn’t blame the previous administration for his troubles.” – Author Unknown

ND&S Weekly Commentary 10.26.20 – Markets Take a Breather

October 26, 2020

U.S. equity markets pulled back last week as investors weight the uncertainties surrounding the election and rising Covid-19 infections around the globe. Additionally, a lack of fresh stimulus will likely further weigh on the economy in the short-term.

For this past week, the S&P 500 declined 0.51% while the DJIA gave back 0.90%. The tech-heavy NASDAQ finished the week -1.06% as money moved out of more growth areas. Small company stocks, represented by the Russell 2000, again bucked the trend as the index closed higher by 0.42% for the week. International equity markets also finished in the green as the MSCI EAFE and emerging markets (MSCI EM) added on 0.11% and 1.11%, respectively. Bonds took it on the chin for the week as the Bloomberg/Barclays Aggregate, finished the week down 0.42%. As a result, the 10 YR US Treasury closed at a yield of 0.85% (up 9 bps from the previous week’s closing yield of 0.76%). Gold prices closed at $1,904/oz. – up fractionally on the week. Oil (WTI) moved lower to close at $39.88 – down 2.5% on the week.

Economic news released last week was mixed. The U.S. Census Bureau reported that housing starts increase 1.9% to a seasonally adjusted rate of 1.415 missing estimates for September. Conversely, existing home sales jumped 9.4% for the month which far outpaced estimates. Overall, existing home sales are up 21% from the same time last year reflecting the strength of the housing market. Weekly jobless claims were 787,000, marking a 55,000 improvement from the week prior. On Friday, the IHS Markit Flash U.S. Composite PMI registered a reading of 55.5 for October. The “flash” reading is a preview to the official release with any reading over 50 representing expansion. The week ahead will have reports on personal income and expenditure, durable goods orders, new home sales, and the initial release of 3Q20 real GDP.

Third quarter earnings season is in full swing this week with Apple, Microsoft, Mastercard, Pfizer, and Facebook among the many scheduled to report. Although it is early, thus far, results have generally surprised to the upside with 83% beating on EPS and 74% on revenues according to data from FactSet. Much of the market reaction to releases will be the result of guidance from the respective companies.

We are thankfully in the final stretch of the election season. The hyper partisanship will likely lead to a record turnout at the polls. The election aside, the volatility in equity markets will likely increase this week due to spikes in Covid-19 globally and the busy week for company results and updates. As always, investor focus should remain on long-term goals.

“Out of difficulties grow miracles.” – Jean de la Bruyere

ND&S Weekly Commentary 10.19.20 – Markets Mostly Higher on Hopes of Stimulus

October 19, 2020

Stocks moved slightly higher last week as investors focused, yet again, on hopes of another stimulus package and optimism over 3rd quarter earnings. Talks between the White House and Congress continued last week with both sides expressing optimism about a new round of stimulus, yet politics continue to weigh heavily on the process as the finger pointing continues. With the election just two weeks away it seems unlikely that a deal will get done before then.

For the week, the DJIA closed higher by 0.07% while the S&P 500 gained 0.21%. The Nasdaq closed higher by 0.79%. Small company stocks, represented by the Russell 2000, bucked the trend and gave back some ground as the index closed lower by 0.22% for the week. International stocks were mixed. For the week, the MSCI EAFE index lost 1.45% while emerging market equities (MSCI EM) tacked-on 0.15%. Fixed income, represented by the Bloomberg/Barclays Aggregate, finished the week higher by 0.24%. As a result, the 10 YR US Treasury closed at a yield of 0.76% (down ~3 bps from the previous week’s closing yield of ~0.79%). Gold prices closed at $1,900.80/oz. – down 0.97% on the week. Oil prices moved higher as oil closed at $40.88 – up 0.69% on the week.

Economic news released last week was mixed. On Tuesday, the U.S. Bureau of Labor Statistics reported that the Consumer Price Index (CPI) advanced 0.2% in September, matching expectations. Core CPI, which excludes food and energy, also gained 0.2% (in-line with expectations). On Wednesday, the U.S. Bureau of Labor Statistics reported that the Producer Price Index (PPI) gained 0.4% in September, ahead of expectations for a 0.2% advance. On Thursday, the Department of Labor reported that initial jobless claims for the week ending October 10 were 898,000, outpacing expected claims of 830,000. On Friday, the Federal Reserve announced that September’s industrial production fell 0.6%, missing expectations for a 0.5% decrease. Total industrial production is down 7.3% from the same time last year. In the week ahead look for news on housing starts, weekly jobless claims, existing home sales and Markit PMI.

Third quarter earnings season for the S&P 500 is off to a good start. With only 13% of S&P 500 companies reporting thus far, the largest twelve companies that have already reported have beaten estimates by over 20%. We see third quarter earnings as supportive of further gains in the market. However, offsetting earnings optimism will likely be spikes in Covid-19 around the world and continued bickering in Washington.

Expect increased volatility in the weeks ahead. The upcoming election will keep investors and markets on edge. We urge investors not to overthink the current wall of worry and to stick close to long-term target asset allocations with a slight defensive bias.

‘The will to succeed is important, but what’s more important is the will to prepare.” – Bobby Knight

ND&S Weekly Commentary 10.12.20 – Market Continues Rally

October 12, 2020

Markets bounced around last week on news of additional stimulus. On Monday, President Trump tweeted that he had instructed his representatives to stop negotiations until after the elections driving equity markets down. By week end, that appeared to have been a negotiating tactic as President Trump indicated that he would be amenable to a stimulus package totaling $1.8 trillion (still short of the Democrats’ request of $2.2 trillion). For the week, U.S. equity markets finished solidly up with the S&P 500, DJIA and NASDAQ up 3.9%, 3.3% and 4.6%, respectively. So far, the month of October has started on a strong note with 2 consecutive up weeks for equities. The strongest sectors last week were materials, energy and technology as stocks continued to broaden out. The weakest sectors were staples, communication services and real estate. International equities also advanced despite a “second wave” of Covid-19 cases in Europe. The MSCI EAFE index and emerging markets finished up 3.0% and 3.8% for the week.

It was a very light week in terms of economic releases. On Monday, the Institute of Supply Management (ISM) reported their non-manufacturing index increased to 57.8% for September, exceeding expectations. This week, look for reports on CPI/PPI, retail sales, industrial production and consumer sentiment. Also, 3rd quarter earnings season begins this week with reports from major banks. Investors will be looking to see if bank loan loss reserves taken earlier in the year are sufficient. Analysts expect companies in the S&P 500 to report a median per-share drop of 20% in earnings. However, analysts have actually grown more optimistic during the past three months raising estimates by 4.1%.

In fixed income markets, rates generally rose as the Fed has been indicating that it would let inflation run above 2% for an extended period of time. The yield on the 10 year U.S. Treasury note rose to 0.79% from 0.70% the week prior.

Look for volatility to continue as we approach the election. While it is important to monitor potential policies, there are many dynamics at play. So continue to stay diversified and rebalance as necessary.

“Kind words do not cost much. Yet they accomplish much.” – Blaise Pascal

ND&S Weekly Commentary 10.05.20 – President & First Lady Test Positive to Covid-19

October 5, 2020

The big story of the week was President Trump and First Lady tested positive for Covid-19. The news only added to the uncertainty and turmoil around the election. September’s job growth was by far the lowest since the recovery from last March. A $2.2 trillion Democratic stimulus plan was passed by the House on Thursday evening in a 214-207 vote. Senate Majority Leader Mitch McConnell has opposed the plan and hopefully more negotiations will follow.

For such a distressful week, the financial markets performed surprisingly well. The Dow Jones Industrials rose 1.9%, the S&P 500 and the Nasdaq each gained 1.5%, and small companies, as measured by the Russell 2000, gained 4.4%. Foreign markets had similar gains as developed equities (EAFE) returned 1.6% and emerging equities (EM) were up 2.2%. The yield on the 10YR U.S. Treasury rose slightly to 0.70% from 0.66% the previous week. Gold prices closed at $1,903/oz. which was up over 2% on the week.

The U.S. economy added 661,000 jobs in September, missing estimates of 800,000 new jobs. However, the unemployment rate came in better than expectations improving to 7.9% from 8.4% in August. The labor force participation rate decreased 0.3% which serves as a sign people are leaving the labor force. Personal income decreased 2.7% in August slightly missing estimates as pandemic related assistance programs slowed down. Lawmakers are still struggling to reach an agreement for injecting more fiscal stimulus into the economy. Airlines, hospitality companies and banks continue to announce furloughs and job cuts. On the positive side, consumer confidence remained strong followed by a decent ISM manufacturing PMI release.

U.S. stock valuations remain historically high with a forward price-to-earnings (P/E) multiple for the S&P 500 at 23x. Technology and consumer discretionary companies have led the way for markets in 2020 while more cyclical companies have been struggling. Energy companies have really been hurt by sluggish global oil demand and concerns about a new stimulus package that has sent crude oil prices down below $38.00 per barrel.

There will be a few economic data releases to keep an eye on this week. On Monday the ISM services index will be reported, the JOLTS job openings on Tuesday, and on Wednesday, the minutes of the September Federal Reserve meeting.

We hope and pray for the president and first lady and all those affected by the coronavirus a speedy and full recovery. We remain a bit cautious about financial markets near-term as focus should remain on asset allocation, valuations and high-quality assets.

“Although the world is full of suffering, it’s full of also overcoming it.” – Helen Keller

ND&S Weekly Commentary 9.28.20 – Markets Pull Back on an Uptick in COVID-19 Cases

September 29, 2020

Market volatility continued last week with equity markets pulling back for a fourth consecutive week. Equity markets made several attempts to rebound with investors’ hopes tied to another stimulus package. Complicating the outlook are an uptick in coronavirus cases in the U.S. and Europe, social unrest and the upcoming election season.

For the week, the S&P 500 declined 0.61% while the DJIA was down 1.75%. Foreign markets struggled on the week with developed markets, as measured by the MSCI EAFE index, falling 4.21% and emerging markets (MSCI EM) down 4.42% for the week. Fixed income, represented by the Bloomberg/Barclays Aggregate, finished the week slightly lower by 0.09%. The 10 YR US Treasury closed at a yield of 0.66%. Gold prices declined last week to $1,860/oz.

It was a quiet week for economic releases. On Tuesday, the IHS Markit Flash U.S. Composite Outlook PMI for September registered a reading of 54.4. Both U.S. manufacturing and services readings signified an expansion from the previous month. On Friday, new orders of manufactured durable goods increased 0.4% in August, which missed expectations. In congressional testimony last week, US Federal Reserve Chairman Jerome Powell said, “we remained committed to using our tools to do what we can, for as long as it takes, to ensure that the recovery will be as strong as possible, and to limit lasting damage to the economy.” Chair Powell also noted that, “economic activity has picked up from its depressed second-quarter level”. Interest rates are likely to remain low for the foreseeable future as a result of the monetary policy backdrop.

Equity markets have pulled back almost into correction territory during the month of September. We strongly believe that investors should stay diversified across a variety of asset classes with a slight defensive bias to long-term targets.

“The past always looks better than it was. It’s only pleasant because it isn’t here.”Finley Peter Dunne