ND&S Weekly Commentary 12.30.19 – Happy New Year!

December 30, 2019

Santa brought investors a positive holiday-shortened week. The Nasdaq reached all-time highs on Thursday and the Dow Jones Industrial Average (DJIA) and S&P 500 finished at their highest levels as well. For the week, the tech-heavy Nasdaq gained 0.91%, while the S&P 500 and DJIA returned 0.60% and 0.67%, respectively. So far this year, technology stocks in the S&P 500 have risen 48%. Investor enthusiasm spread internationally with developed equity markets (MSCI EAFE) gaining 0.77% and developing markets (MSCI EM) surging 1.16%. Interest rates declined as the yield on the 10yr U.S. Treasury came down from 1.92% the previous week to end at 1.87%.

Investors felt better about improving trade relations between the U.S. and China, positive economic data and booming retail sales from November 1st through Christmas Eve. According to the MasterCard Spending Pulse™, online spending grew 18.8% compared to 2018 with 14.6% of all retail sales taking place online.

Oil prices continue to see support from OPEC efforts to curb supply as well as hopes that the U.S./China trade deal will bolster global oil demand. West Texas Intermediate (WTI) and International Brent Crude markets were both up over 2% on the week. Gold prices also rallied 2.25%, which is a sign investors are hedging a little against equities.

On New Year’s Eve, consumer confidence will be reported and the Federal Reserve’s December meeting minutes will be released Friday along with an ISM Manufacturing report.

Without question it has been an eventful and prosperous year. We continue to recommend staying diversified and favoring dividend income and growth. Dividends have accounted for approximately 33% of the S&P 500 total return since 1960.

Wishing the very best for the New Year!

NDS Weekly Commentary 12.23.19 – December Equity Rally Continues

December 23, 2019

Equities reached new milestones last week as all three major US indices touched new all-time highs. The rally persisted due to abating concerns on trade and geopolitics. Work continues on the details of the preliminary phase one trade deal struck between the US and China a week ago. US Treasury Secretary, Steve Mnuchin, said he expects the pact to be signed in early January. This, along with the imminent passage of the USMCA (revised trade deal with US-Mexico-Canada), has removed anxieties that weighed on the market throughout 2019.

For the week, the DJIA increased 1.1%, the S&P 500 rose 1.7%, and the tech-heavy NASDAQ climbed 2.2%.  International stocks were also positive on the week with developed country stocks (MSCI EAFE) and emerging markets stocks (MSCI EM) adding 0.6% and 2.0%, respectively. As expected, fixed income assets struggled on the week with the 10yr U.S. Treasury closing 9bps higher at a yield of 1.92%.

As is well known by now, the US House of Representatives passed two articles of impeachment against the US President. This is the third time in history a sitting US President has been impeached by the US House of Representatives. Without additional information, the equity markets will remain unfazed as it seems unlikely the President will be removed in a Republican-led senate.

Economic data on the week was quite positive. The Markit Flash U.S. Composite PMI Output Index for December registered a reading of 52.2, up from 52.0 in November. The improved reading was helped by services sector growth and improving manufacturing conditions. Industrial production increased 1.1% in November, which beat expectations of a 0.8% increase.  On Friday, the Bureau of Economic Analysis (BEA) reported that real U.S. Gross Domestic Product (GDP) increased to 2.1% (in-line with expectations) in the 3rd quarter. The BEA also reported that personal income rose 0.5% in November, which outpaced estimates of a 0.3% increase.

As a reminder, the U.S. markets will close at 1:00pm EST Tuesday and the full day Wednesday in observation of Christmas Day. Most importantly, we wish to extend to all a peaceful and enjoyable holiday season!

 

Weekly Commentary (12/16/19) – Markets up on Trade Deal

December 16, 2019

Markets advanced last week in anticipation of and on news that the U.S. and China have agreed on a Phase One trade deal. While the deal has not been officially signed, the Office of the United States Trade representative issued a press release saying that the deal “achieves meaningful, fully-enforceable structural changes and begins rebalancing the U.S. – China relationship.” Also supporting the markets was continued dovish news from the Fed as they decided at their December meeting to leave interest rates unchanged.

For the week, the DJIA advanced 0.43% while the S&P 500 gained 0.73%. The tech-heavy Nasdaq added on 0.91%. International markets moved higher on renewed hopes for a pickup in global growth. For the week, the MSCI EAFE index gained 1.72% while emerging market equities (MSCI EM) jumped 3.63% (January – March is a seasonably strong period for emerging market equities). Small company stocks, represented by the Russell 2000, finished ahead by 0.25% for the week. Fixed income, represented by the Bloomberg/Barclays Aggregate, finished the week slightly higher as the yield curve continued to steepen. As a result, the 10 YR US Treasury closed at a yield of 1.82% (down ~2 bps from the previous week’s closing yield of ~1.84%). Gold prices closed at $1,475.60/oz – up 1.13% on the week. Oil prices jumped 1.47% last week as oil remains mostly range bound due to sufficient supply and tepid demand.

Economic news released last week confirmed a strong jobs market and still moderate inflation. On Wednesday, the U.S. Bureau of Labor Statistics (BLS) announced that the Consumer Price Index (CPI) advanced 0.3% in November and 2.1% year-over-year. Core CPI advanced 0.2% in November and 2.3% over the past 12 months (in-line with expectations). On Thursday, the BLS reported that the Producer Price Index (PPI) was unchanged in November, lower than expectations for a 0.2% advance. The PPI advanced 1.1% year-over-year which was lower than consensus for a rise of 2.0%. Neither the CPI nor the PPI point to unreasonable or out of control inflation, and this gives the Fed more time to remain accommodating. On Thursday, the Department of Labor reported that initial jobless claims for the week ending December 7 were 252,000, above expectations of 213,000. The labor market remains quite resilient, and jobless claims remain under the 300,000 threshold for the longest streak of weekly records for data reaching back to 1967. On Friday, the U.S. Commerce Department reported that retail and food-service sales moved ahead by 0.2% in November, below expectations for a 0.5% advance.

Economic and market fundamentals remain reasonable. We suggest investors stay close to their long-term target asset allocations with a slight defensive bias.

“The measure of who we are is what we do with what we have.”Vince Lombardi

ND&S Weekly Commentary 12.09.19 – The Week Ends on a Positive Note

December 9, 2019

A strong U.S. jobs report released Friday mostly wiped out stock losses from earlier in the week. The U.S. Labor Department reported that employers added 266,000 jobs in November, well above estimates for 184,000. The report also showed unemployment dropped to 3.5%, a 50 year low. Separately, a report on consumer sentiment showed an increase from the prior month. This week look for economic reports on CPI, PPI and retail sales. Based on reports for black Friday and on-line sales, retail sales should continue to be a positive for the U.S. economy as the consumer remains healthy and supportive of the economy.

Stocks ended the week little changed with the S&P 500 up 0.21% and the DJIA and the NASDAQ down 0.06% and 0.08%, respectively. Historically December has been one of the best months of the year. The DJIA, S&P 500 and Russell 2000 indexes have ended higher in December more than another month. International equities ended the week on a positive note with developed markets up 0.38% and emerging markets up 0.88%. For the week, the best performing sectors were energy, consumer staples and healthcare. The worst sector was industrials. In fixed income, interest rates rose last week as the rate on the 10 year U.S. Treasury went from 1.78% to 1.84%.

The Federal Reserve will hold its final meeting of the year this week and is expected to leave interest rates unchanged. Investor attention will also have an eye on trade relations with China as Sunday’s December 15th deadline for increased tariffs on Chinese goods takes effect.

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

Let’s Give Thanks

December 2, 2019

Investors and traders should be thankful for the financial markets that keep on giving. Once again the US stock market reached all-time highs during the Thanksgiving Day holiday week. Improving economic data and progress towards a US and China Phase 1 trade deal created a positive and optimistic tone throughout the week.

The DJIA rose 0.75%, the S&P 500 added 1.04% and the Nasdaq finished up 1.72%. Developed international markets, as measured by the MSCI EAFE, also fared well increasing 0.52%. Emerging market equities were the only laggard down 0.80%. Despite recession worries and political turmoil in Washington, consumers, representing 70% of our GDP, are still spending. 3Q19 GDP was increased to 2.1% outpacing expectations for a 1.9% increase. The solid job market with historically low unemployment, a 3% increase in wages, and lower debt burdens have given consumers a lot to be thankful for and optimistic about their future. As a result, Black Friday hit a record $7.4 billion in US online sales with $2.9 billion in purchases made directly from smartphones.

For the week, consumer discretionary was the best sector climbing 1.78% with info tech coming in next up 1.73%. The energy sector continues to lag down 1.55% due to oversupply worries and US and China trade tensions. Fixed income assets moved sluggishly with the 10 year US Treasury remaining at around a 1.78% yield. The safe haven investment, gold, also was down 0.3% and declined 4% in November, its worst month in three years.

There will be economic reports on employment, consumer confidence, and Markit/ISM manufacturing and service PMIs. We would not be surprised if the markets paused for a while given the market’s healthy advance recently.

“Feeling gratitude and not expressing it is like wrapping a present and not giving it.” – William Arthur Ward

ND&S Weekly Commentary 11.25.19 – Trade Comes Back Into Focus

November 25, 2019

Equities finished the week modestly lower as trade came back into focus. President Trump appears reluctant to reduce tariffs without further concessions from China. On Friday, Chinese President Xi Jinping sounded hopeful the sides could reach a “phase one” trade deal with the U.S. that is based on “mutual respect and equality”. Complicating matters is a bi-partisan bill supporting pro-democracy activists in Hong Kong that was passed by the Senate and House and is awaiting the President’s signature. Beijing has voiced displeasure with the bill. Thus far, they have kept the issue in Hong Kong separate from trade talks, however, that could change the longer the trade issue carries on.

The S&P 500, DJIA, and Nasdaq were all negative on the week as they finished down 0.29%, 0.41%, and 0.20%, respectively. International equities also finished lower with the MSCI EAFE off 0.57% and emerging markets down fractionally. Bonds were positive on the week with yields moving lower. The 10 Year US Treasury closed at a yield of 1.77%. Gold prices continued to hover around the $1,470/oz level. Oil prices rebounded last week closing at $57.88/barrel, the highest level in 2 months.

Economic data released last week was mixed. U.S. housing starts advanced 3.8% month over month in October which came in slightly below expectations. However, existing home sales advanced 1.5% in October which beat expectations. Flash purchasing managers’ indices (PMIs), released on Friday, showed that the global manufacturing sector continued to stabilize with improved readings in the US, Europe and Japan. The upcoming holiday-shortened week includes economic data reports on 3Q19 real GDP (2nd estimate), trade balance, durable goods orders, and personal consumption expenditure (PCE/Core PCE).

Best wishes for a Happy Thanksgiving!

“Vegetables are a must on a diet. I suggest carrot cake, zucchini bread, and pumpkin pie.” Jim Davis

Weekly Commentary (11/18/19) – Déjà vu – Another Weekly Gain

November 18, 2019

Markets advanced last week on renewed optimism for progress on trade, better than feared earnings reports and confirmation that the U.S. consumer remains in good shape. Headline news surrounding the impeachment process seemed to be dismissed by the markets. After all – It’s the economy, stupid – as James Carville, Bill Clinton’s campaign strategist in 1992, aptly said.

For the week, the DJIA advanced 1.37% while the S&P 500 gained 0.93%. Noteworthy is the fact that the DJIA breached 28,000 for the first time ever while the S&P 500 notched its sixth straight week of gains. The volatile Nasdaq added on 1.11%. Developed international markets moved higher, albeit at a slower pace. For the week, the MSCI EAFE index gained 0.54% while emerging market equities (MSCI EM) jumped 1.50%. Small company stocks, represented by the Russell 2000, finished ahead by 0.63% for the week. Fixed income, represented by the Bloomberg/Barclays Aggregate, finished the week higher as investors continued to flee to the perceived safety of bonds. As a result, the 10 YR US Treasury closed at a yield of 1.83% (down ~11 bps from the previous week’s closing yield of ~1.94%). Gold prices closed at $1,467.30/oz – up 0.41% on the week. Oil prices jumped $0.48 (or 0.84%) last week as oil remains range bound due to sufficient supply and tepid demand.

Economic news released last week was mixed. On Wednesday, the U.S. Bureau of Labor Statistics (BLS) announced that the Consumer Price Index (CPI) advanced 0.4% in October and 1.8% year-over-year. On Thursday, the BLS reported that the Producer Price Index (PPI) advanced 0.4% in October, ahead of expectations for a 0.3% advance. The PPI advanced 1.1% 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. On Thursday, the Department of Labor reported that initial jobless claims for the week ending November 9 were 225,000, slightly above expectations of 215,000. The labor market remains quite resilient, and jobless claims remain under the 300,000 threshold for the longest streak of weekly records for data reaching back to 1967. On Friday, the U.S. Commerce Department reported that retail and food-service sales moved ahead by 0.3% in October, ahead of expectations for a 0.2% advance. While the consumer remains in good shape, industrial production continues to be challenged. October industrial production fell 0.8% while consensus was for a 0.4% decline. No doubt, lack of clarity on a trade deal is holding back industrial production.

We would not be surprised if the markets paused for a while given the market’s healthy advance over the past month. We suggest investors stay close to their long-term target asset allocations with a slight defensive bias.

“Optimism is the faith that leads to achievement. Nothing can be done without hope and confidence.”Helen Keller

ND&S Weekly Commentary 11/11/2019 – Happy Veterans Day

November 11, 2019

U.S. stocks reached fresh record highs last week as investors’ hopes for a China trade deal rose. The DJIA, S&P 500, and NASDAQ were up 1.4%, 0.9%, and 1.1%, respectively. International markets were also positive as developed markets (MSCI EAFE) advanced 0.5% and emerging markets (MSCI EM) 1.5%. Consumer spending and jobs data as well as corporate profits that have exceeded expectations have tempered fears of an economic slowdown. So far, 72.5% of companies reporting surpassed earnings per share (EPS) estimates while 57.9% beat on revenues. As a result, cyclical stock sectors were the best performers for the week with financials, energy, and materials making the biggest moves. This week look for economic reports on CPI, retail sales and industrial production.

In fixed income, U.S. government bond yields had their biggest weekly advance in yields in a month. The 10 year U.S. Treasury note ended the week at 1.93%, its highest rate since July 31st. The yield curve is no longer inverted (as shown in the chart below from the Wall Street Journal). This week all shorter dated treasuries yielded less than longer ones for the first time since November 2018 helping to relieve concerns about a possible recession.

On this Veterans Day, we thank all those who have honorably served our great nation. We are especially grateful for all those service members who never returned home as we are reminded of the inscription on the Tomb of the Unknown Soldier – “Here rests in honored glory an American soldier known but to God”

NDS Weekly Commentary (11.4.19) – Trick or TREAT – S&P 500 and NASDAQ reach all-time highs

November 4, 2019

It was a record setting week on Wall Street as stocks rallied towards all-time highs. Despite the impeachment drama, a Federal Reserve interest rate cut, better-than-expected October jobs report, and reasonable corporate earnings fueled investor’s enthusiasm. On Friday, China announced it reached a consensus with the U.S., in principle, on the first phase of a trade deal.

For the week, the DJIA increased 1.4%, the S&P 500 rose 1.5%, and the tech-heavy NASDAQ rose 1.7%. International equities were also stellar with developed markets (MSCI EAFE) up 1.2% while emerging markets (MSCI EM) increased 1.3%.

As widely expected, the Federal Reserve reduced the federal funds rate by 0.25% and Chairman Powell said that further increases would only come after there is evidence of an uptick in inflation which is now close to 2%. The yield on the 10 year U.S. Treasury declined from 1.80% last week to 1.71%.

Last month, 128,000 jobs were added in spite of 50,000 GM workers out on strike, which far exceeded the 89,000 consensus estimate. This provided an improved outlook for consumer spending and support for the slowing economy.

According to FactSet, 3/4 of companies have reported 3rd quarter earnings, with 76% of S&P 500 companies beating estimates. The best weekly sector performance was healthcare which was up 3.05%. There will be a slew of corporate earnings released this week. On Monday, durable goods will be reported, the services Purchaser’s Managers Index (PMI) on Tuesday, and consumer sentiment on Friday.

“Don’t give up on your dreams, or your dreams will give up on you.” – John Wooden

ND&S Weekly Commentary (10.28.19) – Earnings Season in Full Swing

October 28, 2019

Strong earnings pushed stocks higher last week. With approximately 40% of companies having reported, reports generally have been better than expected outside of a few disappointments. Blended earnings are currently at -0.4% year over year versus expectations of a 3.25% decline. Revenues are up 3.0% from the same quarter a year ago. There are a number of companies scheduled to report this week which includes Alphabet, Mastercard, Apple, Facebook, and AT&T.

US equity markets closed the week very close to their all-time highs. For the week, the S&P 500 increased 1.23% while the DJIA finished up 0.70%. Smaller US companies represented by the Russell 2000 rose 1.53%. International equities were also positive with developed (MSCI EAFE) and emerging (MSCI EM) closing higher by 1.27% and 1.17%, respectively. Bonds gave a little back last week with the benchmark Barclay’s US Aggregate Index declining 0.15% on the week. The 10 Year U.S. Treasury yield closed at 1.80%, which is up from 1.76% the week prior.

Economic data released last week was a mixed bag. Flash U.S. manufacturing Purchasing Manager’s Index (PMI) released last week beat expectations with a reading of 51.5 (a PMI reading above 50 represents an expansion). Manufacturing PMIs in Europe and Japan also stabilized as most countries had month over month increases. Durable goods orders fell 1.1% month over month missing estimates. According to the National Association of Realtors, existing home sales declined 2.2% in September missing estimates of a 0.7% decline.

Earnings reports will accelerate this week with 230 companies comprising the S&P 500 scheduled to report. Investor attention will also key on the Federal Open Market Committee (FOMC) meeting announcement set for Wednesday. The futures market is putting the odds of a 25 basis point cut by the FOMC at 90%. Expect the conversation around the sustainability of economic growth to ratchet up in the coming days. Let’s make it a good week!

“Life is 10% what happens to you and 90% how you react to it.”Charles R. Swindoll