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
ND&S Weekly Commentary (6/28/21) – Investors Celebrate the Start of Summer
June 28, 2021
Investors welcomed the start of summer with a push higher in all market averages. Comments from Federal Reserve members eased concerns about inflation as the Fed reiterated their transitory outlook for inflation.
For the week, the DJIA gained 3.44% while the S&P 500 moved ahead by 2.74%. The tech-heavy Nasdaq had a good week and advanced 2.35%. International markets finished in the green. For the week, the All Country World Index ex-USA finished higher by 1.5% while emerging market equities (MSCI EM) tacked-on a gain of 1.42%. Small company stocks, represented by the Russell 2000, were strong and finished the week nicely higher by 4.32%. Fixed income, represented by the Bloomberg/Barclays Aggregate, declined 0.41% for the week as yields moved higher. As a result, the 10 YR US Treasury closed at a yield of 1.54% (up almost 9 bps from the previous week’s closing yield of ~1.45%). Gold prices closed at $1,776.60/oz – up 0.49% on the week. Oil prices continued their march higher to close at $74.05 per barrel, up 3.87% on the week.
Last Tuesday’s National Association of Realtors (NAR) report on May’s existing home sales indicated that sales fell 0.9%, better than expectations. Existing home sales are up 44.6% from the same time last year. On Wednesday, The IHS Markit Group reported that the IHS Markit Flash U.S. Composite PMI Output Index for June came in at 63.9, down from 68.7 in May – any reading over 50 indicates an expanding manufacturing sector. On Thursday, the Bureau of Economic Analysis reported Real GDP for the first quarter increased at a seasonally adjusted annual rate of 6.4%, in-line with expectations. Lastly, on Friday the Bureau of Economic Analysis indicated that personal income fell 2.0% in May, better than expectations for a 2.5% drop. Importantly, personal consumption expenditures (PCE) advanced less than 0.1% in May, missing expectations for a 0.4% advance (PCE is one of the Fed’s favorite gauges of inflation).
We see a relatively quiet week ahead as Americans prepare for the upcoming 4th of July weekend. Easy monetary policy and strong economic growth should continue to support risk assets. We continue to suggest that investors stay close to their long-term target asset allocations with a slight defensive bias. Enjoy the summer!
“The summer night is like a perfection of thought.” – Wallace Stevens
ND&S Weekly Commentary 6.21.21 – The Fed Rattles the Market
June 21, 2021
Investors were a little unnerved last week by a shift in the Federal Reserve’s monetary policies. The Fed raised its inflation expectations and said interest rates may increase in 2023, rather than their previous forecast of 2024. Though the Fed will maintain the current level of $120 billion a month in asset purchases, its members have started talking about a tapering. The Fed’s stimulus has been a powerful force behind the Covid-19 recovery and bull market.
For the week, the DJIA fell 3.4%, the S&P 500 declined 1.9% and the Nasdaq slipped 0.26%. The worst performing sectors were materials, financials and energy. Investors moved away from small U.S. stocks with the Russell 2000 dropping 4.2%. International equities also declined for the week with the MSCI EAFE and MSCI EM declining 2.4% and 1.4%, respectively. In addition, the strengthening in the dollar has weakened gold which fell last week by 5.9%, the largest decline in over a year. Oil (WTI) closed at $71.64/bbl – up 1.03% on the week.
Fixed income markets were fairly volatile last week as long rates declined and short rates jumped higher resulting in a small flattening of the yield curve. The 10year U.S. Treasury fell slightly from 1.47% the previous week to 1.45%.
Inflationary pressures have been increasing as consumer prices have soared and wages are rising as the demand for labor outpaces supply. Complicating things further, almost 4 million people quit their jobs in April, the highest on record. In economic reports last week, the Producer Price Index (PPI) for May was up 0.8% m/m and has jumped 6.1% over the last 12 months. Retail sales declined in May, however, the total value of retail sales was $620.2 billion, well above the $526 billion in February 2020. Lastly, unemployment claims rose for the first time in several weeks to 412,000. This week, look for economic reports on existing and new home sales, durable goods orders and consumer sentiment.
It’s not surprising that the markets declined given that the markets are less than 2% from their all-time highs. Historically, the market averages three 5% pull backs a year but we haven’t experienced one in 8 months. We feel that markets may have over reacted to the Fed last week and we expect volatility to continue this summer. Investors will continue to focus on inflation news and when the Fed might take their foot off the gas. Continue to maintain a well-diversified portfolio. Let’s Make it a Great Week!
“A father carries pictures where his money used to be.” – Steve Martin
ND&S Weekly Commentary 6.14.21 – Markets Grind Mostly Higher
June 14, 2021
Markets were mostly higher last week as interest rates declined despite the highest monthly increase in the CPI since August 2008.
For the week, the DJIA declined 0.80% (snapping a two week winning streak) while the S&P 500 gained 0.41%. The tech-heavy Nasdaq had a good week and advanced 1.85%. International markets finished in the green. For the week, the All Country World Index ex-USA finished higher by 0.21% while emerging market equities (MSCI EM) eked out a gain of 0.03%. Small company stocks, represented by the Russell 2000, were strong and finished the week higher by 2.16%. Fixed income, represented by the Bloomberg/Barclays Aggregate, advanced 0.47% for the week as yields moved lower. As a result, the 10 YR US Treasury closed at a yield of 1.47% (down ~9 bps from the previous week’s closing yield of ~1.56%). Gold prices closed at $1,877.40/oz – down 0.66% on the week. Oil prices jumped 1.85% on the week to close at $70.91 per barrel. Oil prices are up a whopping 46.15% year-to-date.
Last Tuesday’s Job Openings and Labor Turnover Survey (JOLTS) report surprised to the upside as job openings on the last business day of April reached a record 9.3 million. Current labor market tightness appears to be a result of low immigration (Covid related) and stimulus payments that, in many cases, provide workers with an incentive to remain unemployed. We’ll be watching signs of inflation as recent labor market tightness will likely lead to upward pressure on wages. On Thursday, the U.S. Bureau of Labor Statistics reported that the Consumer Price Index (CPI) rose 5% in May, compared to a year ago. As mentioned earlier, the CPI reading was the highest yearly increase since August 2008. Interest rates moved lower on the news as more and more investors seem to agree with the Fed’s view that rising inflation is transitory.
All eyes will be on the Fed this week as they meet on Tuesday and Wednesday. We see the Fed sticking to their accommodating stance while perhaps hinting about future tapering. Investors also expect the Fed to elaborate on their ‘transitory’ view of inflation.
Easy monetary policy and strong economic growth should continue to support risk assets. We continue to suggest that investors stay close to their long-term target asset allocations with a slight defensive bias. Enjoy the summer!
“Formula for success: rise early, work hard, strike oil.” – J. Paul Getty
ND&S Weekly Commentary 6.7.21 – Equities Limp Higher
June 7, 2021
Markets again closed the week in positive territory thanks to a Friday rally that came after a weaker-than-expected payroll report. The economy added fewer jobs than anticipated and wage gains were relatively tame suggesting the Fed won’t be forced to act on its interest policy anytime soon.
For the holiday-shortened week, the S&P 500 increased 0.88% while the DJIA finished 0.52% higher. The best performing sectors were energy, real estate, and financials. International markets were mixed with developed (MSCI EAFE) up 0.85% and emerging (MSCI EM) slipping 0.15%. The yield on the 10yr U.S. Treasury ticked lower to close at 1.56%. Gold prices declined to $1,889/oz. – down 0.67%. Oil jumped to $69.62/bbl – up 4.98% last week.
Economic data released last week was mixed. The big economic news was that the economy added 559,000 jobs in May, a miss against expectations for an increase of about 671,000. As a result, the unemployment rate declined 0.3 percentage points to 5.8% which was slightly better than estimates. The labor force participation rate, which accounts for the number of Americans looking for work or currently employed, dropped to 61.6%. In other economic news, the Institute of Supply Management (ISM) reported the manufacturing PMI index in May increased to 61.2%. The services PMI for May also came in better-than-expected. Jobless claims last week were 385,000, the lowest level for initial claims since the Covid-19 outbreak.
For now, we remain cautiously optimistic about equity markets. Investors should continue to maintain risk exposure in-line with one’s long-term investment objectives and goals. Let’s make it a good week!
“There are no shortcuts in evolution.” – Louis D. Brandeis
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