ND & S Weekly Commentary 3.13.23 – Weekly Update

March 13, 2023

An over-arching theme for the last several quarters was whether the current fed policy would eventually break something. The Fed has made it clear it was willing to cause a shallow recession if that was the small price it took to bring long-term inflation down to more sustainable levels. For the last several months, the employment markets have been extremely resilient (last week’s February employment report showed a 311k m/m increase, much higher-than-expected), and inflation moderated from extreme levels. A crack began to form last week, when crypto-focused bank Silvergate announced it would wind down operations (due to the FTX fallout) and the FDIC taking control of Silicon Valley Bank’s deposits on Friday, after the bank had to recognize losses in its fixed income portfolio, a direct result of Fed rate hikes. The concern is whether there is contagion risk in the financial market or is this mostly an isolated issue within a niche area?

On the week, the S&P 500 weakened 4.51% and the DJIA declined 4.35%. The Russell 2000, which represents small/midsized US companies, dropped 8.03%. International markets were not nearly as bad, but they also gave back ground with developed international (MSCI EAFE) and emerging markets (MSCI EM) down 0.75% and 3.29%, respectively. Bonds had a strong week rallying 1.15% amidst the chaos as there was a flight to safety. The 10 yr Treasury ended last week at a yield of 3.70% versus 3.97% the week prior.

On Friday, Silicon Valley Bank (SIVB) was shut down by regulators who cited inadequate liquidity and insolvency. According to the FDIC, insured depositors will have access to their funds no later than this morning. While capital, wholesale funding, and loan to deposit ratios have vastly improved since the financial crisis, there are a few exceptions and SIVB was in a league of its own in relation to other financial institutions. SIVB has a high level of loans plus securities as a percentage of deposits, and very low sticky retail deposits, unlike most financial institutions. Bottom line, SIVB carved out a distinct and much riskier capital profile and had an unusually high reliance on corporate and venture capital funding (only 7% was private banking clients…).

Historically, banks have failed due to credit risk. In this case, the primary issue was a duration mismatch between high quality assets (“hold-to-maturity” securities) and deposit liabilities. Additionally, SIVB is not a systemically important financial institution that will bring down the financial system. With that said, we are monitoring the situation closely and will continue to provide our thoughts as more details become available. Markets will likely be volatile in the near-term.

“You only find out who is swimming naked when the tide goes out”. – Warren Buffett


ND & S Weekly Commentary 3.6.23 – Spring Fever

March 6, 2023

Wall Street’s mood greatly improved at the end of last week as a result of stronger economic data and a more hawkish tone expressed by the Federal Reserve.

The S&P 500 gained 1.96% this past week, while the Nasdaq rose 2.61% and the Dow Jones Industrial average advanced 1.85%. International equities also finished higher with developed markets (EAFE) and emerging markets (EM) up 1.81% and 1.68%, respectively.

Over 95% of companies within the S&P 500 index reported an overall decline of 4.6% in fourth-quarter earnings from the 2021 fourth quarter according to FactSet. The ISM Services PMI index declined slightly to 55.1 in February from 55.2 in January, however, beating the consensus forecast of 54.3.

Pending home sales jumped by 8.1% from December to January, according to the National Association of Realtors. However, housing will undoubtedly be affected by 30-year mortgage rates hitting 6.65%, the highest in three months.  Atlanta Federal Reserve President Raphael Bostic stated that the “Fed could be in a position to pause by mid to late summer.” The yield on the 10-year U.S. Treasury closed above 4% on Thursday and ended the week at 3.97%, relatively unchanged.

The price of U.S. crude climbed 4% to nearly $80 per barrel, mostly as a result of China’s reopening its economy after years of Covid lockdowns. Oil prices are basically flat year-to-date and down 28% last year.

With mixed economic data, higher interest rates, and continued geopolitical tensions, market volatility will continue. We recommend revisiting investment objectives, cash flow needs and risk tolerance.

All eyes will be on Fed Chair Jerome Powell’s testimony before Congress and employment numbers to be reported later this week.

If winter comes, can spring be far behind.”- Percy Bysshe Shelley

ND&S Weekly Commentary 2.27.23 – Markets Wake up to Realities of This Inflation

February 27, 2023

Equities were choppy but were decidedly lower over the week. The market is becoming more realistic about how inflation is acting despite an aggressive Fed policy aimed to tame it. More data is indicating that inflation’s retreat will be sluggish, at times, and that it is certainly not linear. More investors are accepting interest rates will be “higher for longer” and that changes the market’s value calculus.

For the week, the DJIA gave back 2.97% and the S&P 500 dropped 2.66%. The tech-heavy Nasdaq fell 3.31%. International markets were also down as the MSCI EAFE Index (developed countries) was off 2.41% and emerging market equities (MSCI EM) declined 2.74%. Small company stocks, represented by the Russell 2000, shrunk 2.86% last week. Fixed income, represented by the Bloomberg U.S. Aggregate, declined 0.89% for the week as yields moved higher. The 10 YR US Treasury yield increased 13 basis points on the week closing at a yield of 3.95%. Gold prices were down about 1.2% and closed at $1,811/oz. Oil (WTI) prices were $3.10 lower on the week closing at $75.39.

The Fed released the minutes last week from their February FOMC meeting. They seemed to indicate that they were not pleased with the equity and bond rallies underway in early February and that tighter monetary policy may be required to offset this implied loosening of conditions. The PCE numbers (the Fed’s preferred measure of inflation) rose 4.7% year over year and were up 0.6% from the previous month. This is leading the market to price in three more 25 bps hikes over the next three Fed meeting and the probability that we have 50 bps hike at the next meeting was near 30%.

This week is light on major economic releases. There are reports on housing and inventory data as well as the release of the ISM manufacturing index. Investors are dialed in on any numbers that indicate the pace of the economy and in this odd configuration of the game piece on the board, hot is bad and cold is good.

“Uncertainty actually is the friend of the buyer of long-term values.” – Warren Buffett

ND&S Weekly Commentary 2.21.23- Markets Little Changed Last Week

February 21, 2023

Equities were looking for direction for most of last week as expectations for higher policy rates increased. While inflation continues to slow, the pace of improvement decelerated causing markets some unease and increasing doubts that the Federal Reserve has done enough to combat inflation.

For the week, the DJIA was little changed while the S&P 500 shed 0.20%. The tech-heavy Nasdaq advanced 0.63%. International markets were mixed as the MSCI EAFE Index (developed countries) eked out 0.12% and emerging market equities (MSCI EM) declined 1.37%. Small company stocks, represented by the Russell 2000, grew 1.47% last week. Fixed income, represented by the Bloomberg Aggregate, declined 0.47% for the week as yields generally moved higher. The 10 YR US Treasury yield increased 8 basis points on the week closing at a yield of 3.82%. Gold prices closed at $1,834/oz. Oil (WTI) prices were lower on the week closing at $78.49 on the week.

Inflation readings released last week showed that the US inflation moderated less than expected in January. The Consumer Price Index (CPI) rose 6.4% from a year ago, down slightly from December’s 6.5% pace. Additionally, Producer Prices (PPI) increased more than expectations, increasing 5.6% from a year earlier. In other economic news, Retail Sales rebounded sharply in January, exceeding expectations with a 3.0% month-over-month increase. The week ahead will have earnings reports from the U.S. retail sector and economic releases on housing and manufacturing.

After months of debate over whether the US will face a hard or soft landing, the debate has recently turned to whether the economy will land at all. With a string of stronger-than-expected data points (see retail sales above) and strong employment reports earlier this month, Wall Street is beginning to contemplate a “no landing” scenario this year which the Fed continues to hike rates amid improving economic activity. The concern is that it will just postpone the inevitable and we will see a harder recession in 2024.

“Blessed are the young for they shall inherit the national debt.”Herbert Hoover

ND&S Weekly Commentary 2.13.23 – Markets Take A Breather

February 13, 2023


Markets were lower last week as rising yields continued to put the squeeze on equities and fixed income.

For the week, the S&P 500 declined 1.07%, the DJIA inched lower by 0.11%, and the tech-heavy Nasdaq dropped 2.37%.  The Russell 2000 Small-Cap Index slid 3.34%. International Equity Markets also finished in the red as developed (MSCI-EAFE) and emerging (MSCI-EM) markets gave back 1.56% and 2.40%, respectively. The price of oil (WTI) increased to $78.06 a barrel as Russia announced plans to cut oil production. The price of Gold closed the week, roughly unchanged, at $1,860/oz.

Bonds were also under pressure last week as the yield on the US 10-year Treasury Note rose 0.21% to 3.74% from a week prior. As a result, fixed income measured by the Bloomberg/Barclays U.S. Aggregate, declined 1.45% on the week. Numerous US Federal Reserve officials made the speaking rounds last week and addressed their economic outlook. A strong consensus of “higher for longer” for interest rates appears to have developed in messaging from the central bank. Chair Jerome Powell, speaking to the Economic Club of Washington, D.C. did not go out of his way to protest looser financial conditions. He warned that if tight labor market conditions persist, a higher peak in the Fed’s policy rate may be needed. It would seem that two additional 25bps increases are likely to be on the table.

With about 69% of the constituents of the S&P 500 Index having reported for Q4 2022, earnings are on track for a decline of 5%, while sales rose about 4.7%, compared with the same quarter a year ago, according to data from FactSet Research. Earnings have been a little better than analysts’ have expected with over 70% beating their estimates.

Markets should remain volatile this week as we await economic reports on inflation, retail sales and industrial production. Diversification, patience, and a bias towards quality will help investors manage through this challenging environment.

“Deeds, not Words.” – George Washington

ND&S Weekly Commentary 2.6.23 – Markets Shrug Off Weaker Earnings and a Rate Increase

February 6, 2023

Investors had plenty to digest last week, with an expected fed rate increase, conflicting earnings reports from big-tech companies, and a slew of economic data and events reported.

The S&P 500 gained 1.6% this past week, the Nasdaq rose 3.3%, while the Dow Jones Industrial Average slipped 0.2%. Despite lackluster earnings reports from Apple, Alphabet, Microsoft and Amazon, investors were encouraged by their cost cutting moves. Facebook (META) surged 23% on Thursday as a result of stronger sales and a $40 billion stock buyback. International equities were mixed with developed markets (MSCI-EAFE) up 0.5% and emerging markets (MSCI-EM) down 1.2%.

As expected, the Federal Reserve raised its target for the fed funds rate by 25 basis points and signaled that two more rate hikes could be expected. However, the Fed acknowledged that inflation has been easing and the past rate increases have been doing their job.
Of the 251 companies within the S&P 500 index reporting for Q4, about 52% exceeded analysts’ revenue estimates and roughly 70% topped earnings projections, according to Bloomberg. Admittedly, the street has been ratcheting down estimates given weakening economic conditions. Overall, corporate earnings are expected to contract 5% on a year-over-year basis.

The Labor Department reported that there were 517,000 new jobs created in January, blowing away economist’s expectations. The unemployment rate fell to 3.4%, the lowest since 1969 and well below expectations of 3.6%. The strong jobs report created concerns that the Federal Reserve may have to continue raising rates to cool inflation and curb consumer spending.

Despite a bouncy ride, the 10-year U.S. Treasury note was little changed for the week, ending at 3.53%. Oil prices slid 7.8% to $73 per barrel and are down 40% from their peak last year.

With mixed economic data and corporate earnings, the Fed maintaining a somewhat hawkish stance and worries of a recession, market volatility will continue. The markets have sprung back nicely and look to be ahead of themselves. Since mid-October, U.S. equities are up 16%, international markets have surged 25% and bonds have rebounded 9%. We would recommend remaining globally diversified and being patient about investing high yielding cash balances.

The economic reports this week are relatively sparse with wholesale inventories and consumer credit being reported.

“I rub it in pretty good when I win.”Tom Brady

Weekly Commentary (1/30/23) – Markets Move Higher on the Week to Extend 2023 Rally

January 30, 2023

Equity markets finished higher over the week as investors seem unimpressed by a general trend of contracting earnings and seem more influenced by signals that the economy is slowing in an orderly manner. In other words, equity prices appear to be discounting a “soft landing” for the US economy as the Fed’s rate cuts slow the engines. It is also likely that the more bearish investors are hedging their bets and rotating some capital to equities, in case their macro-economic and near-term market forecasts are wrong.

For the week, the DJIA added 1.81% while the S&P 500 lifted 2.48%. The tech-heavy Nasdaq popped 4.32%. The MSCI EAFE Index moved higher by 1.40% and emerging market equities (MSCI EM) added 1.44%. Small company stocks, represented by the Russell 2000, gained 2.37%. Fixed income, represented by the Bloomberg/Barclays Aggregate, inched higher by 0.02% for the week as yields were generally unchanged. As a result, the 10 YR US Treasury closed at a yield of 3.52% (up 4 bps from the previous week’s closing yield of ~3.48%) as investors continue to be drawn to decent yields and the perceived safety of treasuries. Gold prices closed at $1,923/oz – down 0.15%. Oil prices moved slightly lower by 0.37% to $81.01.

Last week the index of leading economic indicators was down 1.0% versus the consensus of down 0.7%, the Purchasing Mangers Index (PMI) was 46.8, and anything less than 50 is generally a signal of a contracting economy. The Personal Consumption Expenditures Index (PCE) for December was 5.0% which is down from 5.5% and 6.1% for November and October, respectively. The PCE is the Fed’s preferred measure of inflation. Housing had a lift over consensus projections as pending home sales were up 2.5% versus -1.0% and new home sales were 616k versus 615k forecast.

Though some of the signals are mixed. For now, investors appear more interested in how the end game of the Fed’s efforts to fight inflation plays out than they are interested in the fact that the economy is showing clear signs of slowing and perhaps contracting. The US economy did grow 2.9% in Q4 ’22, down from 3.3% in Q3 and eternally optimistic equity investors extended the 2023 New Year rally. With 28% of S&P 500 companies having reported for Q4, the “blended EPS” (combines reported with reaming estimates) indicates the earnings have declined ~5.1%. Multiples are rising while earnings are shrinking. Meanwhile a wave of Tech layoffs was announced, yet labor remains tight, so far, with jobless claims coming in at 186,000 versus a 205,000 estimate.

The first Federal Open Markets Committee (FOMC) meeting of 2023 will be held this week. The market is signaling it expects a 25-bps increase of the Discount Rate. More important will be the Fed’s language in announcing this rate and the inferences the market takes from its messaging. We expect the Fed will emphasize the “higher for longer” messaging, but we do not expect the market to believe that, immediately.

Patience and focus on the long-term results will be rewarded.

“Waiting helps you as an investor and a lot of people just can’t stand to wait. If you didn’t get the deferred-gratification gene, you’ve got to work very hard to overcome that.” – Charlie Munger

Weekly Commentary (1/23/23) – Markets Mostly Lower on the Week

January 23, 2023

Equity markets finished mostly lower last week as investors digested fourth quarter earnings reports and recent economic releases.

For the week, the DJIA lost 2.7% while the S&P 500 dropped 0.7%. The tech-heavy Nasdaq finished up 0.6%. For the week, the MSCI EAFE Index inched higher by 0.01% while emerging market equities (MSCI EM) gained 0.6%. Small company stocks, represented by the Russell 2000, lost 1.0%. Fixed income, represented by the Bloomberg/Barclays Aggregate, finished higher by 0.2% for the week as yields moved slightly lower. As a result, the 10 YR US Treasury closed at a yield of 3.48% (down 1bps from the previous week’s closing yield of ~3.49%) as investors were drawn to decent yields and the perceived safety of treasuries. Gold prices closed at $1,926.40/oz – up 0.42%. Oil prices moved up 1.8% to $81.31 as China’s reopening added to demand pressures.

Economic news released last week confirmed a weakening in the economy. December retail sales fell sharply while manufacturing PMIs, industrial production and regional Fed surveys all confirmed a slowdown in the US economy. The Fed’s pursuit of higher interest rates is, naturally, having a negative effect on consumers and businesses. The consumer represents roughly 70% of GDP so any slowdown in consumer spending will necessarily impact our overall economy. The Federal Reserve meets next Tuesday and Wednesday, and investors are anticipating a 25 or 50 basis point rate increase. The good news is that the Fed is almost done with their tightening.

Markets are off to a decent start this year as investors have been looking through the noise to find bargains after last year’s ugly market. We expect continued volatility until we see more clarity from the Fed and the impact of their aggressive tightening. Diversification, patience, and a bias towards quality will help investors manage through this period of uncertainty.

Stay safe!

“If you fell down yesterday, stand up today.” – H.G. Wells

ND&S Weekly Commentary 1.17.23 – Inflation Moderates in December

January 17, 2023

Hopes for a soft economic landing intensified last week as the U.S. inflation eased again in December. The Consumer Price Index (CPI) declined 0.1% from November and moderated to 6.5% from a year earlier … inflation peaked in June 2022 at an annual rate of 9.1%. Looking further out, with the inflation surge ebbing and barring any geopolitical unforeseen setback, the cooling inflation environment should lead to a more measured approach to monetary policy at future fed meetings in 2023.

For the week, the DJIA increased 2.01% while the S&P 500 gained 2.71%. The tech-heavy Nasdaq jumped 4.83% after many growth stocks hurt in 2022, recovered nicely on the week. International markets were also very strong with the MSCI EAFE Index (developed countries) finishing higher by 4.25% while emerging market equities (MSCI EM) added 4.18%. Small company stocks, represented by the Russell 2000, were strong as they tacked on 5.27% for the week. Fixed income, represented by the Bloomberg Aggregate, advanced 0.88% for the week as yields moved lower across the curve. As a result, the 10 YR US Treasury closed at a yield of 3.49% (down ~ 6 bps from the previous week’s closing yield of ~3.55%). Gold prices closed at $1,907/oz. – up 2.96%. Oil prices moved higher to close at $78.39 per barrel, up 6.4% on the week.

Earnings season got underway last week. Analysts expect a 4.1% year-over-year decline in Q4 S&P 500 earnings, the first contraction since Q3 2020 (Covid). Earnings reports from the financial sector will dominate the early part of the week, while the end of the week will have reports from several large consumer companies.

Markets will remain volatile as we head into earnings season. As mentioned, analysts are expecting earnings to decline overall for the first time in several years. Equity investors are hoping the momentum continues as stocks have started out of the gate strong in 2023 … Let’s make it another good week!

“Faith is taking the first step even when you don’t see the whole staircase.” – Dr. Martin Luther King Jr.

ND&S Weekly Commentary 1.09.23 – Markets Ring in 2023

January 9, 2023

2023 kicked off on a positive note as all major equity markets and fixed income markets finished in positive territory for the first trading week of the year. For the week, the DJIA increased 1.50% while the S&P 500 gained 1.47%. The tech-heavy Nasdaq advanced 1.01%. International markets were strong with the MSCI EAFE Index (developed countries) finishing higher by 2.68% while emerging market equities (MSCI EM) jumped 3.39%. Small company stocks, represented by the Russell 2000, added 1.81% for the week. Fixed income, represented by the Bloomberg Aggregate, advanced 1.85% for the week as yields moved considerably lower across all areas of the yield curve. As a result, the 10 YR US Treasury closed at a yield of 3.55% (down ~ 33 bps from the previous week’s closing yield of ~3.88%). Gold prices closed at $1,852/oz – up 2.09%. Oil prices moved lower to close at $73.67 per barrel, down 8.0% on the week.

December’s employment report released on Friday was a mixed bag but markets responded positively. The jobless rate fell unexpectedly from 3.7% to 3.5%, the lowest it has been since Joe Namath was leading the Jets as Super Bowl Champions. Average hourly earnings showed an increase of 4.6% which is still stubbornly high and will do little to change the Fed’s hawkish outlook. In other economic news, the Institute for Supply Management’s (ISM) index for manufacturing decreased into a mild contraction in December with a reading of 49.6. The S&P US Services PMI came in a better-than-expected reading of 44. 7 but still in contraction territory. Both leading indicators are flashing yellow, but it remains to be seen if it carries over to revenue and earnings for companies.

The Federal Open Market Committee (FOMC) released minutes from their December meeting. From the minutes, it would appear the Fed is not contemplating halting it rate hikes yet with its focus on slowing inflation. No committee member sees a cut in rates in 2023. The Fed is likely to have concerns that the robust labor market will continue to push inflation higher.

Current valuations would suggest that markets are discounting a challenging earnings environment in early 2023. Let’s make it another good week!

“I never think of the future – it comes soon enough.” – Albert Einstein