Equities Off to a Good Start

January 8, 2018

Equity markets started the year on a strong note last week. All major indexes crossed milestones with the S&P 500 passing 2700, the DJIA 25000 and the NASDAQ rising above 7000. The strongest sectors were technology, materials and energy as economic news continued to show strength. Global manufacturing PMI came in at 54.5 – the strongest reading since mid 2016. Crude oil and other commodity prices are being supported stronger global growth. International equities also started the year on a strong note as the EAFE was up 2.45% and emerging markets rose 3.69%.

Friday’s jobs number of 148,000 new jobs came in below estimates of 180,000 with the unemployment rate holding steady at 4.1%. In spite of the weaker number, interest rates rose for the week with rate on the 10 year U.S. Treasury rising from 2.40% to 2.47%. Expectations continue to be for three rate increases by the FOMC in 2018.

This week look for economic reports on retail sales and inflation. A reading on inflation above consensus would pressure the Fed to take a more hawkish stance. Corporate earnings reports start this Friday with major banks starting to report. The expectations for S&P 500 earnings growth for 2018 have risen to 11%.

“To succeed in your mission, you must have single-minded devotion to your goal.”A.P.J. Abdul Kalam


Many Happy Returns

January 2, 2018

What a fabulous year for the equity and fixed income markets!

Before we pat ourselves on the back for making money for our clients, let’s look at the markets and economies for last week.

The US equity markets gave back some performance during Christmas week. The DJIA slipped 0.14%, S&P500 (0.33%), and NASDAQ (0.80%). Real estate and utilities were the best performing equity sectors and were up 1.5% and 0.4%, respectively. International markets were strong with the MSCI EAFE up 0.95% and emerging markets (MSCI EM) climbing 1.71%. Interest rates took a breather with the 10 Year Treasury closing at a yield of 2.40%, down 0.08% from the previous week.

For the year, the bullish markets were sustained by broad economic growth, strong corporate earnings, consistently strong investor inflows and corporate stock buybacks. The S&P 500 returned 21.83% while international markets soared with the MSCI EAFE up 25.62% and MSCI EM climbing 37.75%.

This short week will deliver several key economic reports: ISM manufacturing and non-manufacturing indexes; minutes from the December FOMC meeting; and reports on auto sales and employment.

For 2018, we expect an increase in the subdued market volatility, slightly higher interest rates and a little more time for the markets to digest, and the economy to feel, the benefits of the sweeping tax reform. Nevertheless, with improved global economic growth and continued inflows, investors should continue favoring equities within a well diversified and balanced portfolio.

Our team at ND&S would like to wish you and your loved ones all the very best for a healthy, happy and prosperous New Year!

“Write it on your heart that every day is the best day in the year.”Ralph Waldo Emerson


2017 – A Year to Cheer

December 26, 2017

Last week, equity markets finished in the green as the S&P 500 was up 0.3% and the DJIA increased 0.42% largely driven by a 4.5% increase in energy stocks. For the week, value stocks outperformed growth stocks on the strength of the energy and material sectors. International markets were also positive with the MSCI EAFE and MSCI EM up 1.25% and 2.08% respectively. Bonds prices were under pressure closing last week in the red as interest rates rose across the board. The 10yr US Treasury closed at a yield of 2.48% which is up from 2.35% the week prior.

The GOP-sponsored tax bill officially crossed the finish-line as it was passed by both houses of Congress and was signed into law by the President. The key provisions being touted by its supporters include a lower corporate tax rate, lower rates on individuals, and a doubling of the standard deduction. Its passage set off a wave of corporate announcements touting wage hikes, investments, and employee bonuses.

For equity investors, the holiday season came early and often as there was plenty to cheer and be merry  about in 2017. This year was one for the record books as major indexes continuously notched record closes throughout the year(DJIA – 70 record closes; Nasdaq – 72; S&P 500 – 62). Barring a disastrous close to the year, 2017 will be the first on record that the S&P 500 finished the year without a negative month. We can only hope that 2018 will be as prosperous for equities as 2017.

Our team at Newman Dignan & Sheerar would like to wish to everyone a happy and healthy New Year!

“No act of kindness, no matter how small, is ever wasted.” – Aesop

Trending Higher…again

December 18, 2017

December 18, 2017

Markets trended higher last week as the Fed raised rates, as expected, for the third time this year. Markets were bolstered by the apparent willingness of Congress to move forward on tax reform … a vote is expected this week.

For the week, the DJIA gained 1.3% while the S&P 500 finished ahead by 0.92% . Developed international markets also moved higher as the MSCI EAFE index closed up 0.14% for the week. Emerging markets also gained as the MSCI EM index finished higher by 0.71%. Fixed income, represented by the Bloomberg/Barclays Aggregate, finished the week up 0.29%. As a result, the 10 YR US Treasury closed at a yield of 2.35% (down 3 bp from the previous week’s closing yield of 2.38%). Gold advanced $9.10 to close at $1,254.30/oz. Oil prices were essentially flat (down 6 cents) as they closed the week at $57.30/bbl.

Economic news released last week reinforced investors’ beliefs that the economy remains solid. The Bureau of Labor Statistics (BLS) reported that the November Producer Price Index rose 0.4%, exceeding expectations of 0.3%. Core PPI advanced 0.4%, twice the expected increase of 0.2%. The BLS also reported that the November Consumer Price Index rose 0.4%, in-line with expectations. Food service sales jumped 0.8% in November, far exceeding expectations of a 0.3% advance. The Department of Labor reported initial jobless claims for the week ending December 9 of 225,000, below expectations of 239,000 … yet another sign of a healthy job market. Industrial production numbers released on Friday pointed to a gain of 0.2% in November … just short of expectations of a monthly increase of 0.3%. Offsetting November’s slight miss was an upward revision to October’s increase from 0.9% to 1.2%. Lastly, capacity utilization moved slightly higher by 0.1% to 77.1% – the highest reading since April 2015.

The week ahead will see more economic releases – housing starts, current account balance, existing home sales, final GDP, new home sales, durable goods orders and PCE. We expect more good news from economic releases as the current synchronized global recovery marches on.

As always, we plan to look through the day-to-day news and focus on longer-term objectives.  Investors should stay the course and stick close to their long-term asset allocation targets. But most importantly, please enjoy the holiday season and reflect on the many blessings in our lives.

Best wishes for a Happy Holiday season!

Good Jobs Numbers

December 11, 2017

Last week the monthly jobs report helped lift large cap stocks to weekly gains. Both the S&P 500 and the DJIA rose after the November jobs report confirmed that economic growth remains strong. Nonfarm payrolls rose 228,000 and the unemployment rate remained at 4.1% a 17 year low, putting GDP growth on track for a 3rd straight quarter of 3% growth. Small cap and emerging market equities fell for the week while developed international equities were flat. Bonds were essentially flat last week as the yield on the 10 year U.S. Treasury went from a 2.37% to 2.38%. One of the largest decliners last week was gold which fell 2.64%. Higher interest rates and a stronger dollar are not good for the precious metal as it increases the opportunity cost of holding gold.

This week the FOMC meets and is widely expected to raise short term rates another .25% especially after last week’s strong jobs report. Observers will closely watch the Fed’s “dot plot” to gauge the number of rate hikes next year. Additionally, look for reports on CPI, retail sales and industrial production.

The annual Army-Navy football game is a celebration well beyond the playing of the game. The annual Army-Navy game held this weekend did not disappoint. Army beat Navy for the second year in a row, and, for the first time in 21years, was able to capture the Commander-in-Chief’s Trophy.

“There is nothing new in the world except the history you do not know.”Harry S. Truman


Tax Plan Pushing Through

December 4, 2017

Equities pushed higher last week amid optimism that a US tax reform bill will make its way through Congress. Last week was certainly not without fireworks both literally and figuratively; “Rocket Man” fired off his most powerful missile yet, while former national security advisor Michael Flynn pleaded guilty for lying to the FBI. Flynn’s willingness to provide testimony sent markets into a tailspin early in trading on Friday but mostly recovered by market close.

For the week, the DJIA finished higher by 3.00%, while the broader-based S&P 500 closed up 1.60%. Smaller US companies representing the Russell 2000 also closed the week in the green up 1.22%. International equities were disappointing last week with the MSCI EAFE finishing down 0.94% and MSCI EM off 3.30%. Yields closed slightly higher last week with the 10 Treasury closing at 2.37%. Oil prices were little changed last week as OPEC extended production caps through 2018.

Equity investors are certainly cheering the prospects of tax reform … as they should. At this point, tax reform is just a bill and will still have to work its way through the reconciliation process in Congress. It’s estimated that cutting the corporate tax rate to 20% would likely bump earnings for S&P 500 companies close to $10 per share. Earnings per share (EPS) estimates for 2018 earnings on the S&P 500 are $140 without tax reform.

“Thinking is one thing no one has ever been able to tax.” – Charles Kettering

Post-Thanksgiving Market Recap

November 27, 2017

We hope everyone had a happy Thanksgiving! Global equities were modestly higher during the holiday-shortened week.

For the week, the DJIA closed higher by 0.89% while the broader-based S&P 500 moved up 0.93% to close above 2600 for the first time. Small Cap US equities were higher as well with the Russell 2000 up 1.77%. International equities also continued their advance with both the MSCI EAFE and MSCI EM finishing higher by 1.88% and 1.57% respectively. International equities were helped last week from better-than-expected November PMIs for the Eurozone with both the manufacturing & services sectors posting their highest readings since 2011. Treasury yields closed slightly lower for the week with the 10yr Treasury closing a yield of 2.34%, down from 2.35% the week prior. Oil (WTI) finished the week at its highest level in over two years closing the week at $58.97/barrel.

Economic news released last week included: existing home sales rose 2% in October to an annual rate of 5.48M, beating expectations; manufactured durable goods came in below expectations as it fell 1.2% in October; jobless claims for the week ending November 18 came in at 239k. Jobless claims have remained below 300k for 142 consecutive weeks, the longest streak since 1970 underscoring the strength of the US labor market.

Earnings season is nearly complete and has been mostly positive with over 70% of companies reporting positive EPS surprises. Earnings growth for the broader market has increased roughly 7.5% y/y with revenues up 5.5%. Technology, financials, and consumer staples surprised positively while utilities and telecom posted weaker results.

In the week ahead, look for reports on home sales, 3Q17 GDP, Personal Income and PCE, and ISM & Markit PMIs. Let’s make it a good week!

“In three words I can sum up everything I’ve learned about life: it goes on.” Robert Frost

Weekly Commentary (11/20/17) – Thanksgving …

November 20, 2017

A strange thing happened last week – the markets finished mostly lower. Yes, it does happen.

For the week, the DJIA dropped 0.19 while the S&P 500 finished lower by just 0.06% after being down last week as well (marking the first time since May that the S&P 500 finished lower two weeks in a row). Developed international markets also dropped as the MSCI EAFE index closed down 0.59% for the week. Emerging markets bucked the trend last week as the MSCI EM index finished higher by 0.72%. Fixed income, represented by the Bloomberg/Barclays Aggregate, finished the week up 0.24%. As a result, the 10 YR US Treasury closed at a yield of 2.35% (down 5 bp from the previous week’s closing yield of 2.40%). Gold advanced $23.40 to close at $1,295.80/oz. Oil prices were essentially flat (down 19 cents) as they closed the week at $56.55/bbl. Recent events in Saudi Arabia have had little impact on prices as the real driver of higher prices lately points to a normalization of global inventories (ongoing production cuts) and reasonably steady demand.

Economic news released last week reinforced investors’ beliefs that the economy is solid. The Bureau of Labor Statistics (BLS) announced that October’s PPI advanced 0.4%, ahead of expectations of a 0.1% increase. Additionally, the BLS reported that the October CPI rose 0.1%, in-line with expectations. On Thursday, the Fed reported that industrial production rose a healthy 0.9% in October, nicely ahead of expectations for a 0.5% jump. Weekly jobless claims for the week ending November 11 failed to meet expectations, but jobless claims continued to be impacted by the slow recovery in Puerto Rico. Lastly, Friday saw that the Census Bureau report that October housing starts surged 13.7% (after three consecutive months of declines).

The holiday-shortened week ahead will see more economic releases – Leading Indicators, Existing Home Sales, Chicago Fed Activity Index, Weekly Jobless Claims, Univeristy of Michigan Sentiment, Durable Goods Orders, the Markit US Manufacturing PMI and the release of the FOMC November meeting minutes.

As always, we plan to look through the day-to-day news and focus on longer-term objectives. Investors should stay the course and stick close to their long-term asset allocation targets. But most importantly, let’s give thanks for the many blessings in our lives.

Best wishes for a Happy Thanksgiving!

“Be thankful for what you have; you’ll end up having more. If you concentrate on what you don’t have, you will never, ever have enough.”Oprah Winfrey


Weekly Gains Come to End

November 13, 2017

Last week all three major U.S. equity indexes had declines with the DJIA, S&P 500 and NASDAQ falling 0.35%, 0.14% and 0.14% respectively. Investors’ concerns about the status of a U.S. tax overhaul pressured stock prices as a Senate version of the tax cut program indicated that the corporate tax cuts would not take effect until 2019. This raises concerns over earnings projections for 2018 and pressures GOP leadership further as they have failed to enact any major initiatives despite controlling majorities in both chambers. The best performing sectors last week were real estate and consumer staples.

Results for international equities were mixed as the EAFE index declined -0.40% while emerging markets rose by 0.22%.

U.S. interest rates also rose last week as a potential December rate hike by the FOMC gained attention. The 10 year U.S. Treasury rate rose to 2.40% from 2.34% the previous week.

This week look for economic reports on retail sales, industrial production and inflation readings from reports on CPI and PPI. In addition, earnings season is winding down with reports expected from HD, TGT, and CSCO to name a few.

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”


Trick or Treat

November 6, 2017

The stock market remained strong last week, as corporate earnings (EPS) growth continues to exceed analysts’ expectations. With over 81% of the S&P 500 companies having reported, average EPS is expected to surge 8.0% with revenues up 5.2%.

Last week, the DJIA and the S&P 500 rose 0.45% and 0.23% respectively. With regards to quarterly earnings, several large tech companies flexed their muscles reporting solid numbers. The tech sector finished the week up 1.8%. Another winner was the energy sector returning 1.7%, benefitting from the 3.3% increase in crude oil prices. The tech-heavy NASDAQ climbed 1.09% while small companies declined with the Russell 2000 finishing down 0.06% for the week. The international equity markets felt the effect of the increasing dollar. Developed equities (MSCI EAFE) declined 0.34% and emerging markets stocks (MSCI EM) lost 0.84%.

US Treasuries moved higher after the recent jobs report indicated a decline in average wages and less-than-expected job gains. Inflation is also below the Fed’s 2% target. The 10year Treasury yield settled at 2.34%, down from the previous week’s 2.43%.

Trump picked Jerome “Jay” Powell to replace Janet Yellen as Fed Chair at the end of her term which ends on February 3rd. Powell is seen as an experienced conservative and is not expected to change current Fed Policy. The Fed’s meeting left interest rates unchanged, citing rising economic activity despite the hurricane and fire devastations. Next month, the Fed is expected to increase short-term interest rates with three increases likely in 2018.

The House’s tax reform bill was released on Thursday and it provides sweeping changes. Corporate tax rates would be lowered from 38% to 20% while several deductions would be reduced or eliminated. We expect some additional changes as the bill moves through Congress.

We once again favor diversified portfolios among asset classes with lower duration fixed income holdings and look towards international equities to maintain outperformance.

“My sorrow, when she’s here with me, thinks these dark days of autumn rain are beautiful as days can be; she loves the bare, the withered tree; she walks the sodden pasture lane.” – Robert Frost