ND&S Weekly Commentary 4.12.21 – S&P 500 and DJIA Reach New Highs

April 12, 2021

The S&P 500 and DJIA closed at record levels last week supported by the improving economic recovery and an increasingly successful rollout of the coronavirus vaccines.

Economic data released last week confirmed the improving economic picture. The Institute for Supply Management (ISM) reported their March manufacturing and services index last week with both reports coming in better-than-expected. The services index surged 8.4 percentage points in March to mark an all-time high of 63.7%. The manufacturing index was equally as strong posting 64.7%. Durable goods orders fell 0.8% in February to $505.7 billion missing estimates for a 0.5% decrease. The Producer Price Index (PPI) showed final demand for goods and services increased 1.0% in March. The PPI measures price changes from the producer’s perspective which offers a different vantage-point on inflation pressures.

For the week, the S&P 500 and DJIA were up 2.76% and 1.99%, respectively. The Nasdaq rebounded on the strength of the technology sector to close higher by 3.13%. Small company stocks, represented by the Russell 2000, cooled off to close 0.46% lower. International markets were mixed last week with the developed markets (MSCI EAFE) increasing 2.01% and emerging markets (MSCI EM) lower by 0.34%. The rise in treasury yields moderated last week as the 10yr U.S. Treasury yield had a slight decline of 2bps to close at 1.67%. Gold prices closed at $1,741/oz. – up 0.97% on the week. Oil prices closed at $59.32/bbl – down 3.47% last week.

First-quarter earnings season begins this week with a number of major banks scheduled to report results Wednesday before the bell. With earnings season, we will return to market fundamentals and also gain deeper insight into how individual companies are navigating the reopening. Equity markets posted a strong first quarter and are at least partially discounting strong economic conditions ahead. We continue to suggest investors stay close to long-term asset allocation targets.

Congratulations to Lee Elder and Hideki Matsuyama. Elder, was the first African-American to play the Masters Tournament in 1975. He was joined by Jack Nicklaus and Gary Player as honorary starters for the 85th edition of the Masters Tournament. Hideki Matsuyama, made history on Sunday as the first male golfer from Japan to win one of golf’s major championships.

“I always said that if they have a course like this in heaven, I want to be the head pro.” – Gary Player

Weekly Commentary (04/05/21) – Markets Advance on Massive Infrastructure Plan

April 5, 2021

Equity markets closed near all-time highs last week as investors cheered President Biden’s $2 trillion (yes, trillion) infrastructure plan along with another round of stimulus money.

For the week, the DJIA advanced 0.24% while the S&P 500 gained 1.14%. The tech-heavy Nasdaq jumped 2.60%. International markets were strong as the MSCI EAFE index (developed markets) closed higher by 0.53% while emerging market equities (MSCI EM) jumped higher by 2.40%. Small company stocks, represented by the Russell 2000, finished ahead by 1.46% for the week. Fixed income, represented by the Bloomberg/Barclays Aggregate, finished the week lower as the yield curve continued to steepen. As a result, the 10 YR US Treasury closed at a yield of 1.69% (up ~6 bps from the previous week’s closing yield of ~1.63%). Gold prices closed at $1,726.50/oz – down 0.33% on the week. Oil prices closed at $61.45/bbl (up 0.79% on the week).

Economic news released last week was mixed, but the big news came on Friday when the Labor Department reported that 916,000 jobs were added in March – far surpassing estimates for a gain of 647,000 jobs. The strong jobs report will likely boost equity markets in the short-term. Economic releases in the week ahead include Durable Goods, JOLTS job openings and Producer Price Index (PPI).

Economic and market fundamentals remain quite reasonable, and the news on the vaccine front continues to be encouraging. Markets will likely turn their attention to the details of the massive infrastructure plan and how the Biden administration plans to pay for the plan. Of course, the burden will fall to taxpayers, and the first proposed major tax increase announced by the Biden team pushes corporate taxes up 33% – from 21% to 28%.

We suggest investors stay close to their long-term target asset allocations (stay underweight fixed income and be market weighted to slightly higher-than market weight in equities). Let’s make it a good week!

“Success is never final, failure is never fatal. It’s courage that counts.” – John Wooden

ND&S Weekly Commentary (3.29.21) – Volatility Continues – Mixed Bag

March 29, 2021

Stocks ended a volatile week with a late day rally that pushed the S&P 500 and the DJIA to new highs while all other equity markets finished the week lower. Stocks swung during the week as investors weighed signals that the U.S. economy is primed for recovery versus concerns over higher interest rates and higher inflation. The S&P 500 and the DJIA were up 1.7% and 1.4% respectively on Friday and for the week the S&P 500 and DJIA finished up 1.6% and 1.4%. The NASDAQ declined -0.6% last week as tech stocks continued to struggle with higher interest rates. Small U.S. stocks, represented by the Russell 2000, declined -2.88%. The best performing sectors last week were real estate and consumer staples and the worst performing was communications services. International markets were weak as European countries struggle with the vaccine roll out, a stronger U.S. dollar and global supply chain issues caused by the blockage of the Suez Canal. The MSCI EAFE index and the MSCI Emerging Markets index declined -0.5% and -2.1%, respectively. Fixed income markets rose last week as the yield on the 10 year U.S. Treasury declined from 1.74% to 1.67%.

Economic data reported last week came in mostly below analyst estimates. On Monday, the National Association of Realtors reported existing home sales declined 6.6% in February. The results missed expectations but are up a whopping 9.1% from the same time last year. The Commerce Department reported manufactured durable goods fell 1.1% in February, missing expectations of a 0.5% advance. The “second” reading of real Gross Domestic Product (GDP) was increased to 4.3% in the fourth quarter of 2020, outpacing estimates of 4.3%. Jobless claims for the week ended March 20 were 684,000, beating estimates of 735,000. This week in economic news look for reports on consumer confidence, the ISM Mfg. index and the March jobs report.

As the stimulus funds get distributed and the vaccine roll out accelerates, the U.S. economy should continue to improve.

“Here comes the sun, and I say it’s all right.”The Beatles

ND&S Weekly Commentary (3.22.21) – Happy Spring

March 22, 2021

Last week investors pulled back on conflicting economic data, an uptick in interest rates and concerns over relatively high financial asset valuations. For the week, the DJIA slid 0.45%, S&P 500 lost 0.74% and the tech-heavy Nasdaq declined 0.77%. International stocks were mixed with developed (MSCI EAFE) up 0.61% while emerging (MSCI EM), which flew the prior week, lost some steam down 0.80%. Gold closed at $1,741/oz., up 1.27% for the week. Oil (WTI) finished at $61.42/bbl., dropping 6.39%.

The second round of stimulus payments of $1,400 went out to roughly 90 million adults last week. All in, the relief checks for the year total over $800 billion. Investors are worried that such a jolt of liquidity will spur inflation and a huge federal debt overhang. There will undoubtedly be upward pressure on interest rates.

The Federal Reserve reiterated its dovish comments at last week’s FOMC meeting. The Fed reaffirmed their projection that there should be no short-term rate hikes before 2024 and agreed to be more tolerant of slightly higher inflation. On Friday, the Fed also decided not to extend the rule that allowed banks to relax capital levels afforded during the pandemic. The 10yr U.S. Treasury yield surged to 1.74% up from 1.64% the previous week and from 0.93% where it was at year-end.

Economic data released last week fell short of expectations. February retail sales declined sharply by 3% from January missing estimates for a modest 0.5% decline. Jobless claims unexpectedly rose 45,000 to 770,000 in the week of 3/13 and are higher than they were during the 2007-2009 recession. Industrial production declined 2.2% in February, manufacturing output slid 3.1% and overall capacity utilization declined to 73.8%. Housing starts are down 9.3% from the same time last year as a result of inflated building costs and recent adverse weather conditions. Economic reports will be plentiful this week: existing and new home sales, durable goods orders, GDP, personal consumption expenditures and income will be reported.
On the pandemic front, Covid-19 vaccine manufacturing companies are ramping up production as they become more efficient and are teaming up with other manufacturers. According to Eversource ISI, the increased output should fully vaccinate 76 million people in the U.S. in March, another 75 million in April and 89 million in May.

We expect market volatility as a result of higher consumer spending and challenged supply chains causing inflationary pressures. Though it’s always a good time for spring cleaning, please stay focused on your long-term goals and targets.

“From you have I been absent in the Spring
When proud-pied April, dressed in all his trim
Hath put a spirit of youth in everything”

– William Shakespeare

ND&S Weekly Commentary (3.15.21) – Equities Cheer Stimulus

March 15, 2021

Equity markets returned to record levels last week supported by fiscal stimulus and tempered inflation fears.

For the week, the DJIA advanced 4.17%, the S&P 500 gained 2.69% and the tech-heavy Nasdaq closed higher by 3.12%. International markets were also positive as the MSCI EAFE index (developed markets) closed higher by 3.00% while emerging market equities (MSCI EM) increased 0.70%. Small U.S. stocks, represented by the Russell 2000, soared by 7.36% for the week. Fixed income, represented by the Bloomberg/Barclays Aggregate (AGG), finished the week lower as the yield curve continued to steepen. Year-to-date, the AGG is down 3.35%. The 10 YR US Treasury closed at a yield of 1.64% (up ~8 bps from the previous week’s closing yield of ~1.56%). Gold prices closed at $1,705/oz. – up 1.27% on the week. Oil (WTI) finished at $65.56/bbl., down 0.73%.

Congress passed another massive relief package along party lines last week bringing the total to $2.8 trillion in stimulus since December 2020. Markets are expecting accelerating U.S. growth in 2021 but one of the feared outcomes is higher inflation. The U.S. Bureau of Labor Statistics reported last week that the Consumer Price Index (CPI) increased 0.4% in February matching expectations. This follows a 0.3% advance in January. On Friday, they reported that the Producer Price Index (PPI) increased 0.5% also matching expectations. So far, the economic data has not signaled runaway inflation but the bond market has begun to discount higher inflation with the recent spike in rates. This week, look for reports on retail sales, housing starts, and consumer sentiment. Additionally, the Federal Open Market Committee (FOMC) will have their March meeting and will host a press conference Wednesday at 2pm. They will need to strike a balance between offering an optimistic assessment of the economy while also reassuring that the recovery doesn’t overheat the economy causing a rapid rise in inflation.

Equity markets have started 2021 strong as the world economy has continued to heal from the Covid-19 pandemic. A rotation has begun to take hold from tech-heavy equities that have benefited from a shutdown to more cyclical sectors that would benefit from a reopening. We have been broadening out equity exposure within the U.S. and also outside the U.S. (both developed and emerging markets). We will continue to hold below-average duration exposure within fixed income as the potential for higher rates will weigh on bond prices.

March Madness tips off this week … a nice diversion from the day-to-day noise of the markets and Covid-19. Good luck on all your bracket picks and let’s all root for some upsets!

“The secret of happiness is something to do.” – John Burroughs

Weekly Commentary (03/08/21) – Markets Finished Mixed on a Volatile Week

March 8, 2021

Markets were mixed last week as rising interest rates muted investors’ enthusiasm for high growth stocks.

For the week, the DJIA advanced 1.85% while the S&P 500 gained 0.84%. The tech-heavy Nasdaq gave back 2.05%. International markets were also mixed with the MSCI EAFE index (developed markets) closed lower by 0.47% while emerging market equities (MSCI EM) inched higher by 0.06%. Small company stocks, represented by the Russell 2000, finished lower by 0.38%. Fixed income, represented by the Bloomberg/Barclays Aggregate, finished the week lower as the yield curve continued to steepen. As a result, the 10 YR US Treasury closed at a yield of 1.53% (up ~9 bps from the previous week’s closing yield of ~1.44%). Gold prices closed at $1,698/oz – down 1.74% on the week. Oil prices rose 7.46% and closed at $66.09/bbl.

Economic news released last week confirmed an improving economy and jobs market. On Monday, the Institute of Supply Management (ISM) reported that the manufacturing purchasing managers’ index (PMI) for February increased 2.1 % to 60.8%, exceeding expectations for a 58.6% reading. Manufacturing has been in expansion mode for nine straight months. On Wednesday, the ISM reported that the Services PMI for February fell 3.4% to 55.3%, missing an expected reading of 58.7%. On Thursday, the U.S. Commerce Department reported that new orders for durable and non-durable manufactured goods for January advanced 2.6%, outpacing expectations for a gain of 2.1%. Adding to January’s favorable report was an upward revision to December’s reading from 1.1% to 1.6%. Also on Thursday, the Department of Labor reported weekly initial jobless claims (for the week ending February 27) of 745,000, below consensus of 750,000 claims. On Friday, the Labor Department reported that 379,000 jobs were added in February, much higher than expectations for a gain of 210,000 jobs. Unemployment declined slightly to 6.2% (consensus was for a 6.3% rate). The labor force participation rate remained unchanged at 61.4%.

Economic and market fundamentals remain reasonable, and the news on the vaccine front has been encouraging. We think interest rates will take a breather from their jump higher, and that should help to settle the weakness in growth stocks, particularly technology. We suggest investors stay close to their long-term target asset allocations (stay underweight fixed income and be market weighted to slightly higher-than market weight in equities). Let’s make it a good week!

“Sometimes things aren’t clear right away. That’s where you need to be patient and persevere and see where things lead.” – Mary Pierce

ND&S Weekly Commentary 3.1.21 – Higher Rates Rattle Equity Markets

March 1, 2021

Equity markets retreated last week as bond yields rose. The yield on the 10 year U.S. Treasury note settled at 1.45% on Friday from a weekly high of 1.51%. This represents an increase of 11bps from the previous week. For the month of February, the 10 year yield rose 0.37 percentage points, the largest one month increase in yield since November 2016. Investors’ concerns seemed to center around possible higher inflation and higher U.S. debt levels. As a result, equity prices for the week declined across the board with the DJIA, S&P 500 and NASDAQ down 1.7%, 2.4% and 4.9%, respectively. International equities also declined with the MSCI EAFE dropping 2.8% and the MSCI Emerging Markets index down 6.3%. The best performing sector last week was energy as oil prices continued to stay above $60 a barrel. The worst performing sector, as might be expected with rates rising, was utilities. Gold also declined last week to $1,743/oz. as a stronger dollar and higher yields weighted on gold prices.

Economic data released last week was mostly better than expected. The U.S. economic growth rate was revised higher for the 4th quarter to 4.1%. Durable goods orders increased 3.4% in January which easily beat estimates. Personal income surged 10%, while spending rose 2.4% as additional stimulus was received in January. This week’s economic news will include ISM services and manufacturing indexes. The highlight for the week will be the February jobs report which is expected to show continued improvement in jobs. Expectations are for an additional 150,000 jobs, an improvement over last months’ number of only 49,000 jobs. Moving forward economic numbers should start to strengthen as the vaccine rollout accelerates and additional stimulus is approved.

“I believe that every human mind feels pleasure in doing good to another.” – Thomas Jefferson

ND&S Weekly Commentary 2.22.21 – Bond Prices Thaw

February 22, 2021

Equities finished mostly lower during the shortened President’s Day week as investors focused on the post pandemic recovery and the pending stimulus plan. Though there were mixed economic signals reported, the Federal Reserve advocated that the proposed $1.9 trillion stimulus package be passed which they feel is desperately needed and would not overheat the economy.

For the week, the Dow Jones Industrials rose (DJIA) 0.16%, the broader-based S&P 500 dipped 0.68% and the tech-heavy Nasdaq slid 1.54%. International equities were modestly higher with developed (MSCI EAFE) and emerging markets (MSCI EM) up 0.28% and 0.09%, respectively. Smaller companies also weakened with the Russell 2000 declining 0.98%. However, since the small cap rally began last September, the Russell 2000 is up 55% while the S&P 500 returned 21%. Inflation expectations have been affecting the bond market, steepening the yield curve and eroding bond prices. The yield on the 10 year U.S. Treasury jumped to 1.34% from 1.20% the previous week. The iShares 20+ Treasury Bond ETF (TLT) is down 9% year to date. As a result of the big freeze in Texas, U.S. crude oil rose above $60 per barrel for the first time in over a year before closing at $59.

Thus far, 84% of the S&P 500 companies have reported 4th Quarter results with 71% beating revenue estimates and 79% beating on earnings. Analysts are now expecting a 21% increase in S&P 500 company earnings in 2021.

On the economic front, the weekly jobs report disappointed with 861,000 Americans having filed for unemployment, trending higher than the previous weeks. Existing home sales continued to increase in January rising 0.6% from December to a seasonally adjusted rate of 6.69 million annualized units according to the National Association of Realtors. January retail sales surged 5.8% YOY way above expectations thanks to additional fiscal stimulus and e-commerce. The purchasing manager’s index for services and manufacturing from IHS Markit rose to 58.8 in February from 58.7 last month, the strongest reading in nearly six years. As for the pandemic, inoculations are proceeding rapidly and a study shows that Pfizer’s vaccine is 85% effective with just one dose and it can be kept at warmer temperatures than originally thought.

Taking into account our improving economy, huge stimulus and a more than accommodating Fed, we remain cautiously optimistic. The markets have reached all-time highs, the speculative areas of the market are becoming more volatile and margin debt has soared over 40% since last year. We strongly recommend a well-diversified and balanced portfolio made up of high quality holdings.

This week’s economic reports include the January leading indicator index, consumer confidence, durable goods orders and personal income and spending.

“Worry is the interest paid by those who borrow trouble.”George Washington

ND&S Weekly Commentary 2.16.21 – Equity Markets Grind to New Highs

February 16, 2021

Equity markets continued to grind higher last week. For the week, the DJIA increased 1.11% while the broader-based S&P 500 was up 1.28%. Small-cap U.S. equities (Russell 2000) continued their recent run to close higher by 2.54%. International markets also enjoyed a strong week as developed markets (MSCI EAFE) and emerging markets (MSCI EM) jumped 2.09% and 2.41%, respectively. The yield curve continued to steepen last week as the 10yr U.S. Treasury closed at a yield of 1.20, up slightly from 1.19 the week prior. Yields for longer maturity bonds had a slightly higher increase. Gold held steady on the week, closing at $1,816/oz. Oil (WTI) closed the week at $59.73/ barrel.

Macroeconomic updates were limited last week. On Wednesday, the Consumer Price Index (CPI) increased 0.3% in January, matching expectations. Over the 12 months, core CPI has risen a modest 1.4%. Weekly jobless claims have remained elevated, with last week’s number at 793,000. Federal Reserve chairman Jerome Powell gave a presentation to the Economic Club of New York last week. Powell indicated that the Fed has no plans to raise rates anytime soon, citing their focus on recovery in the labor market and inflation currently below their 2% target. Additionally, Dr. Tony Fauci spoke on the Today Show last week and shared his belief that there would be enough vaccines available by the middle of the summer for anyone who wants to get one.

Earnings season continued to progress largely characterized by better-than-expected results. With roughly 75% having reported so far, according to data from FactSet Research, blended earnings-per-share and revenues for the S&P 500 have increased 2.8% compared with the same quarter last year. Q4 earnings are exceeding expectations by 18%. There will be more announcements this week with CVS Health and Walmart among those scheduled.

Economic news and corporate earnings results have been encouraging. This week, there will be reports on retail sales, industrial production, housing and manufacturing. We believe a slight defensive stance is warranted in equity markets as they have moved meaningfully higher over the last several months. We will continue to add to opportunities down the U.S. market cap structure and to international markets as valuations are more reasonable and those areas are more exposed to an economic reopening.

“Truth will ultimately prevail where there are pains to bring it to light.”– George Washington

ND&S Weekly Commentary 2.8.21 – Markets Advance Smarty

February 8, 2021

Markets advanced smartly last week as investors keyed in on better-than-expected earnings and economic news as well as hopes for a massive $1.9T stimulus package from Washington.

For the week, the DJIA advanced 3.89% while the S&P 500 gained 4.65%. The tech-heavy Nasdaq jumped 6.01%. International markets were also strong. For the week, the MSCI EAFE index (developed markets) closed higher by 2.76%% while emerging market equities (MSCI EM) jumped 4.96% (January – March is a seasonably strong period for emerging market equities). Small company stocks, represented by the Russell 2000, finished ahead by 7.70% for the week. Fixed income, represented by the Bloomberg/Barclays Aggregate, finished the week lower as the yield curve continued to steepen. As a result, the 10 YR US Treasury closed at a yield of 1.19% (up ~8 bps from the previous week’s closing yield of ~1.11%). Gold prices closed at $1,810.90/oz – down 1.97% on the week. Oil prices jumped 8.91%.

Economic news released last week confirmed an improving jobs market and decent manufacturing and services output. On Monday, the Institute of Supply Management (ISM) reported that the purchasing managers’ index fell to 58.7% versus an expectation of 60.0%; however, the index pointed to the 8th straight month of expansion. On Wednesday the ISM reported that the Services PMI for January hit 58.7%, better than the expected 56.8% reading. On Thursday, the U.S. Commerce Department reported that new orders for durable and non-durable manufactured goods advanced 1.1%, outpacing expectations for a gain of 0.7%. Also on Thursday, the Department of Labor reported weekly initial jobless claims (for the week ending January 30) of 779,000, below consensus of 830,000 claims. On Friday, the Labor Department reported that 49,000 jobs were added in January, a slight miss against expectations for a gain of 50,000 jobs. Unemployment dropped to 6.3% (consensus was for a 6.7% rate); however, the labor force participation rate fell to 61.4% as 406,000 workers left the labor force.

Economic and market fundamentals remain reasonable, and the news on the vaccine front has been encouraging. We suggest investors stay close to their long-term target asset allocations with a slight defensive bias. The slight defensive bias is warranted in that U.S. markets have moved higher over the past few months without any meaningful setback.

“I just love working hard. I love being part of a team; I love working toward a common goal.” – Tom Brady