NDS Weekly Commentary (4.22.19) – Word of the Week: REDACTED

April 22, 2019

The shortened holiday week instilled investor’s confidence as a result of a slew of healthy first quarter earnings. Among widely held companies surpassing analyst estimates were Bank of America, Johnson & Johnson and Pepsi, which pushed the DJIA up 0.60% for the week. The broader-based S&P 500 and tech laden NASDAQ were -0.07% and 0.17%, respectively. International equities were positive for the week with the MSCI EAFE increasing 0.35% and MSCI EM up 0.34%.

Apple and Qualcomm finally settled their royalty dispute and now Apple will buy Qualcomm chips for future iPhones. Bank of America cited loan growth as a contributor to earnings. As a result, technology and financial sectors increased 1.3% and 0.7%, respectively. Energy shares slipped 0.5% on the week as crude oil prices declined to $63.74 a barrel. The health care sector was the worst performer, declining over 4% for the week. Investors are worried about the potential impact of “Medicare For All.”

On Monday, Fed officials indicated that they would be willing to leave rates steady until later this year and gave an optimistic note on the nation’s economy. James Bullard, the St. Louis Fed President said the US economy is in “great shape” and he is encouraged by the Fed’s recent policy shift of a “flat rate outlook.” China reported that the world’s second leading economy expanded 6.4% beating growth expectations of 6.3%. US retail sales jumped 1.6% in March, easily beating the consensus estimate of 0.9%.

On the political front, the redacted Mueller report was released on Thursday. Both sides of the aisle will continue to haggle over Russia’s interference in the 2016 US Presidential election, which the market fully expected. The economic releases for the week ahead include existing and new home sales, durable goods orders, gross domestic product and consumer sentiment index.

We are encouraged by last week’s corporate earnings, Fed statements and China’s economic growth. All eyes are on the US and China trade talks. There are a slew of first quarter earnings yet to be announced, with 155 companies within the S&P 500 scheduled this week. Slowing global economic and profit growth, Brexit and our inverted yield curve remain issues to contend with. It will be a challenge for companies to expand profit margins because of higher input costs and technology gains may have peaked.

We are amazed and skeptical at how quickly global recession fears have subsided and equity markets are now back within reach of their all-time highs.

Once again, to weather the uncertainties we recommend diversifying among various asset classes, maintaining quality assets with a bias towards safe income and dividend growth.

“The greatest products of architecture are less the works of individuals than of society; rather the offspring of a nation’s effort, than the inspired flash of a man of genius….”
-Victor Hugo, The Hunchback of Notre-Dame

NDS Weekly Commentary (4.15.19) – Earnings Season Kicks Into Gear

April 15, 2019

Markets ground higher last week, aided by a Friday rally on the back of bank earnings that boosted investor optimism on the kickoff of earnings season. Before the bell on Friday, JPMorgan Chase reported both Q1 revenues and earnings ahead of expectations. However, profits overall for the S&P500 are expected to decline 4.3% in the 1st quarter from a year ago, according to FactSet. This week will be busy with 55 companies within the S&P500 scheduled to announce earnings.

On the economic front, the International Monetary Fund last week lowered its projections for global growth in 2019 by 0.2% to 3.3%. Slowing growth in China along with the spillover from the trade dispute between US and China are the reasons for the reduction. The Federal Reserve also released minutes from their March meeting, and the uncertainly over their economic outlook would likely leave the federal funds rate unchanged for the remainder of 2019. Also aiding the Fed’s dovish policy, inflation remains somewhat muted with the Consumer Price Index (CPI) increasing 0.4% in March. Over the last 12 months, the CPI increase 1.9% as reported by the U.S. Bureau of Labor Statistics.

For the week, the DJIA declined 0.03% while the S&P 500 gained 0.56%. The Nasdaq increased 0.58%. International markets also gained as the MSCI EAFE index pushed ahead 0.30% and emerging markets equities advanced 0.41%. Small company stocks, represented by the Russell 2000, nudged higher by 0.16%. Fixed income, represented by the Bloomberg/Barclays Aggregate, finished the week lower (-0.12%) as rates increased across all time periods. As a result, the 10 YR US Treasury closed at a yield of 2.56% (up ~6bps from the previous week’s closing yield of 2.5%). Gold prices closed at $1,294/oz and oil prices moved higher to finish at $63.89/barrel amid supply concerns in Libya.

Clients should be on the lookout for quarterly portfolio reports along with our 1st quarter newsletter titled Paradise Regained, a play on John Milton’s follow-on poem and our 4th quarter newsletter title to Paradise Lost.

“In this world nothing can be said to be certain, except death and taxes.” Benjamin Franklin

Weekly Commentary (04/08/19) –Markets Push Higher on Trade Optimism

April 8, 2019

Markets were strong last week as investors pinned their hopes on a resolution to the ongoing U.S./China trade negotiations. Also helping to buoy investors’ spirits were a number of economic reports that seemed to support the notion that the U.S. economy remains in expansion mode (although economic growth is certainly slowing, as would be expected at this point of the long-running economic expansion). ISM Manufacturing index numbers were strong (55.3% vs. consensus of 54.5%) while Friday’s release of employment numbers highlighted the addition of 196,000 jobs in the month of March, exceeding expectations for a gain of 175,000 jobs. Friday’s release of the jobs data showed that unemployment held steady at 3.8% while average hourly earnings (wage inflation) increased 3.2% year-over-year. On the downside was Wednesday’s release of the March ISM Non-Manufacturing index, which showed that the service sector of the U.S. economy slowed as the index came in at 56.1%, missing expectations of 58.0%.

For the week, the DJIA increased 1.95% while the S&P 500 gained 2.09%. The volatile Nasdaq jumped 2.73%. Developed international markets also gained as the MSCI EAFE index pushed ahead 2.01% for the week. Emerging markets equities saw increased demand as the MSCI EM index advanced 2.58%. Small company stocks, represented by the Russell 2000, were the biggest gainers as the index moved higher by 2.80% for the week. Fixed income, represented by the Bloomberg/Barclays Aggregate, finished the week lower (-0.30%) as investors took profits in bonds. As a result, the 10 YR US Treasury closed at a yield of 2.50% (up ~8.4 bps from the previous week’s closing yield of 2.416%). Gold prices closed at $1,290/oz – down 0.2% on the week. Oil prices jumped higher as oil closed at $63.08 – up by 4.89% on the week.

So have U.S. markets moved a bit too far too fast? Probably. Of course, one never knows, but we would not be surprised if the markets pulled back a bit as they digest 1st quarter earnings due to be released over the next few weeks.

Enjoy the week ahead!

“Success is never final, failure is never fatal. It’s courage that counts.”John Wooden

ND&S Weekly Commentary 4.1.19 – Strong First Quarter

April 1, 2019

U.S. equities finished the last week on an up note capping the strongest 1st quarter for the S&P 500 since 2009. For the week, the S&P 500 and the DJIA were up 1.23% and 1.67%, respectively. Buoyed by optimism on trade negotiations between the U.S. and China and a dovish pivot from the Federal Reserve, for the quarter, the S&P 500 was up 13.6% and small cap stocks rose 14.6%. Similarly, international stocks performed well, developed markets rose 10.1% and emerging markets gained 10.0%.

Fixed income markets also rallied in the 1st quarter due to accommodative global central bank policies. The rate on the 10yr U.S. Treasury fell from 2.68% at the beginning of the year to 2.41% while the 10yr German bund dropped from 0.24% to -0.07%.

Concerns over global growth are starting to be felt in the US, as last week 4th quarter U.S. GDP was revised downward from 2.6% to 2.2%. Additionally, 1st quarter U.S.GDP numbers are only expected to be about 1.3% and earnings for S&P 500 companies are estimated to decline 3.9% in the quarter. However, most economists expect growth to pick up in the 2nd quarter as incomes continue to rise and consumer sentiment stays strong. This week look for reports on retail sales, durable-goods and March jobs that are expected to rebound from February.

“April 1. This is the day upon which we are reminded of what we are on the other three hundred and sixty-four.” – Mark Twain

ND&S Weekly Commentary 3.25.19 – Fed Guidance Throws Market for Loop

March 25, 2019

Markets sold off sharply into the close Friday to close the week in the red. The DJIA closed lower by 1.34%, while the broader-based S&P 500 moved lower by 0.75%. Smaller US companies gave back the most closing down 3.05% on the week. International stocks were mixed with the MSCI EAFE declining 0.33% and emerging increasing a modest 0.24%. Yields had a strong move lower following the Fed’s dovish guidance. The 10yr Treasury yield closed the week at a yield of 2.44%, down from 2.59% the week prior. Gold increased to $1312/oz.

The Federal Reserve dialed back their rate hike outlook and surprised the market by projecting zero interest rate increases in 2019, down from the committee’s December projection of two. Futures markets are beginning to price-in a cut in rates later this year. Additionally, the committee announced that it would end its balance sheet run-off in September with its primary goal of owning only treasuries. In an effort to stimulate the economy during the financial crisis, the Fed purchased mortgage-back securities (which are more risky than US Treasuries) to prop up the US housing market. The Fed’s projections for economic growth and inflation were trimmed to 2.1% and 1.8%, respectively.

Weak manufacturing data fueled growth worries last week. Factory activity in Europe fell deeper into contraction territory, slipping to 47.6. Sentiment weakened in the US as well with the flash manufacturing reading falling to 52.5 in March. An index reading below 50 is considered to be contraction. This week, look for economic reports on housing, consumer confidence, and inflation.

Let’s make it a great week!

“Excellence is the gradual result of always striving to do better.” – Pat Riley

ND&S Weekly Market Commentary (3.18.19) – Markets Continue March Higher

March 18, 2019

Equity markets roared back last week after suffering their worst week of 2019. For the week, the DJIA increased 1.10%, despite pressure on shares of Boeing after the tragic loss of 157 lives in another Boeing 737 Max 8 crash in Ethiopia, prompting countries to respond by grounding the new series of planes around the world. The broader-based S&P 500 jumped 2.95% and the tech-heavy NASDAQ increased 3.81%. International markets also experienced a strong week with the MSCI EAFE increasing 2.81% and emerging markets closing higher by 2.67%. Mixed economic data for the week pushed yields lower on US Treasuries. The yield of the 10yr Treasury closed at 2.59%, down from 2.62% the week prior. Gold prices rebounded to about $1,300oz. while WTI crude pushed above $58 a barrel.

The week began with Monday’s release of both retail sales and food-services which increased 0.2% in January, beating estimates. However, December’s estimate was revised lower showing a 1.6% decline. On Tuesday, the consumer price index (CPI) was released showing an increase of 0.2% in February, matching expectations. Over 12 months, the CPI increased 1.5% giving the Fed plenty of reason to proceed with caution ahead of this week’s FOMC meeting. On Thursday, data was released showing that new home sales in January decreased 6.9% m/m coming in below estimates. On Friday, industrial production ticked up 0.1% in February missing expectations for a 0.4% increase.

The British Parliament undertook a series of votes last week to clear the path toward a “Brexit” deal, which is scheduled to happen on March 29th. Lawmakers rejected the latest agreement potentially setting the stage for a withdrawal without an agreement. The political theater will continue this week with a third vote on the withdrawal agreement, this ahead of the European summit later in the week. Eurozone industrial production rose a stronger-than-expected 1.4%. Manufacturing activity tends to be more sensitive to the economic cycle than services.

Investors will be looking ahead to this week’s meeting of Federal Reserve policy makers. The FOMC is expected to leave rates unchanged when they conclude their two-day meeting on Wednesday. Most expectations are for the Fed to hike rates once in 2019 and once more in 2020, while maintaining their “wait and see” stance adopted in January.

Don’t forget to watch March Madness … a nice diversion from the day-to-day noise of the markets and headline news!

“It’s not how big you are, it’s how big you play.”John Wooden

Weekly Commentary (03/11/19) –Markets Retreat on Global Growth Concerns

March 11, 2019

Markets were weak last week as investors focused on continuing signs of slowing global growth. China reduced its target GDP for 2019 from 6.5% to a range of 6.0% to 6.5%. Most investors attributed China’s slowdown to ongoing trade tensions with the U.S., but investors should remember that China is transitioning to a consumption-based economy that will necessarily lead to structurally lower growth.

For the week, the DJIA gave back 2.17% while the S&P 500 lost 2.12%. The volatile Nasdaq declined 2.43%. Developed international markets retreated as the MSCI EAFE index dropped 1.91% for the week. Emerging markets also lost ground as the MSCI EM index retreated 1.99%. Small company stocks, represented by the Russell 2000, were the biggest losers as the index dropped 4.23% for the week. Fixed income, represented by the Bloomberg/Barclays Aggregate, finished the week higher (+0.68%) as investors seeking safety flocked to U.S. bonds. As a result, the 10 YR US Treasury closed at a yield of 2.62% (down 14 bps from the previous week’s closing yield of 2.76%). Gold prices closed at $1,297/oz – up 0.05% on the week. Oil prices inched higher as oil closed at $56.07 – up by 0.48% on the week.

Perhaps the U.S. markets have moved a bit too far too fast. We would not be surprised by continued volatility, but underlying economic conditions in the U.S. remain reasonable. We have likely seen peak GDP and earnings growth for the time being, but domestic valuations are still in-line with historic metrics. International economic conditions are slowly deteriorating, but valuations have come down quite a bit to reflect softening conditions.

It is our intention to look through the day-to-day noise of the markets and focus on fundamentals.

Enjoy the week ahead, and let’s hope that Punxsutawney Phil was right … maybe spring will be right around the corner.

“Spring is nature’s way of saying, ‘Let’s Pary!’ “ – Robin Williams

ND&S Weekly 3.5.19 – GDP Report – Better Than Expected

March 5, 2019

The initial estimate for 4Q18 GDP was reported last week and showed the U.S. economy grew 2.6%, beating analyst expectations. For 2018 as a whole, the economy grew at a solid 2.9% rate up from 2017’s 2.2% pace. Consumption and business fixed investment were the main contributors at 1.8% and 0.9%, respectively, aided by the tax cuts. Housing’s contribution was close to zero reflecting the dampening effect of higher mortgage rates.

Stock markets continued to advance last week with the S&P 500 up 0.46%, the DJIA up 0.07% and the NASDAQ 0.93%. Internationally, the MSCI EAFE advanced 0.58% while emerging markets declined 0.65%. The best performing S&P 500 sectors last week were energy, technology and financials. Bond prices slipped last week as the rate on the 10-year U.S. treasury rose from 2.65% to 2.76%.

This week, look for economic reports on productivity, housing starts and February jobs numbers. Expectations are for 185,000 new jobs versus 304,000 reported in January. For 2019, we look for a slowing in GDP growth to a pace of 2.0%- 2.5%. Expectations for the first quarter have been revised lower to reflect the negative impact due to the government shutdown.

“Snow brings a special quality with it – the power to stop life as you know it dead in its tracks.” – Nancy Hatch Woodward

Weekly Commentary 02.25.2019 – A Home Run or Ball 4

February 25, 2019

With baseball season starting it’s only fitting that the market closed on Friday with a “ninth” straight week of gains. Federal Reserve concerns were calmed by the release of their “dovish” January meeting minutes. There were positive trade resolutions with China, and fourth quarter earnings season has been better than the “bears” expected.
The shortened President’s Day week was fairly positive for equity markets. The DOW industrials and the S&P 500 rose 0.6% and the tech heavy Nasdaq advanced 0.74%. The Russell 2000 was the winner increasing 1.27%. The best performing sectors were Utilities 2.4%, Basic Materials 2.4%, and Tech 1.4%.
China’s leaders and President Trump along with his key negotiators, met and cited progress from the latest round of talks. President Trump said he would be willing to extend the March 1st new tariff deadline and the delegation will remain in Washington a few more days to continue negotiations. The global markets reacted favorably with Developed equity markets advancing 1.5% and Emerging increasing 2.7% for the week.
The Federal Reserve, disclosed in minutes of their Jan. 29-30 meeting, confirmed earlier statements that they are willing to be patient in raising rates and flexible in shrinking its balance sheet. US Treasuries rallied with the yield on the 10 year dropping 4bps to 2.65%.
Another driver of the week’s gains was better than expected corporate earnings and revenues. Thus far 89% of the companies in the S&P 500 have reported fourth quarter results, 69% of S&P 500 companies reported a positive EPS surprise and 61% reported a positive revenue surprise. The forward 12-month price to earnings ratio for the S&P 500 is now 16.2 which is in line with the five year average of 16.4.
Along with trade talks and Washington political haggling there will be a slew of important economic data released this week. On Wednesday housing starts, Thursday fourth-quarter GDP and on Friday ISM manufacturing, consumer confidence, and auto sales will be reported.
Though the drivers of the markets were in place last week, we continue to have our eyes on the strength of the US and global economies going forward. We recommend staying diversified and take advantage of a potential market sell-off, favoring dividend growth to help mitigate volaltility.
“Baseball is 90% mental and the other half is physical.”–Yoga Berra

ND&S Weekly Commentary 2.19.19 – Crisis Averted

February 19, 2019

The equity markets’ resilience continued last week as trade progress with China and a government-spending bill that averted another shutdown provided the lift. For the week, the DJIA jumped higher by 3.21% while the broader-based S&P 500 closed up 2.56%. Smaller US companies continued their surge closing the week up 4.22%. However, international equities were mixed with the MSCI EAFE up 2.04% and emerging markets down 0.49%. Yields pushed higher on the week with the 10yr US Treasury yield settling at 2.66%, up 3bps from the previous week.

With roughly two weeks remaining in the US-imposed 90-day negotiating window with China, media suggested that President Trump is considering extending the deadline for another 60 days as progress is being made. There are plenty of thorny issues still to be ironed out, but optimism over a potential deal helped support markets last week. Additionally, congressional negotiators cobbled together a spending package to fund the government through the end of the fiscal year. The agreement did include some funding for barriers, but much less than the White House requested. No doubt this removed some uncertainty in the short-term.

With roughly 80% of the constituents of the S&P 500 Index having reported for Q4 2018, forecasted earnings growth is running at a 13.1% year-over-year pace while revenues are seen rising 7% compared with the same quarter a year ago, according to FactSet Research. However, estimates for Q1 continue to be lowered with analysts now expecting earnings per share to decline around 2.5% this quarter. There is plenty of talk in the financial media about the potential “earnings recession” but that doesn’t necessarily mean equities will be negative in that environment. We are monitoring this closely as the bar has been set low with potential upside surprises looming.

In the week ahead, the minutes of January’s FOMC meeting will be released as well as economic reports on durable goods order and existing home sales. Let’s make it another good week!

“In preparing for battle I have always found that plans are useless, but planning is indispensable.”Dwight D. Eisenhower