ND&S Market Commentary 3.30.20 – Markets Jump on Stimulus Hopes
March 30, 2020
Equity markets closed lower on Friday but still recorded large gains for the week as the coronavirus (Covid-19) continued to spread across the globe. Expectations are for further acceleration of confirmed cases as testing becomes more widespread … increased testing will provide a better reading on the virus’s prevalence and severity. To offset the financial pressures of the nationwide shutdown, the Federal Reserve announced massive policy measures to support credit and lending, while Congress passed a bipartisan bill which included a $2 trillion rescue package for businesses and households on Friday. The bill includes direct payments to individuals and aid to large corporations and small businesses.
For the week, the S&P 500 climbed 10.3% notching its biggest gain since March 2009. The DJIA rose 12.8% marking the biggest weekly gain for the index since 1938. International markets also rallied with developed markets (MSCI EAFE) up 11.2% and emerging markets (MSCI EM) advancing 5%. Bonds posted a strong week as normalcy returned to fixed income markets. The 10yr Treasury closed at a yield of 0.72% which is down from 0.92% the week prior.
We are going to see incredibly steep contractions in economic data over the next several weeks and months; however, these reports will have minimal impact on the markets as focus will be 6-9 months out. As an example, unemployment claims skyrocketed to 3.3 million for the week ending March 21, which is more than 3x the previous record high. Most of claims were from the service industries -specifically accommodation and food services. This week look for economic reports on consumer confidence and monthly employment which should start to reflect job losses from the virus.
Monday and Friday saw market declines, but Tuesday through Thursday saw the biggest 3-day rally since 1931. We expect markets to remain volatile until there are signs of the virus slowing and success at “flattening the curve”. No doubt, we see quite a few bargains in the market today. We will likely see a number of relief rallies, as a bottom will take time to form. It is our intention to begin to redeploy higher-than-normal cash levels as opportunities present themselves. Long-term investors should remember that since 1928, through 14 recessions and 21 bear markets, equity markets have never failed to regain a prior peak. This time will be no different.
“The investor who says, this time is different, when in fact it’s virtually a repeat of an earlier situation, has uttered among the four most costly words in the annals of investing.” – John Templeton
ND&S Weekly Commentary 3.24.20 – Coronavirus Uncertainty
March 24, 2020
First and foremost, we hope that all of you and your families are well. Please follow the Covid-19 protocols in your communities. This crisis will end, and we can all do our part to slow the spread of this pervasive virus.
Last week was another volatile and nerve-wracking week as investors sold stocks due to heightened uncertainty surrounding the spread of Covid-19 and the massive impact on economies around the world. The Dow has now erased three years of gains in a month while historically it took the market on average 18 months to move from peak to trough.
On the week, the S&P 500 weakened 14.95% and the DJIA declined 17.29%. The Russell 2000 which represents small/midsized US companies (and is more impacted by slower growth) dropped 16.14%. International markets were not as bad, but they also gave back ground with developed international (MSCI EAFE) -5.76% and emerging markets (MSCI EM) -9.79%. Bonds were not immune to the chaos with the Barclays Aggregate down 2.29% on the week. The 10yr Treasury ended last week at a yield of 0.92% versus 0.94% the week prior.
There are some difficult days and weeks ahead as quarantines and lock-downs grow. Yes, markets have already priced in a global recession, but the uncertainty from day to day will likely keep investors on edge. The Federal Reserve has been very aggressive in their monetary response, and we sincerely hope and expect that Congress will put aside its pettiness and pass an impactful stimulus bill … our workers and our country deserve no less.
Markets are most certainly displaying the tell-tale signs of panic and capitulation. The vast majority of large companies around the world are not permanently impaired, yet markets are pricing securities as if that is the case. The economic backdrop will get worse before it gets better; however, markets almost always bottom before manifestations of a crisis begin to meaningfully improve.
It is our intention to begin putting higher-than-normal cash levels back to work in the markets as opportunities present themselves. No doubt, we see quite a few bargains in the market today. We will likely see a number of relief rallies, but we remain cautious and don’t plan on jumping at the first sign of a bounce … a bottom will take time to form. Rest assured, we are monitoring investments and markets, and we remain available should you have any questions.
“No problem of human destiny is beyond human beings.” – John F. Kennedy
ND&S Weekly Commentary 3.16.20 – Markets React Wildly to Pandemic Uncertainty
March 16, 2020
We hope that all of you and your families stay healthy and safe and please follow the Covid-19 protocols in your communities. This is certainly an unnerving time and the steps being taken both here in the U.S. and abroad to combat the spread (and to flatten the curve) of the virus are unprecedented. Our belief is the faster we can shut down the spread of the virus (even if that means extreme measures), the faster we can return to a normal operating environment.
Last week was most certainly the wildest week since the financial crisis. The World Health Organization on Wednesday declared the coronavirus a pandemic. On Friday, President Trump declared a national emergency. Markets around the world fluctuated wildly all week as investors attempted to gauge the economic and social impact of the virus.
On the week, the S&P 500 weakened 8.73% and the DJIA declined 10.24%. The Russell 2000 which represents small/midsized US companies (and is more impacted by slower growth) dropped 16.44%. International markets also gave back value with developed international (MSCI EAFE) -18.36% and emerging markets (MSCI EM) -11.92%. Bonds were not immune to the chaos with the Bloomberg/Barclays Aggregate down 3.17% on the week. The 10yr Treasury ended a wild week as it closed at a yield of 0.91% versus 0.74% the week prior.
The outlook for the economy and markets will depend on the world’s success at flattening the curve. Simply put, the harsher the actions to tackle this now, the quicker we can slow this virus and get people back to work. Markets always discount the future, and they have already discounted a significant slow- down and most likely a recession. No doubt, the market action last week was indicative of a panic/capitulation phase, and we suspect that the bulk of the market correction is behind us. Having said that, it is quite likely that markets could reach lower levels as more virus cases are reported. Markets will stabilize as we begin to see the virus’ peak and containment.
Our hope is that the coordinated response between government and our private sector will illustrate the power of collaboration in working for the common good. We are already seeing massive monetary and fiscal stimulus packages that will serve to support the economy through this very difficult, but temporary, time. We have been net sellers of equities over the past few months, and we continue to maintain cash levels at the higher end of our policy range. We would caution against making a wholesale change to your long-term plan or investments. As we mentioned above, it feels like we are in the fear/panic stage of the cycle where stock prices disassociate greatly from their true value. Rest assured, we are monitoring investments and markets, and we remain available should you have any questions.
“Ask five economists and you’ll get five different answers – six if one went to Harvard.” – Edgar Fiedler
Weekly Commentary (03/09/20) – Markets Stabilize Last Week … More Uncertainty Ahead
March 9, 2020
Markets stabilized last week after suffering their worst weekly drop in over 10 years the previous week.
For the week, the DJIA advanced 1.79% while the S&P 500 gained 0.61%. The tech-heavy Nasdaq inched ahead by 0.10%. International markets were also positive as investors put money to work after the previous week’s sell-off. For the week, the MSCI EAFE index (developed markets) jumped 0.35% while emerging market equities (MSCI EM) tacked-on 0.69%. Small company stocks, represented by the Russell 2000, finished lower by 1.81% for the week. Fixed income, represented by the Bloomberg/Barclays Aggregate, finished the week higher by 1.88% as investors fled to the perceived safety of bonds. As a result, the 10 YR US Treasury yield collapsed to its lowest yield in history as it closed the week at a yield of 0.74% (down sharply from the previous week’s closing yield of ~1.13%). Gold prices jumped as gold closed at $1,670.80/oz – up 6.82% on the week. Oil prices dropped 7.77% to $41.28 on global growth concerns, plentiful supply and OPEC disarray. Fortunately, low oil prices serve as a tax cut to consumers and businesses.
Market uncertainty remains high as the coronavirus continues to spread around the world. Adding fuel to the fire, Russia and OPEC failed to come to an agreement over the weekend on production cuts to oil. As a result, oil prices are plummeting this morning as Saudi Arabia and Russia attempt to put pressure on U.S. shale producers (lower oil prices may force many shale producers to shut-in production and/or go bankrupt). This current bout of volatility is certainly unnerving, particularly after investors have been treated with relative calm over the past few years. We don’t know when markets will bottom. We do know, however, that they will bottom. Every correction that we have ever had has been temporary, and this one will be no different.
Could more pain be ahead for investors? Of course. The uncertainty of the global growth impact from the coronavirus along with plunging oil prices will put downward pressure on stock markets around the world. We suspect that central banks and governments around the world will come to the rescue to help stabilize markets.
Patient, long-term focused investors will be well served in the end, and investors that sell based on panic rarely win over time. This recent bout of volatility reinforces the benefits of diversification as well balanced portfolios have been able to weather the storm relatively well. Investors should stay close to their long-term target asset allocations with a slight defensive bias as markets work through this period of volatility.
“Everyone goes through adversity in life, but what matters is how you learn from it.” – Lou Holtz
Weekly Commentary (03/02/20) – Coronavirus Fears Push Markets Into Correction Territory
March 2, 2020
Markets moved into correction territory last week amid fears of the economic impact of the coronavirus on global growth. Markets suffered their worst weekly drop in over 10 years (and the world didn’t come to an end …).
For the week, the DJIA fell 12.26% while the S&P 500 lost 11.44%. The tech-heavy Nasdaq dropped 10.52%. International markets fared a bit better, but they also lost ground. For the week, the MSCI EAFE index (developed markets) gave back 9.55% while emerging market equities (MSCI EM) declined 7.23%. Small company stocks, represented by the Russell 2000, finished lower by 12.01% for the week. Fixed income, represented by the Bloomberg/Barclays Aggregate, finished the week higher by 1.26% as investors fled to the perceived safety of bonds. As a result, the 10 YR US Treasury yield collapsed to its lowest yield in history as it closed the week at a yield of 1.13% (down from the previous week’s closing yield of ~1.46%). Gold prices were surprisingly weak as gold closed at $1,564.10/oz – down 4.92% on the week. Oil prices dropped 16.15% to $44.76 on global growth concerns and plentiful supply. Fortunately, low oil prices serve as a tax cut to consumers and businesses.
After a long period of relative calm in the markets, it is not surprising to see volatility surge as fears of the unknown grip investors’ psyches. We don’t know when the spread of COVID-19 will subside. We do know, however, that it will ultimately subside. In the meantime, markets are correctly adjusting to slower (or perhaps zero) economic growth. As we have highlighted many times in the past, the average intra-year decline in the S&P 500 has been roughly 14%. Since 1950, and before the current setback, markets have experienced 23 corrections (10%-plus pullback in prices) with an average decline of 13.7%. So far in 2020, the peak-to-trough correction has been 15.8% in the S&P 500 and 13.6% for the DJIA. Markets have recovered, on average, four months after each correction.
Could more pain be ahead for investors? Of course. The uncertainty of the global growth impact from the coronavirus is likely to remain high; however, markets have already discounted quite a bit of bad news. We suspect that central banks around the world will come to the rescue to help stabilize markets. We question whether or not central bank easing will work, but we agree that the main impact of such easing will be psychological.
We suggest that investors turn off CNBC. Patient, long-term focused investors will be well served in the end, and investors that sell based on panic rarely win over time. This recent bout of volatility reinforces the benefits of diversification as well balanced portfolios have been able to weather the storm relatively well. Investors should stay close to their long-term target asset allocations with a slight defensive bias as markets work through this period of volatility. Stay calm and carry on.
“Life is 10% what happens to you and 90% how you react to it.” – Charles R. Swindoll
ND&S Weekly Commentary 02.24.20 – Coronavirus Scare
February 24, 2020
Throughout the holiday-shortened week, reports of the COVID-19 coronavirus spreading to other countries created fears of a global economic slowdown. Investors and traders reversed course and went from risk-on to risk-off investments. As a result the Dow Jones fell 1.36%, the S&P 500 was down 1.22% and the tech-heavy NASDAQ slid 1.55%. International equities also suffered with Developed (EAFE) and Developing (EM) down 1.23% and 1.96%, respectively.
On Friday the World Health Organization reported that there were 76,767 confirmed cases of COVID-19 and 2,247 deaths. China’s shutdown of business activity has affected supply chains throughout the world. The second largest economy reported that during the first two weeks of February car sales declined 92% year over year.
In the U.S., the composite economic PMI (Purchasing Managers’ Index), which includes service and manufacturing indexes, came in below 50 for the first time since 2013. U.S. existing home sales were also weak falling 1.3% in January to a 5.46 million annual rate. Housing starts were down 3.6%. The price of a barrel of West Texas Intermediate Crude for March delivery fell over 2% on Friday. Gold was boosted again as a safe haven asset up 1.8% for the week at $1,648.80 an ounce, reaching a seven year high.
The U.S. 10-year Treasury Note slipped to 1.47% the lowest level since early September. The 30-year T-Bond yield dropped to 1.89% reaching an historic all-time low. Recession worries are indicative of an inverted yield curve with the three month T-Bill yielding 1.55% while the two-year notes are 1.34%.
Despite a 3.1% fourth quarter profit growth for the S&P 500 companies and excluding the energy sector the growth rate was 6%, the coronavirus dominated the financial markets. The FAANG’s – Facebook, Apple, Amazon, Netflix and Google are up 10% year to date. Their average price to earnings ratio is up to 35 times estimated earnings from 21 times last year. Another huge holding is Microsoft at $1.4 trillion in market cap. Microsoft is up 14% year to date and trades at 31 times estimated earnings. The stock hasn’t traded at that level since the dot-com crisis.
We anticipate volatility to increase while, hopefully, the coronavirus can be contained and cured. The concentration and size of FAANG and Microsoft within major indices and their exposure to a slowing global economy is worrisome. We strongly feel that raising cash balances for foreseeable needs, assessing the risk of owning sizable positions and diversification will pave the way to stable returns.
This week consumer confidence will be reported on Tuesday, new home sales on Wednesday and personal income and spending on Friday.
“Although the world is full of suffering, it is full also of the overcoming of it.” – Helen Keller
ND&S Weekly Commentary 02.18.20 – Markets Continue to Shrug Off Coronavirus Fears
February 18, 2020
Markets pushed higher last week despite ongoing uncertainty surrounding the coronavirus. Helping the markets move higher were encouraging comments from Fed Chair Jerome Powell and mostly better-than-expected economic news.
For the week, the DJIA advanced 1.17% while the S&P 500 gained 1.65%. The tech-heavy Nasdaq jumped 2.23% as investors flooded into cloud-related stocks. International markets were mixed. For the week, the MSCI EAFE index (developed markets) inched lower by 0.02% while emerging market equities (MSCI EM) jumped 1.37%. International markets remained under pressure due to uncertainty regarding the impact of the coronavirus on global growth. Small company stocks, represented by the Russell 2000, finished higher by 1.90% for the week. Fixed income, represented by the Bloomberg/Barclays Aggregate, finished the week essentially unchanged as bond investors remained on the sidelines for the week. As a result, the 10 YR US Treasury closed at a yield of 1.59% (unchanged from the previous week’s closing yield of ~1.59%). Gold prices closed at $1,582.70/oz – up 0.81% on the week. Oil prices rose 3.38% to $52.05 despite adequate supply and weakening demand. Low oil prices serve as a tax cut to consumers and businesses and are a contributing factor (along with low unemployment) to robust consumer sentiment and retail sales.
Economic news released last week confirmed a resilient jobs market, still moderate inflation, and elevated consumer sentiment. On Thursday, The U.S. Bureau of Labor Statistics reported that the Consumer Price Index (CPI) advanced 0.1% in January, below expectations of a 0.2% gain. Over the past 12 months core CPI has risen 2.3%, ahead of the 2.2% consensus and in-line with annual gains seen in October, November and December. Also on Thursday, the Department of Labor reported that initial jobless claims for the week ending February 8 were 205,000, below expectations of 210,000 … another sign of a strengthening labor market. Jobless claims have remained under 300,000 for 257 consecutive weeks – the longest streak on record. On Friday, the U.S. Commerce Department reported that January retail sales advanced 0.3%, matching expectations. The Federal Reserve announced on Friday that January industrial production fell 0.3%, more than the expected 0.2% decline (likely due to fears around global growth as a result of the coronavirus outbreak). Finally, on Friday the University of Michigan Consumer Sentiment Index rose to 100.9 in February – the highest level since March 2018.
Most economic and market fundamentals remain reasonable although traditional market valuations are a bit stretched. We suggest investors stay close to their long-term target asset allocations with a slight defensive bias as markets are due for a pause.
“There are many ways of going forward, but only one way of standing still.” – Franklin D. Roosevelt
ND&S Weekly Commentary 2.10.20 – Coronavirus Takes a Backseat
February 10, 2020
Equity markets pushed aside fears from the coronavirus last week as better-than-expected U.S. job growth and strong manufacturing data provided the boost the markets needed. We would suggest some caution as the full impact of the virus is not yet fully known, but the Chinese government did indicate that the pace of new infections has slowed. With a significant percentage of industrial production shut down, global supply chains are still adjusting from the ripple effects of the virus.
For the week, the DJIA advanced 3.1%, while the broader-based S&P 500 finished at 3.2%. The tech-heavy NASDAQ surged 4.1% and international markets were slightly weaker with the MSCI EAFE and MSCI EM up 1.9% and 2.8%, respectively. The 10 year US Treasury yield rebounded to 1.59% after falling to 1.51% last week. Gold dropped back to $1,570 an ounce and Oil (WTI) closed at $50.35 a barrel.
Economic data on the week was quite strong. The Institute of Supply Management (ISM) reported that the manufacturing purchasing manager’s index (PMI) for January advanced to 50.9%. The release greatly exceeded expectations of 48.5% and indicated the first expansion in 6 months. The non-manufacturing index which tracks the service sector came in at 55.5% beating estimates. On Friday, the Department of Labor reported that 225,000 jobs were added in January which handily beat the consensus estimate of 155,000. The unemployment rate ticked up to 3.6% from 3.5% the month prior. The increase was driven by labor force participation which increased to 63.4%. Average hourly earnings have increased 3.1% from a year earlier.
Approximately, 65% of the S&P 500 constituents have reported earnings for Q4 2019. Blended earnings for the S&P 500 is showing a modest year-over-year increase while revenues are up 3.4% compared to the same quarter a year ago, according to FactSet Research. Expectations were for a 2.0% decline in earnings-per-share (EPS). This week, 101 companies comprising the S&P 500 are scheduled to report.
Let’s make it another good week!
“Get action. Seize the moment. Man was never intended to become an oyster.” – Theodore Roosevelt
ND&S Weekly Commentary (2.3.20) – Coronavirus Rocks Markets
February 3, 2020
Uncertainty over the spreading coronavirus outbreak from China last week affected markets worldwide and disrupted travel and trade. China’s financial markets were shut down for a week and will re-open on Monday, February 3rd. Equity markets declined across the board and U.S. fixed income rallied as investors sought safe-haven assets. For the week the DJIA, S&P 500 and NASDAQ declined 2.1%, 2.5% and 1.8%, respectively. Internationally, developed markets were down 2.5% and emerging markets were off the most at 5.0%. The worst performing sectors in the S&P 500 were energy and materials and the best performing was utilities. U.S. Treasuries rallied strongly as interest rates dropped across the board. The rate on the 10 Year U.S. Treasury dropped 19 basis points to close the week at a yield of 1.51%. US West Texas Crude (WTI) declined 5% to $51.30 per barrel while Gold finished the week up 1.3%.
In economic news last week, 4Q real GDP growth came in at 2.1% with positive contributions from consumer spending, housing and government spending. Housing benefited from 3 rate cuts from the Federal Reserve last year. At the FOMC meeting last week, the Federal Reserve announced it would keep their rate target unchanged while continuing repurchase operations through April. This week, look for reports on employment, international trade and ISM mfg./non-mfg. PMIs. With 56% of S&P 500 companies reporting earnings so far, 70% have beaten their consensus estimates on earnings (Earnings per Share) and 51% on revenue. From a sector standpoint, financials have been the strongest and energy the weakest, while information technology earnings have been stronger than expected.
We expect volatility to continue until there is more assurance that the coronavirus is under control. In the past, markets have been affected by previous viruses but have been able to bounce back as they were brought under control. In the interim, portfolio diversification will help to moderate volatility.
“We didn’t lose the game; we just ran out of time.” – Vince Lombardi
ND&S Weekly Commentary (4.6.20) – Coronavirus Uncertainty Continues
April 6, 2020
We hope that all of you and your families are well. It appears that we are headed into a pivotal week for the virus so please continue to follow the Covid-19 protocols in your communities. This crisis will end, and we can all do our part to slow the spread of this pervasive virus.
Last week was another volatile week as investors sold stocks due to heightened uncertainty surrounding the spread of Covid-19. With coronavirus cases topping one million globally the impact on economies around the world will be massive. In the United States alone, a record 6.6 million Americans applied for unemployment benefits last week.
On the week, the S&P 500 weakened 2.1% and the DJIA declined 2.7%. The Russell 2000 which represents small/midsized US companies (and is more impacted by slower growth) dropped 7.1%. International markets were not immune from the pullback as developed international markets (MSCI EAFE) gave back 3.7% while emerging markets (MSCI EM) were lower by 1.2%. Bonds were a bit of a safe-haven as the Barclays Aggregate finished higher by 0.73% on the week. The 10yr Treasury ended last week at a yield of 0.62% versus 0.72% the week prior.
Markets have already priced in a global recession (which most likely began in early March). The depth and breadth of the global recession will depend on the course of the virus and the human response (individuals and governments) to those impacted by the virus. The economic backdrop will get worse before it gets better; however, markets almost always bottom before manifestations of a crisis begin to meaningfully improve.
The vast majority of large companies around the world are not permanently impaired, yet markets are pricing securities as if that is the case. We plan to take advantage of pricing dislocations, and it continues to be our intention to begin putting higher-than-normal cash levels back to work in the markets as opportunities present themselves. We will likely see a number of relief rallies, but we remain cautious (a bit less so as each week passes) and don’t plan on jumping at the first sign of a bounce … a bottom will take time to form. Rest assured, we are monitoring investments and markets, and we remain available should you have any questions.
A Happy Passover and Easter to all.
“We should take comfort that while we may have more still to endure, better days will return: we will be with our friends again; we will be with our families again; we will meet again.” – Queen Elizabeth II